I agree with the above posters, you should lock into a lower fixed interest rate if possible. I recently locked my graduate school loans at 3.5%, a rate I was rather proud of at the time however after reading this thread I am getting the impression that I got screwed b/c it seems as if I could have gotten my lenders to go even lower (2.78%....wow). Perhaps this is a result of differing credit scores or differing future earning expectations (my current student loans are not currently linked to a professional health training program). Concerning deferment during residency, I would highly recommend it b/c I can?t imagine a resident being able to afford an $869 loan payment (150K amortized over an arbitrarily chosen 20 years at a fixed 3.5% annual interest rate). Don?t get me wrong, obviously making loan payments during residency would be in one?s long-term best interest, but again, I just don?t see this as a feasible option considering the average resident?s 35K annual salary. Now concerning the seemingly common practice of residents just paying accrued interest on their loans during residency:
Paying monthly accrued interest on a 150k loan balance (@ a 3.5 % annual rate, a .2916% monthly periodic rate) while in an arbitrarily chosen four year long residency.
150,000 (.002916) = $437.40 a month interest payment just to maintain the 150K loan balance throughout the entire four year residency.
437.40 * 48 = $20, 995.20 total interest paid during the four year period, while if you hadn?t paid any interest during the four year residency you would graduate from residency with a total loan balance of 172,500 (150,000*1.002916^48).
In paying your accrued interest during your four year residency you will have only managed to save yourself a rather insignificant amount of approximately $1500 due to a lack of compounding interest (172500-150000=22500-20995 = $1505) all the while sacrificing your lifestyle due to the additional hardship arising from the monthly interest payment obligation. Further, the difference between the two resulting loan balances paid back post residency over an arbitrarily chosen 20 year amortization period at a 3.5 % fixed annual rate is rather insignificant as well (at least at this level of debt):
150,000 = 240 monthly payments (if sticking to the amortization schedule and no excess principal is paid monthly) of $869.87 for a total amount paid post residency of $208,768 and the total paid over the life of the loan (assuming no principal or interest payments were made prior to residency) of $208,768 + 20995 =229,763.
172,500 = 240 monthly payments (if sticking to the amortization schedule and no excess principal is paid monthly) of $1000 for a grand total paid over the life of the loan (assuming no principal or interest payments were made prior to residency) of 240,000.
240,000-229,763 = a pretty insignificant amount considering the lengthy amortization period, the rather substantial amount of money originally borrowed, and the potential financial hardships that could be incurred while making interest payments during residency.
Assuming I didn?t make any math errors (I did this rather quickly so the probability that I did is rather high) one must really question the feasibility of even dealing with interest payments during residency. Obviously one should reconsider the above advice if one: prefers a more extreme amortization time frame, makes a significantly higher salary during residency, has a student loan balance in significant excess of 150k at the start of their residency, can?t lock into a lower fixed interest rate, has an extremely long residency, has a significant other who can help with loan payments during residency, is rich. Just my two cents, I apologize for the long post and I realize I am probably not offering any real groundbreaking insights into this matter, but it is spring break and I am home alone and extremely bored??Good luck in your residency!
