MD & DO Interest-free Loan directly from school - thoughts?

[Darrow O'Lykos]

I am a MS2 that recently learned that my school has a program that provides students from low SES backgrounds up to $10k a year via a loan with 0% interest that I am considering taking. I am currently paying for 100% of my COA through unsubsidized federal loans that hover around 5%. They would reduce my federal loan amount by $10k per academic year and generate this new loan directly through my school. It seems like a good idea to me, however I'd like to ask if there are any other Pros and Cons I should consider that I am not aware of at this point. For context, I anticipate graduating w/ ~ $150k in debt.

Pros
- 0% interest on $10k a year; by taking this out for the remainder of MS2 and taking it MS3 and MS4, that's $30k interest-free loan money to pay back. I'll still have to pay the interest on the federal loans I take out for my remaining COA for each year, but eliminating interest on $30k of my debt seems like a good move.
- My understanding is that this loan is ineligible to sold to private entities, but I would verify this prior to moving forward.
- Based on the information that I have at this time, repayment would begin at the same time as my federal loans. So my repayment schedule wouldn't necessarily be altered, just split to two parties.

Cons
- These loans will be separate from my federal loans, so I would make two sets of payments both to the government as well as my school
- These loans are not eligible for primary care forgiveness, however I don't anticipate going into a primary care field anyway.

Appreciate any input or advice

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Edit: Learned it's only a 1-time loan and not per year like I thought, pretty much wraps up the discussion.

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[AnonymousDoctorGuyPerson]

These loans would also not qualify for PSLF, so unless you're 100% not going to work in the public sector or at nonprofit organizations (many places are nonprofit) you may be losing in the long run, but that also depends on my next question:

Is there interest after you graduate?

 

[Darrow O'Lykos]

These loans would also not qualify for PSLF, so unless you're 100% not going to work in the public sector or at nonprofit organizations (many places are nonprofit) you may be losing in the long run, but that also depends on my next question:

Is there interest after you graduate?

No, no interest would ever accumulate even after graduation, however I just learned this evening that they actually cap it to one lifetime disbursement and don't offer it per year as I previously thought, so it's probably not worth the hassle of having the loan through them even if it would knock the interest off $10k.

 

[AnonymousDoctorGuyPerson]

No, no interest would ever accumulate even after graduation, however I just learned this evening that they actually cap it to one lifetime disbursement and don't offer it per year as I previously thought, so it's probably not worth the hassle of having the loan through them even if it would knock the interest off $10k.

Man, they should just give that as a scholarship at this point.

But yeah, I think personally it'd only be worth it if you were 100% going into private practice after graduating. Federal loans typically have more protections built in and are more flexible with forgiveness than what would be a private loan. Also, while who knows how much longer it'll last, federal loans are also not accruing right now. Is this offered only to CoA? Can it be taken out later for additional expenses if they arrise?

Given your total grad debt of about 150k, if you didn't go the forgiveness route and decided to just pay down your loans aggressively the interest from the 10k through federal loans would probably accrue something like 1-2k tops so it's really up to you on that end but the difference will probably not be noticeable in the long run.

 

[NotAProgDirector]

In that case, this sounds like it would be helpful if you had some unexpected financial issue. Imagine your car dies and you suddenly need a replacement - something like this could be helpful for that.

 

[Darrow O'Lykos]

Man, they should just give that as a scholarship at this point.

Lol agreed, but such is life.

Is this offered only to CoA? Can it be taken out later for additional expenses if they arrise?

Given your total grad debt of about 150k, if you didn't go the forgiveness route and decided to just pay down your loans aggressively the interest from the 10k through federal loans would probably accrue something like 1-2k tops so it's really up to you on that end but the difference will probably not be noticeable in the long run.

Yes, it's only offered up to COA. So no, I wouldn't be able to dip into it, it'd essentially be me decreasing my current federal loan total and replacing the delta with this loan. So it wouldn't be an emergency option for extra cash in my pocket, just an option to decrease future debt.

In that case, this sounds like it would be helpful if you had some unexpected financial issue. Imagine your car dies and you suddenly need a replacement - something like this could be helpful for that.

Sadly this wouldn't apply for anything beyond COA, although I'm sure if such emergency arose I could get some sort of help through the Ombuds and Fin Aid departments. Something I'll definitely keep in mind though as I approach the start of rotations and we'll need to commute to various different clinics/hospitals.

 

[PathNeuroIMorFM]

This seems like an easy yes. I would take the money, OP.

 

[OraclePL]

This is an easy call. Take the interest free loan. Depending on how quickly you pay off loans, this could save you between 2550 500 in interest over a 5 to 10 year period. Right now I’m assuming you’ve no idea if you’re going for public service loan forgiveness. Take the easy win

 

[mvenus929]

FWIW, my school offered 10K per year subsidized loan at 5% interest (and federal interest rates were 6.8%). I paid it off during training and still have a nice balance on my federal student loans. There's not much downside other than losing some forgiveness options potentially, but it's only 10K, not 250K.

 

[GoSpursGo]

Agree, interest free money in the short term is always good.

 

[voxveritatisetlucis]

What is the point in ever paying off an interest free loan?

 

[Niwrad]

What is the point in ever paying off an interest free loan?

The devil's in the details. Usually it will have some sort of deadline. But yes, in absence of any other written contracts, an interest free loan is the same as free money until you pay it off.