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Income Based Repayment(IBR)....whats the scoop?

Discussion in 'Financial Aid' started by dreambig2night, Oct 18, 2010.

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  1. dreambig2night

    dreambig2night Senior Member

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    My loans will default from grace soon.

    who all are doing IBR? Is it the soundest way to go vs traditional 10 yr repayment etc?

    The guy who came to give us a talk before we graduated made it seem like it was the best deal for a resident.

    From what I understand Subsidized loans do not accrue interest. But can I pay more than the amount they calculate I should pay. Ie if I want to pay the loan off faster.

    please enlighten!
  2. amakhosidlo

    amakhosidlo Accepted

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    Subsidized loans accrue interest once they go into repayment, or their status otherwise changes.

    It's only a good deal if you're doing a long residency at an academic center ( or other program that qualifies as 'public service' or whatever), because you'd spend however many of your 10 years in res. paying a % of that res. income, then only the remaining few years paying that % of attending income (only up to your max payment under a normal plan though).

    If that situation doesn't apply to you, then I'm not sure how it makes a difference vs forbearance during residency, then paying back those benjamins as fast as you can crank 'em out. IBR on a resident salary only has you paying a couple hundred $/month, most of which goes to servicing your balance under IBR. If you're not cheating your way out of paying your full balance via the 10 yr rule, then what's the point?
    Last edited: Oct 18, 2010
  3. dreambig2night

    dreambig2night Senior Member

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    from what I understand the subsidized loans interest will be paid for in the first 3 years of Income based repayment. after that it starts accruing interest

    for me it comes to a savings of around $2000 a year for 3 yrs.
    if I dont have to pay 6.8% interest on my $8500 sub loan for 3 years that is great to me.

    at the same time, my concern is will IBR let me pay more than what they calculate I can pay?
    ie if they say pay $200/month under IBR can I pay $500 a month when I have more change than I used up.

    I hope I am not locked into this program with penalties if I withdraw. I just dont want to be stuck with the program for 25 yrs.

    has anyone in student doctor land done this yet?
  4. MedMan25

    MedMan25

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    You can make payments as large as you want on the IBR, there are no penalties for doing so.
  5. TMP-SMX

    TMP-SMX Senior Member Moderator Emeritus

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    The benefit of IBR is the waiving of interest for subsidized loans for three years. You can pay more if you want. If you can't afford it then forbearance is always an option.
  6. dpmd

    dpmd Relaxing

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    The point is that if you can afford to make payments then you will pay less interest over time. The IBR is supposed to take into account your income and tell you what amount of payment should be affordable for you. I guess there might be situations where the amount is too much for you (lots of other kinds of debt, higher than normal living expenses) where forbearance would be necessary, but even then you should try to pay something so you don't have a bunch of interest capitalizing every 6 months (meaning you pay interest on interest that has accumulated previously). Even 20 bucks a month will make a difference.
  7. penguin24

    penguin24 Don

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    The thing about the IBR is that the Gov pays any unpaid 'subsidized' interest that accrued in your account. Lets say that you accrue $800 of interest from loans, and $250 of that is from subsidized loans (and $550 from unsubsidized loans). Then say your payment is $400, and $50 goes to pay subsidized interest, while $350 pays unsubsidized interest. Then the Gov will pay the $200 of subsidized interest that you didn't pay.

    Now, say you have extra money, and instead of paying $400, you pay $800. I'm not sure if the Gov will still pay the $200 of subsidized interest that it would have paid if you only sent $400. There are two scenarios:

    1) $600 goes to pay your sub/unsub interest, the Gov pays $200 for the sub interest, and your extra $200 goes towards your principle

    2) $800 goes to pay your interest, and the Gov doesn't pay anything b/c you paid all the $800 interest that accrued for the month

    If scenario #1 is true, then it makes sense to pay extra towards your student loans. If scenario #2 is true, then it's foolish to pay extra to your student loans and it makes sense to put the extra money elsewhere, such as retirement funds or a high-interest savings account and then after 3 years when the Gov no longer pays your sub interest, take out the money and pay off the student loans in one lump sum.

    If anybody can shed some light on this it would be most appreciated
  8. babel

    babel

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    From ibrinfo.org FAQ's:

    If I sign up for IBR, can I occasionally send in extra money to pay down the principal of my loan?
    Yes. Tell your lender in writing, along with the payment, that you want the extra money applied to the principal, and follow up to make sure the payment was properly applied.

