Forebearance vs IBR?

[sweetdreams87]

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Graduated med school this past May. Loans are coming due this December/January. I currently owe over $300k in loans (that's principal and interest combined). Most are at 6.8%, a few are 7.9% and 8.5%.

I was planning on doing IBR so that I'd have a relatively low monthly payment ($400-500) while in residency. That way, I'd be able to pay more if I was able, but the minimum payment wouldn't be outrageous.

Thing is, I was speaking to my loan servicer, and that lady actually suggested that I go into "intership-residency forebearance" instead. Her argument was that I would still be able to make payments if I so desired, but that there would be no minimum payment I'd have to make each month, in case money was tight at some point. Now, going into forebearance would certainly drop me out of qualifying for PSLF, but I wasn't too interested in that anyway.

Seems like there should be a downside to doing this, but I haven't been able to come up with the information. Does anyone know if interest capitalizes annually while in forebearance? If so, that'd be a huge con, as it only capitalizes in IBR once, when you come out of it.

Thanks.

 

[ferning]

Its the only move that makes sense. Decrease your Adjustable gross income by using fsa, 403b or whatever above the line your employer offers. You can make those payments $25 a month on an interns salary if u do it right

Welcome to the world of wage slavery you call a job and debt slavery from your loan nonsense

 

[partydoc]

Interest capitalizes when in forbearance.

I'm actually trying to make the same decision myself.

 

[Mac or Miller]

Yes, the interest capitalizes. Your loan servicer should be able to tell you what your payments will be under IBR, FWIW.

It is interesting that in the post-Sallie Mae days, servicers are encouraging residents to forbear. This was rarely the case previously.

If you go with IBR, any unpaid interest on subsidized loans is forgiven the first 3 years. Also, the interest that you do pay is deducted from your taxable income the first few years, so you will recover a percentage of what you paid every April regardless of whether your payments are required or volunteer.

The bottom line is that the Obama administration wants you to use IBR or PAYE and will try to reward you for it. Not participating makes payments ineligible for PSLF. Making payments keeps the option open later if you choose to entertain it or if you find yourself in a market in which a private gas job simply is not available. Whether you think you are interested now is totally irrelevant to PSLF, as it is a forgiveness program after the fact, not something you enroll in from the beginning.

Also if you go on to buy a nice house after residency, your loan will show that it is being paid in good faith x 4 years if you enroll in a payment program.

The decision rests in how bad you need the money. If you only have half a year of salary, your IBR payment next year will not be that much.

Either way, if you cannot make the IBR payment after enrolling, your servicer will immediately offer you forbearance as a reflex, so I don't seem the harm in signing up for the program and at least trying it month-by-month.

Like I have said before, these decisions are not permanent. There is no penalty for trying the program. They are very fast to offer forbearance if you can't make the payments.