# Loans and interest confusion

#### 1956Goldtop

##### Guest
10+ Year Member
Hey all,

I am just looking for some clarification on med school loans and was hoping to get some help from you all.

It is my understanding that for sub stafford loans, interest will not begin to accrue until residency (or possibly afterwards if defferal or forebearance is granted).

So if I take out 8,000/yr in Sub Staff, I am looking at a principle of 32,000 by the end of med school whereby the 6.8% interest begins kicking in on that principle amount (correct me if I am wrong).

For unsub Staff however, how does this process work? Lets say I take out 20,000/yr in Unsubsidized Stafford. Does interest begin accruing beginning at each dispersal? So for the 20K borrowed during the first year that immediately begins accruing 6.8 percent for four years, the 20k borrowed during the second year for 3 years, etc. etc. or does it work differently?

I ask because I am trying to weigh my financial aid options and want to see just how much interest I will have to pay because I have interest-free during medical school loans at another school.

Thanks

#### Sol Rosenberg

##### Long Live the New Flesh!
10+ Year Member
That's correct. One other thing to be aware of is that Unsub. Stafford Loan interest is simple interest while you are in school, but compound interest once the loan enters repayment. I don't know if they break it down by disbursements (often you don't get your yearly loan amount in 1 disbursement,) but assume for a second that you do get everything in one disbursement per year. The simple interest accrues while you are in school, and then is added to your principal when the loan enters repayment. For your example:

Total Simple Interest = (20,000)(6.8%)(4+3+2+1) = 13,600
Loan Principal When Loan Enters Repayment = 93,600

Then, the \$93,600 will be amortized at 6.8% compound interest over your repayment period (usually 10 years.) This will be a payment of \$1077.15 per month for 10 years (assuming interest is compounded monthly.)

OP
1

#### 1956Goldtop

##### Guest
10+ Year Member
Do you know how often banks tend to capitalize interest into the principle either during the deferral period or when one goes into repayment?

This issue greatly complicates my situation.

As I got basically all subsidized loans plus grants at a school that I ranked slighlty below a school that is giving me mostly unsub loans and some grants.

#### Sol Rosenberg

##### Long Live the New Flesh!
10+ Year Member
Subsidized vs. Unsubsidized should only depend upon your EFC from your FAFSA. There should be no reason, if your EFC < your school's COA, that they shouldn't give you the full amount of Subsidized loans. I would call that school's financial aid office and ask them why they didn't award you the subsidized loans.

But, to answer your question, I believe that the interest is capitalized once when the loan enters repayment. So, deferral is the same as when your are in school. The [simple] interest continues to accrue, and is added to your principal when the loan enters repayment. Think of it like this: your loan is essentially in deferral while you are in school. If you qualify for any additional deferral it is like you are just extending your schooling. However, I am not 100% sure about this, so hopefully someone more knowledgeable about these specifics can either confirm or correct what I am saying.

OP
1

#### 1956Goldtop

##### Guest
10+ Year Member
Hey,

I actually did receive the full amount of sub staff at all the schools that given me a package so far, but one school in particular gave me a much larger amount in perkins as well as a sub institutional loan that is basically the same as the perkins.

I think the difference will be pretty substantial, but I guess I will have to do more calculations before i know fore sure which bullet I will bite.