Interest on Loan

[CruiseLover]

I have had a few medical students tell me that it's important to try to pay the interest on your loans each year so that it so interest is not accumulating on interest. How do you do this? Do you write a check to the lender at the end of each quarter? year? Anyone been doing this?

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[HA123]

I have had a few medical students tell me that it's important to try to pay the interest on your loans each year so that it so interest is not accumulating on interest. How do you do this? Do you write a check to the lender at the end of each quarter? year? Anyone been doing this?

I think it depends on how often they capitalize (add the interest to the principal) the interest. I think some loans (Stafford) don't capitalize until you go into repayment upon graduation. I may be wrong though. So I think it would be a good idea to pay some of the interest before it is capitalized, since that is basically a principal payment, especially if it is a high interest rate and you can afford to.

 

[angel80]

The Stafford Loans come in two variaties: subsidized and unsubsidized. With the subsidized loans, the government pays off the interes while you are in school, so if you take out $8500 in subsized loans in your first year of med school, you will still only owe $8500 when you finish med school. With the unbsubsidized, however, interest accrues while you are in school, and interest will capitalize on interest that you have already accrued. You are only allowed $8500 in subsidized loans per year, and the rest have to be unsubsidized. As far as paying off the interest while in med school, I don't know of anyone who's done it. Since most people rely on loans as their only source of income in med school, you would basically have to pay off the interest by taking out more loan money, which would then add more to the principle and interest of your loan. I don't know if it is worth it. On the other hand, when you become a resident, and decide to go into deferrment or forbearance (basically, you decide not to pay off your loans until you finish residency), it's probably a good idea to pay off interest, so that you don't come out of residency owing way more than what you owed when you started (although many people would disagree with this philosophy and would use the money to invest rather than paying off interest).

 

[glp]

The Stafford Loans come in two variaties: subsidized and unsubsidized. With the subsidized loans, the government pays off the interes while you are in school, so if you take out $8500 in subsized loans in your first year of med school, you will still only owe $8500 when you finish med school. With the unbsubsidized, however, interest accrues while you are in school, and interest will capitalize on interest that you have already accrued.

i think it depends on the lender as to when interest is capitalized. i have seen several lenders that do not capitalize interest until the loan goes into repayment which is a huge difference in the amount you owe at the end of four years.

 

[It'sElectric]

i think it depends on the lender as to when interest is capitalized. i have seen several lenders that do not capitalize interest until the loan goes into repayment which is a huge difference in the amount you owe at the end of four years.

I'm pretty sure this is completely wrong. As the previous person mentioned, there are 2 types of Stafford loans: Subsidized and Unsubsidized (the names alone explain which loan's interest is paid off by the government). The majority of your Stafford loans will be unsubsidized, because the government severely limits the the maximum amount you can take out in subsidized loans (plus, they're need based).

No matter what lender you go through, your subsidized loans will not capitalize on the interest (since it's being paid off by the government), and your unsubsidized loans will capitalize the interest unless of course you pay it off (which would be pretty difficult for the average student).

http://finaid.org/loans/studentloan.phtml

 

[It'sElectric]

i think it depends on the lender as to when interest is capitalized. i have seen several lenders that do not capitalize interest until the loan goes into repayment which is a huge difference in the amount you owe at the end of four years.

Ok, I misinterpreted what you were saying, so I apologize in advance! Interest obviously accrues throughout med school on unsubsidized loans, but you were stating that different lenders capitalize on that interest at different points. Some may capitalize quarterly, while other kinder lenders only capitalize once when you go into repayment. You definitely made a very important point for everyone to keep in mind when they are looking for lenders. Obviously the most ideal lender would be the one that only capitalizes on the interest once when repayment begins.

Once again, sorry about that!