Does economic deferment still exist or not?
Started by Gradient Echo
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It's gone. Those graduating this year or with loans still out can make one annual deferment by June 30, 2009. Beyond that, it disappears.
You can still get loan forebearance, but the federally-subsidized portion of your interest will be accumulating interest. I wouldn't expect any miracles out of Obama. The Democrat-lead Congress passed this bill in the first place.
You can still get loan forebearance, but the federally-subsidized portion of your interest will be accumulating interest. I wouldn't expect any miracles out of Obama. The Democrat-lead Congress passed this bill in the first place.
February 2009, Kiplingers has an article discussing repayment of student loans.
It discusses economic hardship, graduated, standard, extended, income contingent repayment etc.
http://www.kiplinger.com/magazine/archives/2009/02/repay_student_loans.html
It discusses economic hardship, graduated, standard, extended, income contingent repayment etc.
http://www.kiplinger.com/magazine/archives/2009/02/repay_student_loans.html
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Ok Silly question, does this mean that if i apply for a deferment BEFORE July 1 2009 and it is granted my Federal Loans will be in deferment for the WHOLE year or will they only stay in deferment until July 1 2009? Also is it possible to defer private loans still????
I didn't know that you ever could.....
<if i apply for a deferment BEFORE July 1 2009 and it is granted my Federal Loans will be in deferment for the WHOLE year or will they only stay in deferment until July 1 2009?>
I think they will be deferred for 1 whole year after you are accepted, as long as the acceptance date is before July 1, 2009, but I'm not sure.
Also, there's a new "economic hardship" program after that where you'll only have to pay x % of your income above a certain level toward your student loans while you have a lower income (such as during residency). So while you are a resident, you won't have to pay your entire loan payments if they are huge.
<Also is it possible to defer private loans still????>
They were never a part of the economic hardship program. You could do forbearance if they let you, but your interest will keep getting bigger.
I think they will be deferred for 1 whole year after you are accepted, as long as the acceptance date is before July 1, 2009, but I'm not sure.
Also, there's a new "economic hardship" program after that where you'll only have to pay x % of your income above a certain level toward your student loans while you have a lower income (such as during residency). So while you are a resident, you won't have to pay your entire loan payments if they are huge.
<Also is it possible to defer private loans still????>
They were never a part of the economic hardship program. You could do forbearance if they let you, but your interest will keep getting bigger.
by the new program you mean the income based repayment scheme? According to the AMA the repayment for a resident making the national average for residents would be approximately 350 dollars a month. That is quite a change from the 0 you used to owe when you could defer. The new plan is supposed to help by discharging your debt after 10 years if you meet certain criteria. they will also continue to pay your subsidized interest. from what I have read there is little chance that any doctor will qualify to have their debt discharged. So in essence my wife and I will be 700$ poorer every month. then when i can afford to pay it off i will disqualify myself from any dischargement. I called one of my servicers for my loans and they swear up and down that they are 100% sure that although the deferment rules will change on July 1 2009 they have not gone away, it is just going to be harder to qualify for a deferment. I am so confused!
Ps you can in fact defer your private loans for 3+ years i guess it depends on which loan you have.
Ps you can in fact defer your private loans for 3+ years i guess it depends on which loan you have.
So I'm going to try to help. Anyone else correct me if I get anything wrong here.
Deferment changes on July 1, 2009. Yes, there is still deferment, but to qualify, you must earn 150% of the poverty level or less. In the past, there has been an exception rule to this known as the 20/220 rule, in which our debt was taken into account in comparison to income level. Which is how residents qualified. This rule has been eliminated. Since resident income is definitely not below 150% of the poverty line, we will have a couple choices.
1. Enter forbearance. This is a deferment of payments, but interest begins accruing on subsidized loans. This interest is the difference between deferment and forbearance. There is a limit on this, but I can't remember offhand how many years that is. Somewhere around 3-5 years.
2. Make payments. These are capped at 15% of your income. Interest accrues on subsidized loans.
In general, it's a good idea to start making payments, esp since interest is 6.8%, not the 2.4% it was back in the day. However, each person needs to consider their financial situation and discuss with your financial office or planner. If where residency is for you has a high cost of living, it may not be feasible to make the payments - perhaps taking the hit now and paying back later when you have the means. Maybe you have credit card debt - pay that down before starting med school loan payments. Etc, etc, etc.
