This post is a follow-up to Part 1 on private refinancing, which you can find here.

So why might private refinancing be a bad idea?

You lose your government benefits.

Any time you refinance your student loans with a private lender, those new loans become ineligible for Income-Driven Repayment (IDR) plans. For most new dentists carrying substantial debt, that’s a big deal.

Take an example: a recent dental school graduate with $450,000 in student loans at 6% interest and an income of $130,000 (AGI) would owe about $4,996/month on a standard 10-year repayment plan. That’s a tall order on that income.

Now, let’s say that same borrower refinances to a 15-year private loan at 5.5%. The monthly payment drops to $3,676.88, or just over $44,000 per year. But remember—that’s after-tax money. Depending on your tax rate, it might take $50,000–$60,000 of gross income to cover that annual payment. And that payment is required every month for 15 years, with little to no flexibility.

Alternatively, if the borrower stayed on federal loans and enrolled in an IDR plan, their required payment would be just 10% of discretionary income. They’d also retain the flexibility to pay more if desired—though potentially at a slightly higher interest rate.

What if life doesn’t go according to plan?

Because sometimes, it doesn’t. Maybe you decide patient care isn’t for you and shift to a lower-paying career—whether inside or outside of dentistry. Maybe you want to be a stay-at-home parent and only work part-time. Or maybe an injury or chronic condition (like rheumatoid arthritis or a torn shoulder) makes it physically difficult to practice. I’ve seen all of these scenarios happen in real life.

If you’ve refinanced, your only option is to keep making that $3,676 payment.

Bankruptcy isn’t an option.

Reducing your payment based on income isn’t an option.

Loan forgiveness? Also off the table.

With federal loans, however, you can reduce your payments based on your income. And while bankruptcy still doesn’t apply, forgiveness is available after 10, 20, or 25 years depending on the program. These benefits are significant, and giving them up for a 1% or 2% rate cut should not be taken lightly.

Are you actually saving on interest?

Another point to consider is that federal loans—under certain plans—come with interest subsidies.

For example, the RePAYE plan offers a subsidy where the government covers half of any unpaid interest. In our earlier example, this borrower would accrue about $27,000 in interest annually (6% of $450k). But if the full required payment isn’t being made, the government may cover roughly $7,800 of it. That brings the effective interest rate for that year down to around 4.23%.

As your income increases, this subsidy phases out. But early on, it can make a big difference—and it’s something you’d lose by refinancing.

There are certainly cases where refinancing makes sense. Just make sure you understand all your options before giving up the safety nets that federal loans provide.

*This article originally appeared on the Mouthing Off Blog for Dental students.