Free Enterprise Staff  | May 25, 2016

Preventing Your Doctor From Drowning in Debt

There’s a lot  that goes into becoming a doctor. Apart from the years of schooling and training, the process frequently demands more than a decade of work and often sends aspiring physicians into debt. But that’s where LinkCapital comes in: The startup helps doctors and other medical professionals refinance their student loans at lower rates, saving money and improving their financial health.

Why focus on this particular group, especially one that’s known for having above-average salaries? Put simply, it makes good business sense “We started looking into the student loan situations of health care professionals and realized that they have sizable balances—often greater than $400,000—but they also carry a low financial risk. They are highly skilled, have secure long-term and stable employment, and are high-earners,” Bill Claus, LinkCapital’s chief executive officer and co-managing partner, tells Free Enterprise.

LinkCapital leverages these variables to generate substantial savings for the medical professionals with whom it works, explains Katharine Hebenstreit, the company’s co-managing partner and chief operating officer. “Take Anna, who is in a five-year pediatric oncology residency and has a $325,000 student loan balance at an average rate of 6.9% APR*. Once her training is complete, Anna will face a total repayment obligation of $606,000 over a 10-year period and a payment of $5,050 per month,” she says.

“If Anna refinances her loans with LinkCapital, her rate will drop to 4.83% APR, and she will be able to defer payments through her residency without going through the process of annual forbearance. In doing so, Anna will accrue $30,000 less during her training period. Once repayment begins, this translates into $770 per month of savings, or $92,000 during the life of the loan. These types of savings can be life-altering to individuals like Anna.”

It’s this kind of result that is attracting a rapidly-growing number of health care professionals—who can quickly determine their potential savings using the startup’s online loan calculator—and driving word-of-mouth.

What is LinkCapital’s secret, and how, exactly, does the service work? We posed these and other questions to co-founders Hebenstreit and Claus during a recent interview.

FE: Talk about your background and where the idea for LinkCapital came from.

Claus: While working in healthcare investment banking at Barclays, I spent two years in New York City before moving back to Chicago. While relocating, I bought an apartment with a 30-year mortgage at a rate of 3.75%. Once I completed the purchase, I looked closer at my graduate school student loans and was surprised to see for a 10-year term I had a rate of 8.25%.

I had a secure, well-paying job so knew I was a good credit risk, but I could not find a bank willing to refinance my student loans. At that point I started to research and speak with many of the health systems I worked with, as well as their employees. I found there was an opportunity to help fix what seemed to be a broken student loan system.

Hebenstreit: My professional background is in consumer financial products and investment banking, so when Bill introduced the idea I knew an online lending solution was a perfect fit for this audience. Lower interest rates for borrowers, while delivering low risk and high returns for investors—it just made sense.

How competitive are the rates you offer? 

Hebenstreit: Link refinances the student loans of all medical professionals—physicians, nurses, residents and fellows, pharmacists, dentists, and others. We currently offer fixed rate loans ranging from 3.24% to 6.85% APR, and variable rate loans from 1.83% to 4.87% APR that are based on various factors, including credit score, debt-to-income, and selected term (ranging from 3 – 20 years).

FE: What’s the biggest challenge you face gaining traction? 

Claus: As a group, physicians are extremely intelligent, but can be skeptical about financial products, given it is not their area of expertise. Any financial decision should be a well-informed one. Most borrowers are used to the one-size-fits-all solution offered by the government—your degree, credit score, and income potential don’t matter. And while it might not be ideal, it is comfortable because of its familiarity.

In contrast, LinkCapital provides low-rates and a variety of terms which take all of those things into consideration.

We also realize the importance of working with transparency and top-line customer service in all products offered by LinkCapital. We want borrowers and potential borrowers to understand the process and why we can help secure lower interest rates to enable them to take control of their financial future. This is best achieved through knowledge of all of their available options. In that regard, we have student loan specialists on-hand around-the-clock to talk to borrowers and answer questions and concerns they have.

FE: Is this the first company you founded?

Claus: Yes, it is for both of us.

We built our core team initially with professionals who have backgrounds in the healthcare field, then added team members with a wide range of experience in entrepreneurship, sales, marketing, and, of course, finance. In large part, our collaborative team leads our charge. We could not have built this organization without the insight and dedication of those who work with us, as well as our advisory board

FE: What makes LinkCapital different from similar companies?

Hebenstreit: Medical professionals have unique needs at different stages in their careers—from residency and fellowship, to work as a practicing nurse or physician. We take this into account and structure solutions based on their individual profile—credit score, earning potential, career stage—to create the best possible solution.

For example, there are refinancing options for residents that include reduced interest rates and fully deferred payments throughout residency and fellowship. For employed physicians, nurses, and other practitioners, the rates are reduced even further.

All of our loans are free of upfront costs, and the loan can be repaid at any time, without penalty. The products can also work as a supplement to the loan repayment programs currently in place at many health systems; this arrangement significantly reduces the cost to the organization while still benefiting the borrower/employee.

In everything we do, we focus on the needs of the medical professional. Our medical student loan specialists are just that—specialists. They understand the different struggles medical professionals face, and we work with each borrower to best support their financial futures.

FE: What are your plans for the future?

Claus: Over time, we plan to develop other tailored financial products to help provide the best solutions for medical professionals and our health system partners.

*APR (Annual Percentage Rate): The annualized interest rate that a borrower will pay on a loan. The lower the APR, the lower the total amount to be repaid.