    Seems like it's possible in theory to have the extra go towards the principal, though it may be tricky to make sure it actually gets done properly.
  9. lobon

    lobon

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    babel- I used to make an online payment for "extra payment" then call Direct Student Loans and tell them I wanted it all applied to principal. They fill out some form and after about a week it would be correct online (only principal paid down).

    Has anyone actually using the IBR plan figured out WHEN the subsidized loan accrued interest gets waived? I've been on this plan for about 4 months and my total subsidized loan interest keeps increasing and none of my $400 per month is being applied towards those loans. Is it waived on a yearly basis or at the end of the 3 years or some other random timing?
  10. igottaquestion

    igottaquestion

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    does ibr (for public service loan forgiveness) make sense over forbearance if going into a field like radiology, where residency + fellowship is at least 6 years but private practice income is (currently) much higher than in academic practice (and i believe one would have to do academic practice until the 10-year mark is met to qualify for pslf through ibr)?
    Last edited: Nov 21, 2010
  11. amakhosidlo

    amakhosidlo Accepted

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    You're asking if forgiveness under IBR w/ 3-4 yrs of practice in an academic center will offset the hit you'd take from the lower academic salary v. PP? I think that's almost impossible to determine. You may know your loan amount, but you don't know a) Exactly how much you'll be making during residency/fellowship b) The future compensation rates for Derm or c) What the exact discrepancy between your hypotheical academic v. PP incomes will be 6-10 yrs from now.
  12. igottaquestion

    igottaquestion

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    Yeah, with these unknowns I guess I'm wondering what's the better bet. My debt will be about 260k. Right now private practice radiology pays pretty well (with a tougher workload), but I think a worst case scenario would be that the gap between them would be only 100k in several years.

    So perhaps the best bet is that it would be a near-wash financially? That 10% is going to hurt on a resident's salary . . .
  13. Monsterdaddy

    Monsterdaddy Pharmacy Student

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    IBR is the best option if you plan on a career in public service and expect to have full loan forgiveness under the Public Service Loan Forgiveness (PSLF) program. I have a finance background and have analyzed a lot of the nuances.

    Did you know you could have an IBR payment of zero dollars? Obviously, if you want to get PSLF after 10 years and have a zero payment, just make a payment of $1 per month and after 10 years all loan balances AND accrued interest goes POOF!

    So first of all, you need to know exactly how IBR is calculated. IBR is 15% of your Adjusted Gross Income (AGI) MINUS 150% of the Federal Poverty Level for your family size. (For loans originating in 2014+ it is only 10%.)

    AGI is a key number because you can actually do many things to lower your AGI such as contribute the maximum to 401(k) type savings plans, IRAs, Flexible Spending Plans (if needed). On top of all that, student loan interest is deducted from AGI. So let's say you earn $100K per year but put $16,500 for 401(k), $5,000 for your non-working spouse's IRA, plus $2,500 for Flexible Spending Plans. Let's say you paid $6,000 in student loan interest last year. Now your AGI just got chopped to $70,000.

    If you get married and start a family with say 2 kids, your Federal Poverty Level is $22,050 so 150% of this would be $33,075.

    Thus your annual IBR is 15% x ($70,000 - $33,075) which is $5,543.

    Now compare this to just the interest expense on your $260K of student loans at avg interest rate of 7.4%. Interest accrued would be a whopping $19,240! But you only pay $5,543! The difference of course will be accrued in most cases but do you care?

    Because after 10 years, even if your loan balance and accrued interest grows to one million or more, it is ALL forgiven! :love:

    So in 10 years you may have made just $55K of loan payments on $260K of debt and wind with no further payments. It is a pretty good deal if you plan on staying in public service for 10 years. In many cases, it can be as good or better than private sector work but it all depends of course on how your career progresses.
    Last edited: Dec 1, 2010
  14. Kris1

    Kris1 Mega-Senior Member

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    It's my understanding that certain specialties (primary care) automatically qualify for PSLF. Is this correct? If so, does EM qualify?
  15. Monsterdaddy

    Monsterdaddy Pharmacy Student

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    That is not correct. PSLF eligibility is based on your employer, not the work you perform, see below:

