Loan consolidation and interest reduction.

Discussion in 'Financial Aid' started by ryanpj, Mar 17, 2004.

  1. ryanpj

    ryanpj Senior Member
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    I matched. Was not too worried, until about five minutes before noon. Now I am looking to consolidate my loans.
    I have both Federal (Stafford Sub/Unsub) and Private Loans (MedCap/Wells Fargo).

    The total amount of debt is: 150,000 for Federal
    20,000 Private

    Question #1: Would I be able to get Deferment? I think the only way I could was if my monthly loan payments were >20% of my gross monthly income. I believe the only way I would be able to make the payments high enough in order to qualify would be to consolidate at a 15 year repayment plan. Is this correct? Or would deferment really help me out much? Should I just go for the sure fire Forberance? Remember Forberance is very easy to get. Deferment is not.

    Question #2: Many Loan Consolidators offer Interest rate reductions as benefits such as 1% interest reduction after 36 monthly payments on time and another 0.25% interest reduction with automatic checking withdraw. Many consolidators have footnotes or small print that says that these offers or benefits are subject to change without notice. I am aware that consolidators frequentyl sell the loan to another servicer and at that time the new servicer may not offer the same benefits.
    Does anyone have any knowledge of this?

    Thanks
     
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  3. spyderdoc

    Physician Moderator Emeritus Lifetime Donor Classifieds Approved 15+ Year Member

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    Call Sallie Mae to answer your deferrment question. Also, wait until late May to consolidate. The rates for the next year are announced sometime in May, so if they go up, you still have time to apply for the current low rate...If they go down, you wait until July to apply...
     
  4. limabean

    limabean Member
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    As far as deferrement due to hardship: This is a calculation that is based upon a 10 year repayment of all your loans where payments will be greater then 20% of income. For most people this means that if you are in debt greater then 100,000 or so(didn't do the math but you could check) then you should qualify. When you apply make sure you let them know about all your loans(as they won't automatically count your private loans because unless you give them documentation they have no way of knowing) and make sure the calculation is based on a 10year repayment(doesn't matter if you actually plan on paying it in 15 or 30 years, the 10 year number is used to calculated deferrment). The financial aid person at your school should have all these details about this subject and consolidating your loans, so it might be helpful to meet with them at some point.
     
  5. southerndoc

    southerndoc life is good
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    Here is the worksheet to figure out if you quality:

    http://www.aamc.org/students/medloans/debtmanagement/economichardship04.pdf

    THE ABOVE LINK WILL OPEN AN ADOBE ACROBAT PDF FILE IN YOUR INTERNET EXPLORER WINDOW. IF YOU HAVE TROUBLE OPENING THESE FILES (I.E., INT EXPLORER LOCKS UP), THEN RIGHT CLICK THE LINK AND CHOOSE "SAVE TARGET AS" AND THEN OPEN IT WITH ACROBAT READER.

    Further information, including a slideshow on the loan consolidation process, can be found at http://www.aamc.org/students/medloans/debtmanagement/start.htm

    Be sure to check the 90-day T-bill the last week of May. This will set the rate for the July 2004-June 2005 year. If the rate goes up, consolidate in June (which will cause you to lose your 6-month grace deferment period). If it goes down or stays the same, then take your 6-month grace period and then consolidate like 5 months into your grace period.

    Some things to shop around for:
    - Some lenders will allow you to renew your economic hardship deferral past the 3 year maximum. Ask to see if your consolidation company will do this.
    - Lenders are REQUIRED to offer the same interest rate for every person, as set by the federal government. So don't let a particular lender say they have better interest rates. They're all the same.
    - Lenders do have the ability to lower interest rates if you make so many monthly payments on time, if you use electronic funds transfer (direct bank withdrawals) to make payments, etc. Look for these! They'll help tremendously when you're in the repayment period!

    Last, but certainly not least, make sure you consolidate before the government decides to make loan consolidation use a variable interest rate. When the AAMC lady came to my school last month, she mentioned that it's a possibility for it to happen the end of this year, but likely to happen next year (if Congress decides to do this). A variable interest rate would suck. It's highly unlikely that interest rates will drop below what they are today. Even if they dropped from 3% to 2%, the savings aren't that great.

    Get educated on loan consolidation before you graduate because we won't have time for this during residency!
     
  6. dawgfan

    dawgfan Junior Member

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    I just got back from the federally required exiting student loan lecture. Man was it painful. Anyway, I think I can help answer your questions, but take it with a grain of salt because you really need to consult with a professional. And remeber, you have plenty of time. You don't have to do anything for at least a few months.
    Question 1---your specific question was asked at the lecture. The answer is no. If you consolidate, you are not eligible for deferment. And I think with the amount of debt you have, unless you are going to make bookoo bucks in your program, you will most likely qualify for the economic hardship deferral.
    Crap...I've been typing so long I forgot your second question. Well, I hope this helps some.
     
