Federal Direct Unsubsidized Loans

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Interest does accrue while you're in school. So yes only borrow what you need. 6.8% is a really lousy rate.
 
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940 said:
So I see a lot of the federal unsubsidized loans on my financial aid. I want to understand how repayment works. I know that while we are in school, we don't have to pay, but does the amount we borrow accrue interest. In other words, for repayment, do I pay more if I borrow 40 thousand in medical school year 1, vs. borrowing 20 thousand year 1 and then 20 thousand year 2? Because four years after med school, that 40k borrowed would be 4 years old, whereas it could be 20k that is 4 years old and another 20k that is 3 years old. Basically is it better to borrow a lot at one time or make a budget to borrow as needed for each year?
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When your classes start, your loans will be disbursed. Beginning that day interest begins accruing; the best part about this is that since you're likely not making payments on those loans, the interest is added to the balance of your loans upon which more interest is charged. So while you aren't forced to make any payments with unsub'd loans, the balance is constantly growing due to interest and capitalized interest.

Regardless of the type of loan you receive it is ALWAYS in your best interest to take out as few loans as possible.

Sent from my Nexus 7
 
To add to the discussion, just FYI, I advise you ALWAYS stick with federal loans, even though the rates are high. Private loans often entice students with lower variable interest that can not only exceed federal fixed rates, but also don't come with the inordinate benefits of IBR and loan forgiveness programs.
 
So this may be a stupid question, but I'm having a hard time understanding how people end up paying off all of their loans with these interest rates that keep accruing every year. So, for example, lets say I come out of school with 100,000 dollars in debt, and I start paying the debt off at a rate of $500/month or $6,000 in the first year. My balance at the end of the year would be 94,000, but if a 6.8% interest rate gets applied to that amount at the end of the year then that would bring me right back to 100K right? How do you get out of that loop? Can you only hope to get out of it after residency when you're making the big bucks and can pay more per month?
 
ChaoticTheory said:
So this may be a stupid question, but I'm having a hard time understanding how people end up paying off all of their loans with these interest rates that keep accruing every year. So, for example, lets say I come out of school with 100,000 dollars in debt, and I start paying the debt off at a rate of $500/month or $6,000 in the first year. My balance at the end of the year would be 94,000, but if a 6.8% interest rate gets applied to that amount at the end of the year then that would bring me right back to 100K right? How do you get out of that loop? Can you only hope to get out of it after residency when you're making the big bucks and can pay more per month?
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Without even looking at your figures, the answer is simple: Yes, you can repay them after residency. There's a plethora of ways to address your debt with and without the help of third party programs (e.g., military/underserved scholarships and repayment programs). Keep in mind, as I mentioned above, that your federal loans qualify for income based repayment and a 10 year loan forgiveness program. Search SDN for debt management and loan repayment. You'll find all you need to know. 🙂

Don't panic quite yet. Even though we lost our subsidized loans amidst steadily rising costs, if you're smart about repayment and borrowing only what you need, you'll be fine. 🙂
 
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ChaoticTheory said:
So this may be a stupid question, but I'm having a hard time understanding how people end up paying off all of their loans with these interest rates that keep accruing every year. So, for example, lets say I come out of school with 100,000 dollars in debt, and I start paying the debt off at a rate of $500/month or $6,000 in the first year. My balance at the end of the year would be 94,000, but if a 6.8% interest rate gets applied to that amount at the end of the year then that would bring me right back to 100K right? How do you get out of that loop? Can you only hope to get out of it after residency when you're making the big bucks and can pay more per month?
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The answer is you can't make it out during residency. You can only hope to maintain close to the same balance so you are not bringing up the cost of the loan with interest.

Once you are an attending the real part of loan paying begins.
 
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940 said:
is the 6.8% interest rate compounded annually or quarterly?
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Read the link I posted and the subsections on that site:

How is interest calculated?

The amount of interest that accrues (accumulates) on your loan from month to month is determined by a simple daily interest formula. This formula consists of multiplying your loan balance by the number of days since the last payment times the interest rate factor.

Simple daily interest formula:
Number of days since last payment
x outstanding principal balance
x interest rate factor
= interest amount
 
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940 said:
If I am in med school, and not paying anything, what does "number of days since last payment" equate to? Would it change from 30 for 1st month, to 60 for 2nd month, etc? Because that will be a lot of interest after 4 years, or would it just stay constant at 30 or 31 depending on the month?
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The difference is essentially insignificant...
 
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NickNaylor said:
When your classes start, your loans will be disbursed. Beginning that day interest begins accruing; the best part about this is that since you're likely not making payments on those loans, the interest is added to the balance of your loans upon which more interest is charged. So while you aren't forced to make any payments with unsub'd loans, the balance is constantly growing due to interest and capitalized interest.

Regardless of the type of loan you receive it is ALWAYS in your best interest to take out as few loans as possible.

Sent from my Nexus 7
Click to expand...

Interest DOES NOT capitalize while you are still in school!
 
