Consolidate loans....before or after medical school

[globalism]

Hi,

Will be attending NYCOM this fall. Like a lot of ppl, I have a good amount of undergraduate debt (about $20k).

What are your people's thoughts on loan consolidation? In particular, would it be better to consolidate my undergrad loans now or wait until after I graduate medical school to consolidate all my student (undergrad and grad) loans? I want to know what other people have done and their reasoning for doing so.

Interest rates are at 30-year lows now so I'm tempted to consolidate my undergraduate loans. But Financial aid told me loans can only be consolidated once, so there's a tradeoff.

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[DORoe]

Once you consolidate your loans you will have to start paying them back so if you don't want to be paying on that loan during med school you better wait. I would not consolidate at this time. Do you have unsubsidized loan or subsidized one's b/c what i have been doing is paying off the interest on my unsub. loan so that i am not adding to the debt with interest. This will probably end up saving me some $ later, but i probably won't be able to afford to do this once med school starts but i will cross that bridge when i get there.

 

[globalism]

Originally posted by DORoe
Once you consolidate your loans you will have to start paying them back....

Not sure if that's true. I asked NelNet (a consolidator) if I would be able to get an education deferment on my undergraduate loans if I choose to consolidate. They said as long as the medical school is a "title 4" school (NYCOM is).

Maybe the policies of other consolidators are different but I doubt it.

 

[DORoe]

wow i didn't know that i was under the impression that you had to pay them back once consolidating i might have to look into that then.

 

[Pooh Chong]

1st, don't use a "consolidator". They just take money for what you can do in 10 minutes. Loan consolidation is done through the government, so it's FREE!

2nd, It's true you can consolidate only once...but you can add to that consolidation (as far as I understand). When you consolidate you will lock in the rate of the current loan rate.

Example....you have 20K in loans right now. If you consolidate you will lock in this loan rate. I don't know what it is, but let's say it is 4%. In one year when you get new loans, you can add to that consolidation at that time (you can wait after each year or you can do it at the end of the 4 years). Let's say you borrowed 40K and that loan rate will be 5%. When you consolidate you will have one loan for the amount of 60K, with an "averaged" rate of 4.66%.

It makes sense to consolidate now if you think the loan rates will go up. If you wait 4 years, and the loan rate is 7%, when you consolidate then the entire amount will be at 7%.........but if you consolidate now you will get a lower rate that will reflect the 20K that you locked in at 4%.

If you think loans rates will go down, then you should wait.

If you have any questions you should just call - the people are very informative. Personally I would consolidate now because I think loan rates are likely to only go up, they were at all-time lows previously and it seems like the trend is going up.

If you have any questions, I can try to help further. Post or PM.

YOU DO NOT HAVE TO PAY THEM BACK RIGHT AWAY. If you go to school part-time or full-time or have financial strain you can get a forbearance (deferment).



http://www.dlssonline.com/index.asp

 

[Pooh Chong]

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

 

[Pooh Chong]

sorry to post again...

but these interest rates drastically affect how much your monthly payments are.....essentially how much interest you end up paying back!

You can probably find a loan calculator somewhere on the internet, but if you want you can go into excel and type in the following:

=pmt( (interest rate/12), # payments, - $ total debt)

so for example:

=pmt (0.055/12, 120, -14000)

This would be for a loan with 5.5% (yearly) interest rate, 10 loan (12 payments per year), and a debt of $14000)

You divide by 12 because you need to put down the interest PER payment.....not for the year.

 

[globalism]

No considation for me. I just put my numbers through the calculator and the consolidation rate was actually HIGHER than the original (both my loans originally at 4.22%; consolidated is 4.25%). The monthly payments were lower but that's only because the life of the loan was extended.

Guess the relatively high consolidated interest rate (4.25%) has to do with the fact both loans were subsidized (and those type of loans are probably given less of a discounted rate).

I'll just consolidate after med school. No interest rate benefit if I consolidate now and I'd rather just pay one lender in the future vs. having to pay 3-4 lenders (which would be the case if I did consolidate now due to the "you can only consolidate once" rule).

 

[Pooh Chong]

Interest rates are variable....thus your loans which are at 4.22% will vary each year. The interest rate at the time of repayment will be the interest rate you pay back - this is one of the keys of consolidation. In 4 years when you pay it back, if the interest rate is 7% you will be paying 7% on the current amount of the loan. Check it out if you want.


Also, you still would only make one payment per month. I said you can ADD to your consolidation. You consolidate once...and add to it - hence still one payment.

When you consolidate you lock in the current rate, so if you feel that it will only go up then it would be to your benefit to consolidate so that you lock up the current amount of debt at thsi fixed interest rate rather than pay it back at the higher amount.


4.25% is not high either. These are very low interest rates. Interest rates were between 6-8% 5 years ago - these are very low. It also has nothing to do with your subsidized loans, it just means you don't accrue interest on the loans while you are not in repayment...nothing else changes.

 

[Pooh Chong]

better yet...........if you are unclear what I've written then drop by your financial aid office or call the direct loan services (the people who do the consolidation) and ask them what would be ideal for your situation.

 

[globalism]

Originally posted by Pooh Chong

Also, you still would only make one payment per month. I said you can ADD to your consolidation. You consolidate once...and add to it - hence still one payment.

Really? Didn't know that. I'll look into it. Thanks for the info.

 

[Scarlet_Fire]

I'm a graduating senior, and have already done a little preliminary research about student loan consolidation. Right now, the rate on my federal stafford loans (subsidized and unsubsidized) is currently 2.82%. Rates on private loans (alternative loans, resident relocation loans, etc) obviously would be higher. The rates will change (or not) this July 1. If you are considering consolidation at this time, your consolidation rate is a 'weighted average' of your individual loan rates.

Once you've consolidated, yes, you must begin repaying your loan, unless you can get either deferrment (if you're in school) or forbearance (all the residents I know have used this argument) to put off paying your loans until you're making moolah.

This is the best feature of the current consolidation rates: say, for example, your lock-in rate is 2.82%. Many programs will lower the rate on your existing balance by 1% once you've made 36-48 consecutive on-time payments. This lowers your rate from that time forward to 1.82%. If you opt for automatic withdrawal, you can realize a further 0.25% decrease in your rate, lowering it (in theory) to 1.57%. This is insanely low.

Interest simply does not add up appreciably at this rate!!

I have not done number crunching on my own, but one individual I know has approx 175K in loans, and at this rate will pay somewhere on the order of $700 a month for 30 years. Contrast this to the horror stories of physicians 10 years ago paying "thousands" a month to student loans.

As far as "private" or "alternative" loans, these may or may not be able to be consolidated. Check into each program you're considering. I do know that CitiBank *will* consolidate the CitiAssist Health Professions Loan (currently at 4.25% but with no ceiling limit), an alternative loan I took out during M1 and M2 years. The catch is that the current rate on that loan (4.25%) will be averaged into my final consolidation rate, bringing my rate up some should I choose to include it when I consolidate.

Will rates go up or down (or not change at all) this July 1? That is the real question, and there is no way to really know. Alan Greenspan testified before Congress last week and gave no indications that rates were going to be cut any time soon. He also hinted that the economy was improving. Interpret this how you want. Me, I'm consolidating as soon as I graduate this spring in order to realize these current rates. If they go down further, it won't be by much, so it's a gamble I'm surely taking. Remember: student loans (much like home mortgate rates) are at an all time low!