Loans...what to do.

[John90210]

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Like most medical students I happen to carry a financial burden. I have looked into consolidation, and it seems to be the way to go.

I was wondering if anyone knows the status of Subsidized Stafford loans. Will those accumulate interest right a way, or in a couple of years? I have heard conflicting things...How about just deferring until after residency? Any interesting ideas? Thoughts?

 

[callowna]

This is a complex topic and you should probably get advice from your school's financial aid office. We had a required seminar in this stuff which was very helpful. I'll tell you the little bit I know and the AAMC has a lot of info as well. First of all everyone gets a grace period (usually 6 months) where your status is just like it was when you were a student and you don't have to start paying back anything. So it is to your advantage to use this grace period up before you do anything related to your loans. Depending on how much FEDERAL debt you have you can get either deferment or forebearance. Deferment requires a higher debt burden. If you're in deferment then your interest does not capitalize, i.e. they continue to calculate the interest based only on the principal amount of the loans. The government also continues to pick up the tab for the interest on the Subsidized loans. Deferment can last up to 3 years but you have to apply yearly. In forebearance the interest usually capitalizes. This means the unpaid interest is added to your principal balance and then interest is now calculated on that higher amount so the total that you owe accumulates much faster. And the government doesn't pick up the tab for anything. Forebearance is a year to year thing and I don't know how long it can last. That is a very rough explaination so if anyone can do it better or has any corrections please feel free. The person from the AAMC who gave our financial aid seminar said she thought consolidation was usually not a good idea but I don't remember why.

 

[mma]

I consolidated my undergrad loans and then my grad school loans. While it is nice to have a lower monthly payment, you lose grace periods and the government subsidy on your loans disappears. Of course, when you apply for a consolidation, this information never comes up.

My advice is this: consolidate when you are already in repayment and have no intention of ever going back to school.

mma

 

[Jim Picotte]

If you're still taking out loans, you can consolidate while still in school and not have any of the disadvantages. I did this back in September and consolidated every loan I had except my Perkins (I only had Direct loans and Perkings) and locked in those loans at a 5.1% fixed interest rate. If you're going to be in school for awhile, I'd wait until after July 1 this year though because I'm betting the interest rate will drop to around 3.5 to 4.0%.

You get a 6 month grace period on all direct loans and 9 month on Perkins. After the grace you can get a hardship deferal which you have to apply to every year. If you have enough debt, this hardship deferal will be no problem to qualify for (there's a couple of conditions you must meet to qualify). You can only do this for 3 years though. If you're in a longer residency, after these 3 years you can consolidate all your loans (I'll have 2 semesters worth of loans to consolidate) and get another 3 years of hardship deference. You can do this as long as you have some loan to consolidate, including perkins (although these are sweet loans so I wouldn't want to consolidate these). So you can get a total of 6 years and 6 months of deferment where the government still pays all the interest on the subsidized loans. I plan on paying all the interest on the unsubsidized loans while I'm in residency so that doesn't get added onto my already huge loan burden.

It's extremely depressing and complicated. Talk to your financial aid advisor about this.

 

[bringit]

Hi Jim -
You state you can still qualify foe economic hardship after 3 yrs... can you explain that in more detail...about the longer residency and all...
thanks

"You can only do this for 3 years though. If you're in a longer residency, after these 3 years you can consolidate all your loans (I'll have 2 semesters worth of loans to consolidate) and get another 3 years of hardship deference. You can do this as long as you have some loan to consolidate, including perkins (although these are sweet loans so I wouldn't want to consolidate these). So you can get a total of 6 years and 6 months of deferment where the government still pays all the interest on the subsidized loans. "