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940 said:
if interest rate does not capitalize, does that mean there is no difference between taking out a lot of money first year, vs. spreading it over four years?
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you are not understanding my post. interest accrues starting the day your loans are disbursed but do not capitalize until you graduate which means that the interest is kept separately from your principle (the amount you took out) so you aren't charged interest on interest while you're in school as NickNaylor suggested.

so yes, it will make a difference and you should only take out what you need because the clock starts ticking right away.
 
skinMD said:
Interest DOES NOT capitalize while you are still in school!
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skinMD said:
you are not understanding my post. interest accrues starting the day your loans are disbursed but do not capitalize until you graduate which means that the interest is kept separately from your principle (the amount you took out) so you aren't charged interest on interest while you're in school as NickNaylor suggested.

so yes, it will make a difference and you should only take out what you need because the clock starts ticking right away.
Click to expand...

Sorry, I should've clarified that it doesn't capitalize until after graduation. My bad.

Also, OP, why don't you spend some of your own time answering these questions rather than asking others to do it for you. This info is all available online and is very easy to find, and you don't seem to know that much about loans. Bacchus even linked it for you earlier.
 
skinMD said:
you are not understanding my post. interest accrues starting the day your loans are disbursed but do not capitalize until you graduate which means that the interest is kept separately from your principle (the amount you took out) so you aren't charged interest on interest while you're in school as NickNaylor suggested.

so yes, it will make a difference and you should only take out what you need because the clock starts ticking right away.
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This. Also, many financial aid offices will let you decide how much of the loan you've been approved for you actually want to receive at the beginning of the term with the option to have more of the loan dispersed later in the term if you need it. The clock starts when the check is cut and it lets you go back to take out the rest of the loan if you didn't get your budget right.
 
NickNaylor said:
Sorry, I should've clarified that it doesn't capitalize until after graduation. My bad.

Also, OP, why don't you spend some of your own time answering these questions rather than asking others to do it for you. This info is all available online and is very easy to find, and you don't seem to know that much about loans. Bacchus even linked it for you earlier.
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Didn't have the heart to be real myself...I need to get over being too nice. 😳
 
Sabate said:
This. Also, many financial aid offices will let you decide how much of the loan you've been approved for you actually want to receive at the beginning of the term with the option to have more of the loan dispersed later in the term if you need it. The clock starts when the check is cut and it lets you go back to take out the rest of the loan if you didn't get your budget right.
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I think this is what my school's financial aid office told me as well.
 
I just wanted to say, that if you have the money (which most of us don't have) or really rich parents (which a handful of you may have) who are willing to help out a bit, you could buy a house after medical school, use the mortgage to pay off your loans, and then pay back the mortgage loan (to your parents or the bank) instead with a much lower interest rate.
 
before you can accept federal loans you have to do online entrance counseling, and it explains everything
 
0kazak1 said:
I just wanted to say, that if you have the money (which most of us don't have) or really rich parents (which a handful of you may have) who are willing to help out a bit, you could buy a house after medical school, use the mortgage to pay off your loans, and then pay back the mortgage loan (to your parents or the bank) instead with a much lower interest rate.
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umm what? either i'm misunderstanding or this scheme doesn't make any sense. if you have parents that are willing to help out they should just pay however much of your tuition they can instead of having you borrow loans that are accruing interest from day 1.
 
0kazak1 said:
I just wanted to say, that if you have the money (which most of us don't have) or really rich parents (which a handful of you may have) who are willing to help out a bit, you could buy a house after medical school, use the mortgage to pay off your loans, and then pay back the mortgage loan (to your parents or the bank) instead with a much lower interest rate.
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If you buy a house on top of medical school loans, you'll have both the mortgage and student loans to pay? You can't exactly transfer the equity of the house to your student loan balance.
 
darkjedi said:
If you buy a house on top of medical school loans, you'll have both the mortgage and student loans to pay? You can't exactly transfer the equity of the house to your student loan balance.
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Actually, you can, but the idea as presented here is nonsensical.
 
skinMD said:
you are not understanding my post. interest accrues starting the day your loans are disbursed but do not capitalize until you graduate which means that the interest is kept separately from your principle (the amount you took out) so you aren't charged interest on interest while you're in school as NickNaylor suggested.

so yes, it will make a difference and you should only take out what you need because the clock starts ticking right away.
Click to expand...

Wait, so I was just having this conversation with someone else. According to this: http://studentaid.ed.gov/types/loans/subsidized-unsubsidized#what's-the-difference interest DOES capitalize.

Am I missing something?
 
You'd think this type of information wouldn't be so hard to find. It's not like we're talking chump change here.
 
darkjedi said:
I'm not sure how accurate that site is, but I had a similar question a while back and confirmed with the financial aid officer at our school that interest does not capitalize on the Unsubsidized Stafford Loans until after you graduate.
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I guess I'll just contact my FA office and get a straight answer. Thanks!
 
darkjedi said:
I'm not sure how accurate that site is, but I had a similar question a while back and confirmed with the financial aid officer at our school that interest does not capitalize on the Unsubsidized Stafford Loans until after you graduate.
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I'd hope its accurate since its the government's official loan site.
 
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