College is very expensive and the majority of us have to take out some sort of loan to cover the costs. Luckily, I was able to save up a decent amount of money working internship jobs and summer jobs. I had some scholarships and my parents helped me pay for housing. Once I hit graduate school I was on my own and was not able to finance it without taking out significant student loans.

After 3 years of undergraduate school and 4 years of pharmacy school I ended up with $85,000 in student loans to pay back. I paid off my student loans in less than 2 years after graduating. What I had not realized back then was that I could have refinanced my student loans at a lower interest rate. This would have ultimately saved me thousands of dollars in interest if I had paid off my student loans over 10 years instead. For the typical pharmacist or graduate coming out of school they will make monthly payments for 10 years depending on the timeline of the loans. Over that long time frame interest will pile up and in the end you will have paid much more than you had initially borrowed.

Lets look at the numbers for fun. I graduated with an interest rate of 6.8% on a $85,000 dollar student loan.

For a 10 Year Repayment Plan For a 2 Year Repayment Plan
Loan Balance $85,000 Loan Balance $85,000
Loan Interest Rate 6.8% Loan Interest Rate 6.8%
Loan Term 10 years Loan Term 2 years
Monthly Payment $978.18 Monthly Payment $3,797.97
Cumulative Payments $117,382.08 Cumulative Payments $91,151.21
Total Interest Paid $32,382.08 Total Interest Paid $6,151.21

If you are disciplined and want to save as much money as possible the best solution is to pay off your student loans as soon as possible. As you can see above with the 10-year plan ended up having a total of $32,382.08 for interest and the 2 year plan had $6,151.21. I ended up saving a total of $26,230.87 in interest!

Some people may argue that student loan interest is good because it is a tax deduction. This is true for lower income earners but not for pharmacist incomes. If your modified adjusted gross income (MAGI) is $75,000 or more you do not get a student loan interest deduction. If your MAGI is more than $60,000 but less than $75,000 your student loan interest deduction is gradually reduced, as your MAGI increases. This information may change each year.

Refinance Pharmacy Student Loans

Another approach is to refinance your student loans to a lower interest to save money. I am still kicking myself for not refinancing my student loans. I had not known about these options, which could have saved me money. There are many options out there for refinancing your student loans. Lets look at the numbers.

In my own Scenario: refinance my student loans at a 3.5% loan for 5-year term. Total interest on this would be $7,777.89 (5-year term). If I paid it off in the same 2-year period the total interest would only be $3,133.55. This would be a cost savings for me of $3017.66. If I had only knew!

For a 2 Year Repayment Plan 6.8%

For a 2 Year Repayment Plan 3.5%
Loan Balance $85,000 Loan Balance $85,000
Loan Interest Rate 6.8% Loan Interest Rate 3.5%
Loan Term 2 years Loan Term 2 years
Monthly Payment $3,797.97 Monthly Payment $3672.23
Cumulative Payments $91,151.21 Cumulative Payments $88,133.55
Total Interest Paid $6,151.21 Total Interest Paid $3,133.55

Typical Pharmacist Graduate

Lets look at 10-year loan at 6.8% versus refinancing at 4.5%. At 6.8% I would have paid $32,328.02 dollars in interest over 10 years. At 4.5% I would have paid $20,711.07 dollars in interest over 10 years. Refinancing the loan would save the typical pharmacist graduate $11,616.95!

For a 10 Year Repayment Plan 6.8%

For a 10 Year Repayment Plan 4.5%
Loan Balance $85,000 Loan Balance $85,000
Loan Interest Rate 6.8% Loan Interest Rate 4.5%
Loan Term 10 years Loan Term 10 years
Monthly Payment $978.18 Monthly Payment $880.93
Cumulative Payments $117,382.08 Cumulative Payments $105,711.07
Total Interest Paid $32,382.08 Total Interest Paid $20,711.07

We have concluded that refinancing can save many graduates money. What about the potential risks of refinancing with a private lender?

  • If you refinance a federal loan with a new private student loan, you will no longer be eligible to participate in federal loan forgiveness programs.
  • There are also loan discharge benefits in the case of death or permanent disability on certain federal student loans.
  • Active-duty service members might also lose benefits on pre-service obligations if they refinance.

 

I hope the recommendations above will help guide, motivate, and inspire you to achieve your goals. Follow my blog for more tips and advice on finances and being a pharmacist. What are your experiences? Please comment below and share your thoughts.