  7. NinerNiner999

    NinerNiner999 Senior Member
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    Right - Economic hardship is the first option available if your loan payments are greater than 20% of your gross monthly income. given a 6-month grace period after graduation, you are eligible for up to 30 months of economic hardship, or a total of 36 months (three years) between the two. Either way, 30 months is the limit for economic hardship. After that, forbearance is the next option, which is basically the same thing as economic hardship, but with higher interest penalties during the forbearance period.

    During economic hardship, the interest will only accumulate on the unsubsidized portion of the stafford loans. During forbearance, interest accumulates on the entire loan.

    Stafford (both unsubsidized and subsidized) are dependent on the T-bill rate. Perkins loans are fixed at 5%. If you choose to consolidate both your stafford and Perkins loans, they will weigh the averages between the two, making the typical consolidation around 3-4%. With incentives such as 12 consecutive monthly payments and direct back deposit, the overall rate can drop to around 2.75% after one year.

    Using myself as an example, I have $110k in Stafford loans (40% unsubsidized) and 12k in Perkins loans. I am eligible for consolidation at 3% due to weighting. If THE MOST I will make is around 45K per year as a resident, that shakes out to about $3750 per month gross, 20% of which is about $750. Therefore, my monthly loan payment cannot exceed $750 or else I have to actually pay it. Therefore, I am going to consolidate to whichever plan makes my payment close to $750 (if under by a few dollars they will still approve hardship).

    The plan that works for me is consolidation at 2.8% for 20years with a payment of $770. The unsubsidized interest will cost me about $4300 during residency - and I may not pay it as I go.

    Don't forget to factor in the HIGHEST YEAR'S SALARY, which will be during the 3rd or 4th year of residency. I have heard of residents qualifying for hardship during the first year, and then getting slammed their second year when their salary increased!

    I've been obsessing over finances lately, so I apologize if this is a long post - I hope it helps...
     
  8. ryanpj

    ryanpj Senior Member
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    You guys/gals are great help.
     
  9. southerndoc

    southerndoc life is good
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    According to the AAMC financial aid rep that spoke to everyone at my school, some consolidation companies will "renew" or "refresh" your economic hardship deferral for another term. So you could theoretically get 60 months out of it.

    Also, don't forget that you get a graduate fellowship deferment automatically.
     
  10. Seaglass

    Seaglass Quantum Member
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    Some good info here, some not so good. I have done A LOT of research into consolidation including many conversations with some higher-ups a T.H.E./Great lakes (my lender and probably many of yours). I am absolutely certain the following information I am giving is correct.

    Almost all medical students will be eligable for deferrment. The rule of thumb is that you qualify for financial hardship deferrment if your loan payment is >20% of your gross monthly income. The loan payment is calculated based on a 10 year repayment schedule regardless of what your actual repayment schedule is. So, I will consolidate for 30 years, but my hardship deferment will be calculated as if I was paying over 10 years. Your spouses income may be considered depending on the particular lender's requirements for proof of income. Obviously if you're shopping around find a lender who will accept just a pay stub.

    This does happen. One reason I am consolidating with THE (besides the fact that I have to) is that they guaruntee not to sell your loan, and they actually pay benefits to more than 90% of account holders.

    You can apply now and specify the date that the loan is actually occur. You cannot consolidate until you are in your grace period or after you are in deferrment. So although I have applied, I cannot actually consolidate until after I graduate in May, when my grace period begins. Once you consolidate you lose any remaining grace period and must have filed a deferrment. The maximum grace period on Stafford loans is 6 months. You can file for economic hardship deferrment for 12 months at a time for a total of 36 months for 42 months of grace/deferrment. THEREFORE IT IS TO YOUR ADVANTAGE TO CONSOLIDATE JUST BEFORE YOUR GRACE PERIOD ENDS. This can mean 3-4 months as an attending with no loan payments.

    So say rates go up just a smidge on July 1. It would probably still be to your advantage to not consolidate until November.

    It is possible to avoid these decisions alltogether. ON the application just write "best rate" where they ask you on what date you want the loan. They will give it on June 30th if the rate is going up, or at the end of your grace period if it is going down.

    99'ers post pretty much agrees with what I know except these two things:

    That is incorrect. The maximum is 36 months (3 12 month deferrments)

    This is not how it works. Whether or not you qualify is not dependant on what your actual monthly payments are. No matter what repayment plan you select hardship is calculated as if you were making equal payments over 10 years. I will consolidate for 30 years and so my payments will be less than 20%, but I will still qualify for hardship. I asked lots of people at THE about this and they made it very clear that this is so EVERYONE has the same access to deferrment.

    Some hospitals classify their residents as "fellows" and some do not. The general consensus is that, unless you are actually a fellow, this deferrment is not for you.

    You have to reapply year to year so thhey may renew from one year to the next, but you can't get more than 36 months.

    C
     

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