  16. helpaid

    helpaid

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    I am about to take a loan myself and was wandering if there are any tips of what to avoid...
  17. DrBender79

    DrBender79

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    So how do you get away with a payment of one dollar? Based on the formula for IBR my monthly payment during residency will be $380.
  18. Chirurgia magna

    Chirurgia magna

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    Forgive my ignorance but what exactly constitutes public service when you are physician. I am planning on going into surgery so what would be a public service job for surgeons?
    Thanks
  19. Keg

    Keg

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    Working for a not-for-profit hospital or institution is one way.
  20. eforest

    eforest

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    The great thing about public service loan forgivness is that the amount forgiven after ten years isn't taxed. I'm doing the IBR payment plan and I'm watching my loans continue to grow because my IBR payment doesn't even cover interest. I figure that this is better than paying nothing, but it still makes me a bit nervous.

    It doesn't matter what specialty you do, you qualify for public service loan forgiveness based on who you work for. And, according to documents I've read, it seems that the 120 payments you need to make do not need to be consecutive. So, you can be in residency making payments under IBR for 3 years, then you leave the nonprofit sphere for two years, and return to academia where you can continue to work towards your 120 total payments.
  21. DrBender79

    DrBender79

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    Am I correct in assuming that if I wanted to work in another country after residency, for like 6 or 12 months locum tenens, that payments made during that time would not count toward PSLF? Would I still be eligible when I got back?
  22. carrotbanana

    carrotbanana

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    If you're like most medical students, you received $0 in income during your fourth year of medical school. If your loan servicer uses your prior years income tax return to calculate IBR, you would most certainly fall under the poverty level of around $16K, thus your payments would be 0 for the first year. However, some loan servicers will also calculate it based on paystubs. Most grace periods will expire in the fall of your intern year, after which you'd have a handful of paystubs.

    Moral of the story: try to use your $0 income tax return if you can.
  23. DrBender79

    DrBender79

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    Oh OK I gotcha. I guess I better file a tax return then.
  24. kdburton

    kdburton Ulnar Deviant

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    Is it possible to notify them as to which specific loan you'd like it applied to? I'm planning on doing IBR and I have some Grad PLUS loans (7.9% interest rate) I'll be paying on. If you pay beyond your calculated amount can you put in writing that you want it applied to a specific loan, or do they just spread it across the principal balances on your direct loans?
  25. dpmd

    dpmd Relaxing

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    They will apply any extra payment to outstanding interest and fees first. Unless your total balance is low, or your income is high you will likely not be covering the interest through IBR, so unless you have a few thousand dollars extra to throw at your loans you won't be paying down principal.

    If you do manage to pay all outstanding interest and have some extra to send along you can designate it to certain loans. Works best if you send it by mail to the address they use for special payments (the electronic system, and anything sent to the regular payment address will be applied however they like-but you can call later and get it fixed). There should be different account or group numbers to identify the loans. Just specify "apply to loan X" on your check and it should happen. I have been able to do this with my servicer and once I found out the special address route it has worked out nicely.
  26. nogolfinsnow

    nogolfinsnow

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    I think many people using IBR will have direct consolidation loans. I was hoping for a $0 payment, but it doesn't like that that will be the case:


    "20. What is Alternative Documentation of Income?

    A form that is used to accurately identify the income level of borrowers that are requesting to repay or are currently repaying their loan(s) under the Income Contingent Repayment (ICR) or Income-Based Repayment (IBR) Plan. The Alternative Documentation of Income (ADOI) form is required:

    for borrowers that are in their first year of repayment;
    for borrowers that are in their second year of repayment that have been notified that alternative documentation of income is required; or
    for borrowers that have been notified that the Internal Revenue Service (IRS) is unable to provide the U.S. Department of Education with their (or spouse’s, if applicable) Adjusted Gross Income (AGI)used.
    Borrowers may also choose to submit the Alternative Document of Income form if they believe that their (or spouse’s, if applicable) AGI, as reported on their most recently filed federal tax return, does not reasonably reflect their current income such as in loss or change in employment.

