Loans and Interest

[JugglesMed]

Hi guys.
I was fortunate enough to go to a cheap undergrad with scholarships and never had to take out loans.
For medical school, obviously I will need loans.
From my interviews, I've seen you can get federal loans at 6.6% interest and you can get the maximum amount that the school allows, usually between 55-80k/year depending on the school. I can't find any info on how the interest works or the compounding rate.
Is it 6.6% interest per year for the amount you receive?
So if you receive 60k for the first year, you would owe $3.6k in interest after a year? And then every year is just keeps going up until paid back?

How much money in interest do typical medical students owe after 4 years?

Do I just fill out the FAFSA now for potential schools and wait? I just don't want to forget anything and not be able to have loans.

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[chaim123]

Hi guys.
I was fortunate enough to go to a cheap undergrad with scholarships and never had to take out loans.
For medical school, obviously I will need loans.
From my interviews, I've seen you can get federal loans at 6.6% interest and you can get the maximum amount that the school allows, usually between 55-80k/year depending on the school. I can't find any info on how the interest works or the compounding rate.
Is it 6.6% interest per year for the amount you receive?
So if you receive 60k for the first year, you would owe $3.6k in interest after a year? And then every year is just keeps going up until paid back?

How much money in interest do typical medical students owe after 4 years?

Do I just fill out the FAFSA now for potential schools and wait? I just don't want to forget anything and not be able to have loans.

It's more complex than this, so here is a general process. Every medical school has a COA (Cost of Attendance) that includes tuition, fees, food, housing, etc. It's a number that represents the total amount needed to afford that year of medical school. You pay for your COA using:

• Scholarships
• Personal Funds (+Parental contribution)
• Federal Unsubsidized Loans (what you are thinking about above)
• GradPLUS loans

Federal Unsubsidized loans have an interest rate that changes every year (its currently 6.6%), and is continuous. You start getting interest from the moment loans are dispersed. However, it is not compounded (aka added to principle balance) until after the 6 month grade period following school. You can take out a maximum of $40,500 in these loans per year.

If you need more than that, you take out the GradPLUS loan, with a higher rate, higher fees, and requires a credit check.

 

[JugglesMed]

Just on the interest, it is ultimately compounded as simple interest yearly. I believe all the loans are compounded in same manner each under their own interest rate. Each year is considered a separate loan. So using 6% as example with loans at $40K and 8% at $20K per year would be

Year 1: (($40,000 x .06) + ($20K x .08)) x 4 = (($2,400) + ($1,600)) x 4 = ($4,000) x 4 = $16,000
Year 2: (($40,000 x .06) + ($20K x .08)) x 3 = (($2,400) + ($1,600)) x 3 = ($4,000) x 3 = $12,000
Year 3: (($40,000 x .06) + ($20K x .08)) x 2 = (($2,400) + ($1,600)) x 2 = ($4,000) x 2 = $8,000
Year 4: (($40,000 x .06) + ($20K x .08)) x 1 = (($2,400) + ($1,600)) x 1 = ($4,000) x 1 = $4,000

Total Principal = $240,000
Total Interest = $40,000
Total Debt = $280,000 (post six months graduation)

At that point it typically gets rolled together into 1 or 2 loans (Unsub and GradPlus)
I always warn applicants who see this huge amount of money, you need to view it as a percentage of income once you are an attending and how that would be as monthly amount over a 10 - 20 year payback. Also remember as you increase in incom as your career progresses, this becomes a lower percentage of that income

That's not bad at all actually. I appreciate your help. This probably belongs in the thread about "Misimformed premed quotes", but someone told that after med school you would owe double your loans in interest lol. I knew that couldn't be right.

 

[getdown]

That's not bad at all actually. I appreciate your help. This probably belongs in the thread about "Misimformed premed quotes", but someone told that after med school you would owe double your loans in interest lol. I knew that couldn't be right.

The problem lies AFTER medical school when you start working as a resident. the SMART thing to do immediately or close to when you're graduating is to consolidate your loans into one otherwise you'd be paying different loans at different rates so just put em together. You don't get paid enough as a resident to be able to pay off your thousands of dollars monthly so you'll likely do Income Based Repayment or Pay as you earn. Ideally, IBR technically is the best since I believe those payments count into the Loan Forgiveness Program of 120 payments (over 10 years) if you plan on working in PCP or with a governement institution or if you're in a long residency like neurosurgery (8+ years).

So using Gonnif's example of 280k after graduation with the interest rate of 6.6%:
280,000 x 0.66 = 18,480 a year or 1,540 a month

Like I said most people either pay the minimum (usually couple hundred a month). As you can see the debt accumulates quickly by at least a thousand a month for several years. Let's just assume you do a residency of 4 years and maybe a 1 year fellowship under IBR with minimum paymentsof 500 a month:

18480 x 5 - (30,000 of interest paid over the 5 years) = 62400
280,000 + 62,400 = 342,400 total after being a full attending
At the 6.6% interest and your loans being fully due your monthly interests alone will be 1883.2 without even denting your principle.
To pay off your principle over 20 years that's an additional 1426.66 so close to 3200 a month.

Don't take these interests lightly. Of course you have to take into account if you're gonna have family or where you live during residency as that can add or subtract from the loan. Some things you can do to mitigate this would be to refinance your loans, after you consolidate, to a private bank with a lower interest rate at the start of residency. And then refinance again as an attending since there will be banks giving out perks to full attendings to refinance with them. However, this will make you ineligible for the government loan forgiveness program. But with the way DeVos is going and the abysmal forgiveness rates so far I wouldn't bank on that program really.