Private loans are a whole other ballgame. Interest is ALWAYS accruing on these. Even though banks call it deferment, it is purely deferment on payments. Interest is adding up. The length of deferment of payments and qualifications are entirely up to the lender you have the private loan with.
I hope that made some sense.
agree with AKPete.
That was a great summary.
That was a great summary.
So I've just been informed that part of my loan burden with Sallie Mae has been transferred to the Federal Government. As someone who had the hardship deferment pulled out after the fact (as has everyone else) I was banking on the IBR (15% above 150% of poverty) to handle the loans. Now my loans are with multiple lenders, and I am curious as to whether I am about to get screwed over with this. I have a relatively large family size. Any new IBR scholars out there?
I don't think it matters if your federal student loans are with multiple or single lenders for the IBR/Deferments/Forebearance/etc. From what I remember reading, it's based on your total outstanding Stafford loans at any lender.
The calculation to apply for eco hardship will remain your total income in relation to your debt (20/220 rule) until June 30, 2009, after that the calculation changes and most of you won't be eligible. In order to apply for the eco hardship as it currently stands, your loans must be considered in repayment prior to July 1. What this means is that if you are currently in school and your loans have a 6 month grace, you'll miss the June 30th cutoff date (there is no way to ask your grace be waived). GradPLUS loans prior to this year did not come with a grace but the new ones do and I don't have a great answer to the PLUS without grace loans yet but will figure it out. If you have an old Federal Consolidation, that may not have a true grace (call your specific lender and see if it is really a grace period or simply a 6 month forbearance because if it is a forbearance, it's technically considered in repayment when you are done with school and would be eligible under the current calc for eco harship).
Forbearances are not limited in federal lending. There is a special forbearance category for medical residencies that will last for 4 years. During a forbearance, the borrower is responsible for all the interest accruing on both sub, unsub, PLUS,etc. Alternative loans (non-fed backed) may not come with a deferment provision on a limited one so call your lender and ask specifically what you need to do when.
The calculation for the IBR (income based repayment) is based on the students income as well as the spouses if they file taxes jointly. The whole thing starts to get really messy when deciding if you should file your taxes separately or jointly so there's no great answer until you do all the math. Under the IBR, the average payment on a salary of $47,000 is about $392. From that payment, the feds will break the payment down proportionately across your loans (sub, unsub, PLUS). On $150,000 with sub of $34,000 and unsub of $116,000, your payment won't cover all the interest on the sub part and the feds will pay the difference. If you have multiple lenders, I think it's going to get messy as they all have to work within the $392 and determine who gets how much (I'm not sure who decided this was all a great idea... you can consolidate any federal loan that is not in an in-school deferment-- consolidation during eco-hardship, military deferment etc is allowed and also during forbearance). In order to do the IBR with forgiveness after 10 years, you must have all your loans with Direct Lending.
There are still a few unanswered questions in regards to Perkins loans which received an eco-hardship deferment automatically if you were granted one on your Staffords and I haven't thought that far ahead to be honest with you. I'll post when I know.
Your decision making in regards to all of this is going to have to be individual. If you elect to do the IBR then you are in repayment so at the first sign you can't pay or will be late, you'll need to contact your lender to request a forbearance so your credit won't be effected. There is a part of me that thinks forbearance is the way to go PROVIDED you take the $392 (or whatever the max is) and put it into the retirement fund if it's an employer match program... Just a thought.
Forbearances are not limited in federal lending. There is a special forbearance category for medical residencies that will last for 4 years. During a forbearance, the borrower is responsible for all the interest accruing on both sub, unsub, PLUS,etc. Alternative loans (non-fed backed) may not come with a deferment provision on a limited one so call your lender and ask specifically what you need to do when.
