deferring loans during residency

[daffodil]

Hello! I'm a new poster but a long-time lurker at SDN. I finally registered because I'm rather confused about whether it's possible to defer loans during residency/fellowship training, and I thought perhaps you all could help me out!
I've read old threads in which there seem to be contradictory statements. I'm trying to decide which med school to attend, and I'm worried about incurring $200,000 debt. My main concern: Will I be able to defer payments or at least make smaller payments during residency? Thanks so much in advance for any information!

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[gem777]

There are numerous types of deferment, but the "economic hardship" category is the one that many current and future residents are eligible for. This type of deferment is available for only three years.

If you still are unable to make payments on your loans, interns/residents are eligible for "forbearance". This option, however, is not as good as deferment. Deferment means the federal government pays the interest on you subsidized loans. On the other hand, forbearance, means that you do not have to make payments, or you must only make small payments, while the interest continues to acrue and capitalize.

If your graduate from medical school with $100,000+ in debt, in most residency programs (depending on your salary) you will be eligible for the "economic hardship" deferment. You are eligible for that deferment if: (1) your monthly student loan payment (calculated based on a 10 year repayment plan) exceeds 20% of your monthly gross income; AND (2) the difference between your gross monthly gross income and your total monthly student loan payment is less then 220% of the greater of the federal mininum wage rate or 100% of the federal poverty guidelines for a family of two in your state. Although the criteria I listed above is a common method to determine your eligibility for deferment, other criteria exist if you do not meet those conditions.

 

[gel1]

I want to thank gem777 for posting that information. I really appreciate it. Right now, I am trying to decide between taking a full tuition scholarship to an out-of-state school (debt would likely be ~60,000), or accruing $150,000 in debt at a school near my family. At least it looks like I'll eventually be able to pay off the loan even if I am that deeply in debt.

 

[daffodil]

Thanks gem777! I've had trouble finding that information...

 

[Jalopycat]

One thing you want to think about is this. You can deduct the interest on your student loan payments if you make under a certain amount..somewhere around $50k. Once you're finshed with residency, you won't be eligible to do this because your income will most likely be too high (which sucks because once again, the rich are punished). If you could make at least a small payment, you could take advantage of the interest deduction during residency...or you can defer or take a forebearance which is okay too.

 

[bringit]

Thank you to all who have provided great insight!!

Questions to all:
1) What do you think about consolidating your loans?? I have heard mixed views on this. Once you consolidate, you won't be able to re-consolidate is one disadvantage. But it seems like interest rates will be on the rise as our economy continues to improve, so why not consolidate now??

2) Also, if you consolidate your loans but are also approved for the Economic Hardship Deferment, does that affect your repayment or interest on the subsidized loans?

As you can see, I'm confused... don't know how to really handle this financial situation.

Thanks for any replies.

 

[LoanGrl]

gem777, you are right on with your information. Jalopycat mentioned deducting interest on student loans during residency, and I just wanted to add something to that. I work for NOWLoans, and we are asked these questions a lot. We understand that in order for you to deduct the interest on your student loans during residency, payment must be REQUIRED. That means you would be in repayment. Therefore if you defer or are in forbearance and make OPTIONAL payments, you are not able to deduct the interest on those payments. So be sure to discuss this subject with your tax professional! The upside of going into repayment while you are in residency is that it will save you a lot of money in interest.
bringit, as far as consolidation goes, READ THE SMALL PRINT. It may through you into repayment, or you may lose your grace periods. Check it out thoroughly with your lender. Yes, it can save you money with low interest rates, but if you aren't ready to start repayment, you might be in trouble.
And check with your lender regarding the question about consolidation and your subsidized loans. We aren't sure about that, and want to make sure you have accurate advice. Good luck to everyone!

 

[EMDrMoe]

If the economic hardship deferral is only for three years, and you'd like to keep your loan amount stable, I would think it would be best to take a forebearance during the last year. However, even if you can't make the full payment, and take the forebearance, you can still make quarterly interest payments so it's not capitalized. You can't deduct the interest, but your principal wouldn't increase. Just a thought.

 

[kd]

I think this may have changed with last year's new tax act. My understanding is that all interest payments on qualified student loans, whether required or voluntary, are now eligible for the tax deduction. Previously, it was only during the first five years that payment was required, but this provision has now been eliminated.
•••quote:•••Originally posted by LoanGrl:
•gem777, you are right on with your information. Jalopycat mentioned deducting interest on student loans during residency, and I just wanted to add something to that. I work for NOWLoans, and we are asked these questions a lot. We understand that in order for you to deduct the interest on your student loans during residency, payment must be REQUIRED. That means you would be in repayment. Therefore if you defer or are in forbearance and make OPTIONAL payments, you are not able to deduct the interest on those payments. So be sure to discuss this subject with your tax professional! •••••

 

[paean]

Hey LoanGrl, The federal tax rules changed in 2001. You CAN deduct interest on student loans, even if payments are not yet required. Look it up at <www.irs.gov> (I'm not going to go find the exact URL now, but maybe if someone wants to check the truth of what i'm claiming, they will be kind enough to post the link.)