Loan Repayment

[lostnstresd]

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I will graduate with about 90k in loans and am planning to begin paying them off as soon as I can. I'm very debt averse. It is my understanding, though, that the government pays the interest on your Stafford subsidized loans. Is it possible to defer your Stafford Subsidized loans, during residency but begin paying the Stafford unsubsidized ones?

 

[lostnstresd]

Ooops! I probably should have posted this in the Financial Aid Forum

 

[The White Coat Investor]

Be careful of letting your debt aversion affect your decision-making. My debt aversion has led me to spend this Christmas in the Middle East.

It sounds like you're a resident. It is more important to you to max out a Roth IRA and a spousal Roth IRA than to pay off your student loans. Disability insurance should also be a priority.

Also, what are the interest rates on your loans? With rates being cut these days, it is possible you will be able to refinance soon at a rate low enough that you NEVER want to pay these loans off early.

 

[Sol Rosenberg]

Agree with ActiveDutyMD, but I'll add that Uncle Sam only pays the interest on your Stafford Loans while you are in school. Also, I think that Congress just screwed you over and made it so that you can't defer your Stafford Loans while in residency anymore, but I'm not sure when that bill takes effect, so it might not yet apply to you. Do a search or browse through the Financial Aid forum here for more information.

 

[Leforte]

Agree with ActiveDutyMD.

Don't worry about the student loans. Max out IRA/401(k). Any extra money in an indexed fund. Deduct the student loan interest during residency (even if you are not paying it, you can deduct it if it is capitalized, which it is on your unsubsidized).

You may land a job post-residency that pays your student loans for you. There are tons in my field and many others.

Make sure you save for a good vacation to somewhere tropical during residency.

 

[yaah]

moved to financial aid forum

 

[zinjanthropus]

Agree with ActiveDutyMD, but I'll add that Uncle Sam only pays the interest on your Stafford Loans while you are in school. Also, I think that Congress just screwed you over and made it so that you can't defer your Stafford Loans while in residency anymore, but I'm not sure when that bill takes effect, so it might not yet apply to you. Do a search or browse through the Financial Aid forum here for more information.

The economic deferment option for medical residents is still in effect. Originally the College Cost Reduction and Access Act ended the deferment option. However, AAMC/AMA/AMSA worked hard to get it back in. This DOES mean that your subsidized loan interest IS paid while you are in residency as long as you qualify for the 20/220 pathway (your debt is more than 20% of your income and your debt:income ratio is < 220% of federal poverty for 2 person household).

 

[mshheaddoc]

The economic deferment option for medical residents is still in effect. Originally the College Cost Reduction and Access Act ended the deferment option. However, AAMC/AMA/AMSA worked hard to get it back in. This DOES mean that your subsidized loan interest IS paid while you are in residency as long as you qualify for the 20/220 pathway (your debt is more than 20% of your income and your debt:income ratio is < 220% of federal poverty for 2 person household).

for now, but that will end in less than 2 years if congress doesn't fix the mess they just made.

 

[Doctor Bagel]

Be careful of letting your debt aversion affect your decision-making. My debt aversion has led me to spend this Christmas in the Middle East.

It sounds like you're a resident. It is more important to you to max out a Roth IRA and a spousal Roth IRA than to pay off your student loans. Disability insurance should also be a priority.

Also, what are the interest rates on your loans? With rates being cut these days, it is possible you will be able to refinance soon at a rate low enough that you NEVER want to pay these loans off early.

Strongly agree with this advice. About the stupidest financial decision I made was to pay ahead on some student loans that were at less than 3% interest. Federal student loans are about the safest loans out there because they have many protections -- they're discharged on death or permanent disability, and you can get deferments for unemployment, childcare, etc.. Consequently I would place them pretty low on the financial priority list, definitely behind retirement savings.

However, to answer your question, yes, if you qualify for the 20/220 rule, you can use it right now to defer all your loans. If loans are deferred, you can specifically select your unsubsidized loans to make payments on. And yes, contact your congresspeople to make sure the 20/220 rule lasts beyond 2009!