By: Victoria Simmons
Medical and law school graduates get most of the attention when it comes to student loan refinancing, given the six-figure size of their debt. But other advanced degree holders shouldn’t overlook the option — they could save thousands of dollars, according to a new study by NerdWallet.
For example, a master of fine arts graduate can save an average of $4,575 by refinancing, while a master of education or teaching can save an average of $4,272, NerdWallet found. Graduates can refinance their loans to reduce interest and monthly bills after two years of regular payments into a 10-year loan.
Only 33 occupations require a master’s degree for entry-level positions, according to the Bureau of Labor Statistics. But having a master’s degree can give you an advantage in both employment prospects and lifetime earnings. Those with a master’s degree earn a median of $2.67 million over their lifetime, compared with $2.26 million for bachelor’s degree holders, according to a 2014 report by Georgetown University Center on Education and the Workforce. Doctoral degree holders will earn a median of $3.25 million over a lifetime, while other professional degree holders — such as doctors and lawyers — will earn a median of $3.65 million.
Advanced degrees come with a high price tag, and the more you’re in debt, the more you’re likely to save by refinancing. Since law and medical degree holders have the highest median debt among popular graduate programs, they’ll likely save the most. On the flip side, graduates with a master of business administration or a master of social work have the lowest median debts, so they’ll have the least to gain from refinancing their loans.
What is refinancing?
Refinancing student loans involves changing the terms of repayment. For those who qualify, a financial institution or private refinancing company will replace the existing loans with one single loan at a lower interest rate. Benefits include having just one monthly payment and paying less in interest throughout the life of the new loan, which typically lasts 10 years.
The new terms could also extend the time frame in which borrowers are expected to finish repaying the loan. This would lower the monthly payments but increase how much is paid in interest.
Is refinancing right for me?
Refinancing might not be in your best interest, even if you qualify. If you refinance your federal loans into a single private loan, you risk losing certain advantages, such as flexible repayment plans, public service loan forgiveness and interest-free deferment on subsidized federal loans if you lose your job. It’s important to research all of your repayment options before you decide to refinance.
You should consider refinancing your student loans if the following are true:
- You have a good credit score. Refinancing companies consider those with scores in the 690s or above to be the most reliable. If you have a lower score, you may be denied or your refinance options might not offer a better rate.
- You have a steady income and job security. Lenders want to make sure you can pay them back. A full-time job makes you a more reliable candidate to make monthly payments on time and in full
- You’ve made steady payments for at least two years. Desirable refinancing candidates demonstrate a positive track record of consistently repaying their loans on time and in full each month. If you’ve done that for at least a couple of years, you’re seen as less risky.
- Most of your loans are private. You’ll save more from refinancing private debt because the average annual percentage rate on these loans is typically much higher than the APR on a federal loan.
- You have high debt. Refinancing is most beneficial if you have high debt. You need to have at least $7,500 in total loans to consider the option.
How much graduate degree holders can save by refinancing
NerdWallet crunched the numbers to find out how much nine different types of graduates could save over 120 months by refinancing their 10-year loans after two years of making regular payments. Median debt numbers, which come from the Department of Education, include debt for both undergraduates and graduates who completed their degree program in 2012, plus accrued interest. In this scenario, the refinanced APR is reduced from 9.56% on private loans and 6.80% on federal loans to a single APR of 5.33%
|Education||Median debt (undergrad
|Average refinance savings|
|Medicine or Osteopathic Medicine||$200,000||$13,663|
|Law (LLB or JD)||$149,400||$9,801|
|Master of Arts||$58,702||$5,003|
|Master of Fine Arts (MFA)||$65,305||$4,575|
|Master of Education or Teaching||$52,500||$4,272|
|Master of Science||$51,433||$3,600|
|Master of Business Administration (MBA)||$42,928||$3,103|
|Master of Social Work (MSW)||$45,095||$3,059|
Medicine or osteopathic medicine (M.D.)
The priciest advanced degree is a doctorate in medicine or osteopathic medicine. The median debt for medicine and health science graduates is $200,000. By not refinancing, these grads will pay $279,099 over the life of a standard loan. After refinancing, these degree holders will see the most savings — $13,663 over 120 months.
Law (LL.B. or J.D.)
Graduates of law programs have the second-highest median debt among advanced degree holders — $149,400. Without refinancing, those with a J.D. will pay an average of $207,886 over 10 years. By refinancing, they can save $9,801 on average.
For those who don’t refinance their federal loans, another potential money-saving option is the Public Service Loan Forgiveness program, which is available to federal student loan borrowers who are employed full-time by the government or nonprofit organizations. After 120 months of payments, those who qualify can have the remaining balance on their Direct Loans forgiven.
Doctor of pharmacy
A doctorate in pharmacy is one of the most expensive advanced degrees. Graduates leave school with a median debt of $132,674. Without refinancing, these doctoral degree holders will pay an average of $183,994 over the course of 10 years. After refinancing their student loans, graduates can save $8,286 on average.
Master of arts
Several fields within arts, humanities and social sciences fall under the umbrella of master of arts. The median debt carried by M.A. graduates is $58,702. Without refinancing these loans, the average amount a degree holder will pay over a standard 10-year term is $83,389. Refinancing can save graduates an average of $5,003.
Master of fine arts
A master of fine arts includes a wide range of artistic disciplines. These graduates end up with a median debt of $65,305, the fourth-highest on our list. Without refinancing their student loans, graduates will pay $91,301 on average during a standard loan term. After refinancing, MFA degree holders can save $4,575 on average.
Master of education or teaching
One out of every five master’s degrees awarded in 2012-2013 was in the field of education, according to the Bureau of Labor Statistics. Education degree holders carry a median debt of $52,500, but end up paying an average of $74,280 during a standard 10-year loan term. By refinancing, they can save $4,272 in payments over the life of a loan.
As an alternative to refinancing, certain highly qualified teachers may be eligible for Teacher Loan Forgiveness, a federal program offered to borrowers who teach full time in a low-income community for five consecutive years. Perkins Loan borrowers can qualify for loan cancellation if they teach at least one year in a low-income community or a special education classroom, or in a subject area with a shortage of teachers in their state.
Master of science
As part of the field of science, technology, engineering and math (STEM), a master of science is in high demand in the job market. Computer science, for example, is the second-most sought-after master’s degree among employers, according to the Job Outlook 2015 study from the National Association of Colleges and Employers. M.S. degree holders have a median debt of $51,433. Over the course of a standard 10-year loan, they’ll pay an average of $71,902. By refinancing, a graduate could save an average of $3,600 over 120 months.
Master of business administration
A master’s in business was the most popular advanced degree awarded during 2012-2013, according to the Bureau of Labor Statistics. Those with a master of business administration degree carry a median debt of $42,928, the lowest on our list. On a standard 10-year repayment plan, these grads will pay an average of $60,159. After refinancing, they can save an average of $3,103 over the life of the loan.
Master of social work
Graduates with a master of social work have a median of $45,095 in loans, some of the lowest debt among advanced degree holders. By not refinancing, they’ll pay an average of $62,898 over the life of the loan. After refinancing, their average savings over time is $3,059.
Those with a master of social work who work full-time for government or nonprofit organizations could qualify for Public Service Loan Forgiveness, but only if they don’t refinance their federal loans.
Median debt numbers come from the National Postsecondary Student Aid Study 2012, National Center of Education Statistics.
Historical federal interest rate data are from studentaid.ed.gov.
Historical private interest rate data are from the Consumer Financial Protection Bureau.
Refinanced interest rate is from Credible.
Original study here
NerdWallet staff writer Anna Helhoski contributed to this article.