The calculation for the IBR (income based repayment) is based on the students income as well as the spouses if they file taxes jointly. The whole thing starts to get really messy when deciding if you should file your taxes separately or jointly so there's no great answer until you do all the math. Under the IBR, the average payment on a salary of $47,000 is about $392. From that payment, the feds will break the payment down proportionately across your loans (sub, unsub, PLUS). On $150,000 with sub of $34,000 and unsub of $116,000, your payment won't cover all the interest on the sub part and the feds will pay the difference. If you have multiple lenders, I think it's going to get messy as they all have to work within the $392 and determine who gets how much (I'm not sure who decided this was all a great idea... you can consolidate any federal loan that is not in an in-school deferment-- consolidation during eco-hardship, military deferment etc is allowed and also during forbearance). In order to do the IBR with forgiveness after 10 years, you must have all your loans with Direct Lending.
There are still a few unanswered questions in regards to Perkins loans which received an eco-hardship deferment automatically if you were granted one on your Staffords and I haven't thought that far ahead to be honest with you. I'll post when I know.
Your decision making in regards to all of this is going to have to be individual. If you elect to do the IBR then you are in repayment so at the first sign you can't pay or will be late, you'll need to contact your lender to request a forbearance so your credit won't be effected. There is a part of me that thinks forbearance is the way to go PROVIDED you take the $392 (or whatever the max is) and put it into the retirement fund if it's an employer match program... Just a thought.
AMDFAO
Thank you for that informative post about a complex and important issue.
I can definitely see how paying $394/month for a resident who already has a family, etc. could be tough. I am curious whether you think that other house staff (i.e. single people, etc.) should be opting for deferment...I would think it would be better to pay the payments so that your student loans don't keep getting bigger and bigger. Particularly with the volatility in the stock market currently, I'd think putting the money into paying down loans with 6.9% interest would be better than putting it into a retirement account. I suppose it's a judgment call though...
Thank you for that informative post about a complex and important issue.
I can definitely see how paying $394/month for a resident who already has a family, etc. could be tough. I am curious whether you think that other house staff (i.e. single people, etc.) should be opting for deferment...I would think it would be better to pay the payments so that your student loans don't keep getting bigger and bigger. Particularly with the volatility in the stock market currently, I'd think putting the money into paying down loans with 6.9% interest would be better than putting it into a retirement account. I suppose it's a judgment call though...
It's pretty clear that this change in the rule exists solely because the loan companies wanted to get their $394/month from residents. Whether it was smart or not make payments, changing the rules after the borrowing has already occurred seems a bit foul.
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Actually I heard it was kind of a compromise position by the federal gov't. They adopted it to try and placate both the student advocates and the bankers. The old 20/220 plan was definitely better for students...in the sense that your subsidized Stafford interest would be paid for you for the first couple of years of residency. If you could afford to do what I did, and make some payments anyhow, then you could shrink your loans even while an intern/resident.
Income-based repayment is better than some of the "worst case" alternatives, which would have been to require residents (and other former students) pay their full required payments during residency or go into forbearance. I mean, tons of residents would have had to go into forbearance. The banks actually would get more money in the end if students/grads didn't pay back anything during residency, b/c the former students would end up paying >> interest. Apparently, in exchange for accepting the income-based repayment plan, the banks/lenders had to agree to cap the student loan interest rate (? 6.5 or 6.9%). That doesn't sound like a good deal to me, b/c I got 2.9% interest loans when I consolidated, but apparently back in the 1980's or so the student loan interest got up to 10-15%, so I suppose compared w/that the 6-7% isn't bad.
Income-based repayment is better than some of the "worst case" alternatives, which would have been to require residents (and other former students) pay their full required payments during residency or go into forbearance. I mean, tons of residents would have had to go into forbearance. The banks actually would get more money in the end if students/grads didn't pay back anything during residency, b/c the former students would end up paying >> interest. Apparently, in exchange for accepting the income-based repayment plan, the banks/lenders had to agree to cap the student loan interest rate (? 6.5 or 6.9%). That doesn't sound like a good deal to me, b/c I got 2.9% interest loans when I consolidated, but apparently back in the 1980's or so the student loan interest got up to 10-15%, so I suppose compared w/that the 6-7% isn't bad.
Pretty much everybody has >100k in loans now, so to be able to repay those we consolidate into a 30 year loan.