    NOTE: If your (and your spouse’s, if applicable) AGI is not available when income information is requested from the IRS or if the AGI from your most recently filed tax return does not reasonably reflect your (and your spouse’s, if applicable) current income, the supporting documentation that you submit for alternative documentation of income will be used to calculate taxable gross income in lieu of AGI which may result in a higher monthly payment amount."


    http://loanconsolidation.ed.gov/help/faq.html#calculateibr
  27. WeAreNotRobots

    WeAreNotRobots MS4

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    hey, everyone, i think understand all the technical details of IBR, but i'm lacking some "practical" aspects. in particular, what is the enrollment process like?

    also, i'm not exactly sure who is eligible. i've scoured the web and AAMC and the best i can find is:
    "Who is Eligible?


    • You may choose IBR if your federal student debt is high relative to your adjusted gross income and family size.
    • You must submit income and family size documentation annually for recalculation of eligibility.
    • Your lender will calculate your eligibility."
    therefore, i've come to the conclusion that you can only(?) use IBR in conjuction with the Public Service Loan Forgiveness program, or else everyone would use it (remaining balance dismissed after 10 years of lowered payments...sign me up!). IBR doesn't seem like something you can just opt into during residency, and then ditch/exploit once you're rolling in the dough. is this correct? if not, please fill me in. thanks.
  28. TMP-SMX

    TMP-SMX Senior Member Moderator Emeritus

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    You can discontinue IBR at any time but keep in mind it will never go higher than the standard repayment plan.

    In order to qualify for PSLF you must use IBR and the loans must be direct loans. (Any loans from FFELP are not eligible unless consolidated).
  29. WeAreNotRobots

    WeAreNotRobots MS4

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    is IBR restricted to those doing PSLF?

    separate question: do residency years count towards PSLP?
  30. squareknot

    squareknot

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    No. Any resident will qualify for IBR.

    Yes, residency does count towards PSLP.
  31. indy06

    indy06 New Member

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    Does it make sense to do just IBR and not IBR and Public Service Loan Forgiveness? For those who are not planning to do public service for 10 years.

    Since you will end up having to repay a much larger loan sum since reduced interest payments under IBR would have caused your loans to capitalize and grow significantly?
  32. eforest

    eforest

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    I'm doing IBR. My payments don't even cover the interest that is piling up. I figure this is better than not paying ANYthing. Actually most of my classmates are not currently paying off their loans. I might not qualify for PSLF in the end. That would be great, but, might not happen. One thing with loans is that there's no early repayment penalty. I pay 400 a month through IBR. That's just the minimum amount that I CAN pay. I can pay whatever I want. I'm going to start making extra payments soon. In the meantime, I benefit from IBR because while you're in the payment plan, the government continues to pay your subsidized interest at the beginning. I'm not sure how long that lasts, but it's a benefit. Next year I'm going to start paying more per month than I owe. I paid off the rest of my credit card debt with my tax refund (oh, another benefit to starting to pay, you get a lot of tax credit!)
  33. nogolfinsnow

    nogolfinsnow

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    You have to pick some sort of repayment plan (unless you want to do forebearance, but then your interest will really mount up). Most residents can't afford the payments of a standard 10 year repayment plan. IBR minimizes the payments you have to make, but as eforest said, there is no maximum payment. Most 1st year residents under IBR have a payment in the mid $300-400/month (compared to 1,000+++++ under a standard plan), but if you have extra money each month you can put it toward your payments and at least pay off your interest or maybe make a dent in your principal. There are lots of websites with info on them.

    studentaid.ed.gov
    loanconsolidation.ed.gov
    finaid.org
  34. almost_there

    almost_there Senior Member

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    If I consolidate a direct Stafford unsubsidized loan, a direct Stafford subsidized loan, and a Perkins loan under IBR, will I still get the subsidized interest perk as a part of my loan? i.e. if the subsidized loan comprises 25% of the final consolidated loan, and my IBR payment doesn't cover the accrued interest on the loan, will 25% of the difference (accrued interest - IBR payment) still be subsidized?

