Advice on my Financial Situation

[YoungFaithful]

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I am 22K in debt and my interest rate is at 3.42%. This is from 5 years of undergrad debt. I have had mostly unsubsidized loans and one subsidized loan. Should I consolidate this summer before med school? and if so, how do I find out my new interest rate?

I am also thinking about taking a year off. Will this effect my loan deferment once I start in fall 2005?

I would appreciate a few word of advice from a financial genius. 🙂

 

[pjm]

I am 22K in debt and my interest rate is at 3.42%. This is from 5 years of undergrad debt. I have had mostly unsubsidized loans and one subsidized loan. Should I consolidate this summer before med school? and if so, how do I find out my new interest rate?

I am also thinking about taking a year off. Will this effect my loan deferment once I start in fall 2005?

I would appreciate a few word of advice from a financial genius. 🙂

no financial genius here, but I know how to use excel. 🙂

Interest rates dropped today to 3.37% from 3.42%, so 3.37% is your new rate.
http://studentaid.ed.gov/PORTALSWebApp/students/english/interest_rates.jsp

If you consolidate, you'll lock that in. The initial interest rate on your consolidated loan will be the weighted average of all the interest rates of your original loans. Since you have all Staffords, that will be 3.37%.

Most vendors will give you benefits; nelnet.com gives -1.00% after 36 payments and an immediate -0.25% for enrolling in direct debit. So, after three years you could be at 2.12%, which is darn close to free money.

(This consolidator makes the -1.00% rate cut retroactive after 36 mos so that the overall effect is as if you were at 2.12% the entire time. ask the consolidator for details. Note that if you screw up with your loan payments, you could be back at the 3.37% rate.)

Ok, so what's your payment? Pull out Excel. start with:
Rate = 2.12% rate
Pmts = 137 months (standard plan for most consolidators)
Prin = $22,000

Use the excel function "=PMT(Rate/12, Pmts, Prin)" and you'll get -$180.94, which is your monthly payment. (It's negative because it's a loan; something about annuity math.)

Multiply $180.94 * 137 = $24,788.99 total paid out over the course of the loan. $24,789 - $22000 = $2789 in interest -- that's the overall cost of your loan, over 11 years. That's a cheap loan, about $253/yr in interest.

Don't take this as gospel; call up a consolidator and they will run the numbers for you over the phone or on their website. Make sure to visit http://www.nslds.ed.gov/ to get your latest principal numbers.

A year off will not affect your loan consolidation; if you apply between May 20 and July 1 of next year, some good consolidators will give you the lower of the two rates once the 7/1/2005 rate change takes place. However, if you wait to consolidate you'll be making 12 more payments at the 3.37% rate.

I'm not sure what the deal is for consolidating while in grace, but I think they give you even better interest rates. What I wrote above assumes you are not in the grace period. Don't take my word for any of this, call and ask.

 

[YoungFaithful]

Thanks, thats a lot of help.

I am in my grace period. I think if i consolidate during my grace period it would get canceled. So I think it would be best to consolidate at the end of the year when my 6 months is up.

 

[box29]

Hey there YF, so I see your still deciding or waiting for MSU? What's the scoop so far?

Questions:

1. If you consolidate, don't you have to start repayment once it's done? Or can you defer since you are in school again? I am just asking this because I have $66,245 in Staffords and $7000 Perkins from 2 years in podiatry school and was wondering if it would be wise to consolidate that sometime before next July. I will be starting TUCOM in August so, i'll have more loans.

2. If you consolidate, will you not be able to consolidate any future school loans?


Thanks for any input!

 

[mpp]

You can always consolidate again to add more loans, or consolidate other loans together. Deferment in school would depend on the consolidation program.

 

[YoungFaithful]

Hey Box,

Yes sadly enough I am still waiting for MSU, they have haven't called me yet. I think...think...I have decided to wait until next year 2009 and just go to msu. I will be a year behind, but i am only 22. It will be a much smarter decision i think, 10K less a year, closer to family..etc...

Congrats on your acceptance too! See you in the field in about 4 years!!

 

[OSUdoc08]

I would wait to consolidate until after all of your loans have been taken out. This makes the process less difficult. Consolidating loans you don't intend to pay before taking out other loans is of no benefit.

 

[box29]

I understand that point. I mean I would be losing the no interest on my $17000 of subsidized Staffords. What I am questioning is the possible bill to stop school loan consolidations at a fixed rate. If this were to pass, wouldn't it be wise to consolidate the loans I would currently have before that bill passes (which might be a while from now...I don't know)?

 

[ItsNotATumor]

I'd consolidate after medical school since you'd lose the benefit of not accruing interest on your previous subsidized staffords.

 

[mak98usa]

Alright, there are three options we all have to reduce the interest rates on our loans

1. Pay it all back right away (impossible)
2. Consolidate (right now i think you can get 2.12%)
****3. This way may be the best way for most of us: According to "IRS Publication 970" we may be able to obtain a tax deduction on our student loans. Refer to the following website: http://www.taxesindepth.com/student-loan-interest-deduction.html


Instead of consolidating, which fixes your interest rate for the LIFE of the loan---- who knows, if interest rates are as low as 2.12%.....what would it be 10yrs from now. You could probably obtain a tax-deduction that covers your interest rate/year. Right now the max deduction is 2500, but there are several restrictions. You can use that money to pay other things : high interest credit card bills, mortgage, car, etc. the website should give you more info.

hope that helps everyone

 

[mpp]

You can always take this deduction whether or not you consolidate. But there are some reasons that this small tax deduction is not that great. A tax deduction while in medical school and have no income is useless. The most a $2500 tax deduction is worth is about $900 in your pocket. Once you are earning money as a physiciaion you will likely not qualify for this deduction.