    If not, it seems like a disincentive to consolidate my loans. I've been looking for this information, but I haven't been able to find it.
  35. randomlogik

    randomlogik Senior Member

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    One fact that I think that everyone forgets about is that married residents really don't benefit from IBR. If I used IBR I would be paying the full amount, almost 2000 a month. There is no way I could afford that. Of course I could always file income taxes separately, but there are a lot of other drawbacks to doing that. So for now, I have my loans in forbearance.
  36. dpmd

    dpmd Relaxing

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    Married residents can benefit from IBR. It is meant to cap payments at a reasonable percentage of income. If your spouse makes good money your payment will be higher, but then you also have more money so should be able to make payments. According to the online info for you to have a 2K payment under IBR then your combined adjusted gross income is over 180K. In that case I don't think anyone is going to feel sorry for you. And if you can't manage a 2K payment on that you are probably living well beyond your means (which again other residents aren't going to have much sympathy for your inability to pay on your loans). I will assume you just calculated things incorrectly.
  37. randomlogik

    randomlogik Senior Member

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    Okay, maybe payments aren't quite that high, but they can still be substantial. However, a family can have many financial obligations which are not taken into account. When we took out the house loan, deferment was still an option. They changed the rules for that. I don't trust that they won't change them again.
    Last edited: Apr 18, 2011
  38. dpmd

    dpmd Relaxing

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    IBR just looks at the money coming in and figures out a payment they think should be affordable for most (15% of income is not unreasonable unless you have a lot of other expenses). If your spouse makes good money but won't give you any then you would be screwed, but the more likely scenario is you share the money coming in. As far as special financial obligations for married folks (without kids-since the IBR payment is calculated based on family size so adding kiddos decreases the payment) I not sure I buy that. Single people buy houses and need to pay the mortgage (or at least pay rent), and a married couple could live in a place smaller than what two single individuals would get (assuming they aren't a couple). Buying food for two people to share is probably less than double the cost of a single person. Maybe you need two cars, but two single people probably would as well.

    If your financial obligations make it so you can't afford the IBR payment you have probably overextended yourself and are living beyond your means. Since your means are expected to improve I can't say that you are wrong to do so, but you chouldn't be upset that the government isn't continuing to give you the free money represented by the payments of interest on subsidized loans (under the old economic hardship deferment provision).
  39. 34140

    34140 Senior Member

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    Got a lot of info from this thread, but I thought I'd post up my situation up here to make sure what I'm doing is ok.

    I currently have 160k in loans and I leave deferment in Oct. I was planning on first consolidating my loans and then start using IBR starting Nov, and paying extra monthly towards my principal.

    Now I don't think I'll end up working it the private sector ( I might but not sure) so I don't think I will qualify for the PSLF, is IBR still a good option?

    I have the following loans:

    1 Direct Student Plus Loan (7.9%)
    1 Direct Unsub Stafford Loan (6.8%)
    1 Direct Sub Stafford Loan (6.8%)
    2 Graduate Plus (8.5%)
    2 Federal Unsub Stafford Loan (6.8%)
    2 Federal Stafford Loan (6.8%)

    Any suggestions on what I should do?

    Thanks :D
  40. dpmd

    dpmd Relaxing

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    It is a good plan if you don't think you can consistently make the standard payment (most residents can't). You will end up paying more interest than standard repayment, but less than if you don't pay at all. That is the definite benefit. The forgiveness programs are less certain (I figure they won't be able to fund it and will change it in some way)
  41. Socrates25

    Socrates25

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    Not necessarily. Most residents work at non-profit hospitals; however there are some residency programs that are based at for-profit systems, and those guys dont qualify.
  42. AnnTaylor

    AnnTaylor

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    Do we HAVE to consolidate in order to participate in IBR or is just the thing to do that makes sense in order to participate in IBR?

    I dont' even know who the hell to contact to consolidate my undergrad and med school loans (I'm assuming IBR includes all these things?) I think great lakes or something servicing the dept of education
  43. dpmd

    dpmd Relaxing

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    You don't have to consolidate, but if you have a ton of lenders it might make it difficult for the payments to get set up right (I don't know if they coordinate, or maybe they will each try and get the full payment from you-not good). If you are looking for the PSLF then you need to have all your loans with the Direct Loan servicer (consolidated or not). Consolidating is nice for people who don't want to keep track of a bunch of different servicers for whatever repayment schedule they are on (and if you ever need to go into forbearance or deferment it will be less paperwork to complete). I think the repayment is typically extended when you consolidate (I can't remember) which would then lower your payments (although you pay more in the long run if you don't pay any extra)
  44. AnnTaylor

    AnnTaylor

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    Thx but does consolidating mean most people would include undergrad loans in there? I'm not planning on doing PSLF but want to do IBR...I have like 6 lenders and stuff got sold from one party to another then my med school loans got taken over by the dept of education and Great Lakes? Who do you guys contact to consolidate?
  45. AnnTaylor

    AnnTaylor

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  46. AnnTaylor

    AnnTaylor

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  47. dpmd

    dpmd Relaxing

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    Deciding which loans to include in your consolidation is up to you. When I consolidated mine, I had undergrad loans that were at very low interest rates, plus med school loans that had various rates (back in the days of variable rates). I decided to consolidate my very low interest rate loans by themselves (this was during a military deployment induced break from school) and plan to pay them back as slowly as possible. When I graduated I decided to consolidate my other loans, but kept the perkins loans out since they were a small amount and I wasn't sure if I would have any further episodes of service qualifying for cancellation (I had worked as a nurse on my deployment so got a nice chunk cancelled) so I figured I would keep them separate and pay them off after the higher interest rate loans (with or without any cancellation). Now that loans are almost all the same rate I don't think it makes much of a difference (unless your undergrad loans are pre-rate increase). The only reason to keep any separate is if you have plans to pay extra on higher interest rate loans to pay them off early. If you are going right to residency and don't have any other source of income (spouse, kindly relative offering to pay a loan off, etc) I don't see a big benefit unless you have a really small higher rate loan (which wouldn't increase your overall rate much if you consolidated it in anyway) that you think you can pay down/off. If you go to dlservicer.ed.gov you can find info on consolidating with Direct Loans.
  48. AnnTaylor

    AnnTaylor

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    Thanks a whole bunch.
  49. nogolfinsnow

    nogolfinsnow

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    For consolidation: http://www.loanconsolidation.ed.gov

    This site has the application, FAQ, etc.
  50. Dermologue

    Dermologue

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    That being said, do we still have an option to consolidate with the gov vs. a private company? I ask this question because, looking at my student loans on the NSLDS gov website, some are desigated "FFEL" and some are "Direct"...I didn't know the exact difference since it seems it's up to the school which you got (?) and I pulled the following from a college website (not sure if it is still accurate though)

    "Direct Loan versus FFEL program:
    • Both offer the same interest rate, which cannot exceed 8.25%. The current rate is 6.0% for subsidized and unsubsidized loans. The Plus loan is fixed at 8.25%.
    • With Direct Loan you would not choose a lender; instead, all loans would be uniform.
    • Direct Loan currently offers a .25% interest rate reduction for auto debit repayment. For FFELP it depends on what the lender is offering for the subsidized and unsubsidized loans.
    • Direct Loan offers an up-front interest rate rebate as long as you make your first 12 payments on time once you're in the repayment period. If not all payments are made on time, the rebate amount will be added back to the principal loan balance and will have to be repaid. As for FFELP it is different among lenders and you can shop around as to which benefits fit your lifestyle best.
    • As for repayment options both programs offer the same standard, extended, graduated and income-sensitive options."
    Some websites were saying it is better to consolidate with a private company because they have to compete with each other and will offer you perks in repayment whereas the gov doesn't have to/won't...but I'd tend to trust the gov consolidation more than a private for-profit free market company?

    ***Also, why are some of our loans serviced through GREAT LAKES and some by the dept of education itself? if you click on each of your loans individually, while logged into the NSLDS website (financial aid review option), you will see that not all loans are serviced by Great Lakes...I don't get that...

    EDIT: OK, I see that consolidating your loans through the GOV converts all your loans to DIRECT and qualifies you for the public service forgiveness thing...In my case, four-year residency and avg pay is $180-200K out of residency...I have no idea what's best for me, but don't really want to do the public service thingy unless it's true that most hospitals are non-profit and qualify you for it anyway. What if you do a combo of private practice and hospital? I guess you don't qualify.

    I consolidated my stafford undergrad loans (about 20 grand total) at a rate of 5.5%..I have a perkins of 3 grand at 5% too....My med school loans are your standard 7.9-8.5% for grad plus and 6.8% on all the staffords...They come out to a grand total of $277,000. So far, I have $34,000 in accumulated interest on all my loans, undergrad and med school.

    I still don't know if I should consolidate everything.
    Last edited: Apr 20, 2011

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