Loss of Economic Hardship

[JimorJack]

Recently I found out that the economic hardship will end July 1st 2009 leaving residents with only two options...Income based repayment (ibrinfo.org)that uses family size +/- spouse salary compared to poverty level, which forces repayment in residency vs. going into forbearance (more costly long run). Anybody have any take on this new change? At least for me planning on buying a car and/or house has been halted with a chunk now taken out of my paycheck to pay back loans....I guess just fyi for those considering doing the same and haven't yet heard about this change...also any suggestions/avenues to take otherwise would be helpful...my roommate calculated his IBR based on his salary in residency and wive's salary outside of medicine and his projected repayment is $1700/mos!! not the best change in my eyes when there is the attempt to stimulate the economy!

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[InductionAgent]

Recently I found out that the economic hardship will end July 1st 2009 leaving residents with only two options...Income based repayment (ibrinfor.org)that uses family size +/- spouse salary compared to poverty level, which forces repayment in residency vs. going into forbearance (more costly long run). Anybody have any take on this new change? At least for me planning on buying a car and/or house has been halted with a chunk now taken out of my paycheck to pay back loans....I guess just fyi for those considering doing the same and haven't yet heard about this change...also any suggestions/avenues to take otherwise would be helpful...my roommate calculated his IBR based on his salary in residency and wive's salary outside of medicine and his projected repayment is $1700/mos!! not the best change in my eyes when there is the attempt to stimulate the economy!

It's definitely a sub-optimal situation, but forebearance is the route I've gone. My debt load is so high that most of it is unsubsidized, on which forebearance vs. deferment doesn't make a differenence. Either way interest accrues. If your lender is reasonable, they will grant you a forebearance.

 

[jdovez]

I have a loan exit interview next month so I dont know all the details but I was told that with forebearance there are multiple negatives:
1) your interest accrues quarterly instead of yearly (not sure if this is accurate as I thought mine accrued quarterly as it is, but this is what I was told)
2) you lose all incentives promised when you signed with a particular lender (such as decreasing your apr by a certain percent if you keep paying on time)
3) your apr actually can be increased

Not sure if any or all of these are right, but if they are it makes forebearance that much less of an obvious choice. It really is amazing that in the last 4 years our interest rates have almost doubled on federal loans, we lost the ability to consolidate with benefits and now we lost the ability to defer while making minimal income. I love George Bush (sense the sarcasm? Just making sure).

 

[JonnyG]

I have a loan exit interview next month so I dont know all the details but I was told that with forebearance there are multiple negatives:
1) your interest accrues quarterly instead of yearly (not sure if this is accurate as I thought mine accrued quarterly as it is, but this is what I was told)
2) you lose all incentives promised when you signed with a particular lender (such as decreasing your apr by a certain percent if you keep paying on time)
3) your apr actually can be increased

Not sure if any or all of these are right, but if they are it makes forebearance that much less of an obvious choice. It really is amazing that in the last 4 years our interest rates have almost doubled on federal loans, we lost the ability to consolidate with benefits and now we lost the ability to defer while making minimal income. I love George Bush (sense the sarcasm? Just making sure).

not to defend him or anythign but it was the democratic congress who wanted to give an extra 500 dollars to the PELL Grant a year that screwed everythign up. They removed the incentives for lenders and the defferement option. That act was the reason why so many lenders stopped lending it lost profitability. Thank God I will not be lookign for loans this eyar

 

[G0S2]

Recently I found out that the economic hardship will end July 1st 2009 leaving residents with only two options...Income based repayment (ibrinfo.org)that uses family size +/- spouse salary compared to poverty level, which forces repayment in residency vs. going into forbearance (more costly long run). Anybody have any take on this new change? At least for me planning on buying a car and/or house has been halted with a chunk now taken out of my paycheck to pay back loans....I guess just fyi for those considering doing the same and haven't yet heard about this change...also any suggestions/avenues to take otherwise would be helpful...my roommate calculated his IBR based on his salary in residency and wive's salary outside of medicine and his projected repayment is $1700/mos!! not the best change in my eyes when there is the attempt to stimulate the economy!

Where can I find info stating that this is still the case? All I find is 2007 and 2008 info and it seems there was pending legislation to amend it. I have letters from my loan companies saying they are all deferrable and none of them mention July 1, 2009.

 

[G0S2]

I just spoke to one of my lenders.

If you graduate before July 1, 2009, you have one year of deferment. After that it is forbearance or income based repayment. Based on both my wife and I's income and debt with one dependent its $1500/month. If, however, we file married and filing separately they only take into consideration my income vs. debt but we may lose some of the benefits of married filing jointly. A lot to think about. In forbearance, you are able to make payments on interest, which will still be a pretty penny.

 

[seamonkey]

with this unfortunate info in mind.....

How much of a pay bump do you get in a fellowship year?

I'm burning my economic hardship year now as a PGY-1, guess I can get 3 years of forbearance to cover CA-1 thru CA-3....but then am I going to have to service what will easily be a $200K+ debt w/ interest on essentially a resident salary for a fellowship year?

This is a grim scenario.

 

[HRowPhern]

I believe the Income Based Repayment for residents is different than traditional IBR. Here is the answer that I got regarding the EHD. It's from one of the financial representatives to the AAMC national committee.

"Indeed, the economic hardship deferment is "going away" for residents as of July 1, 2009. This means that as of July 1, 2009, the US Department of Education will no longer allow the processing of these deferments.

Effective July 1, 2009, a new income-based repayment program will allow medical residents to cap their monthly repayments at 15 percent of their income that exceeds 150 percent of the poverty line for the borrower's family size ($15,315 for an individual). With an average first year resident stipend of $44,753, the monthly payment would be $368 compared to a typical 10-year repayment of $2,025 a month. All residents will qualify for this program regardless of income or debt levels. Similar to the economic hardship deferment, the federal government will pay interest on the subsidized portion of the loan during the first 3 years of income-based repayment; interest will continue to accrue on the unsubsidized portions. After 3 years, interest will begin to accrue on the subsidized portion of the loan as well.

If a resident can't make payment on the income based repayment program, it is important to note that they will still be allowed to take advantage of Forbearance for Internship and Residency. This option is available to all medical residents and will allow a resident to postpone monthly payments (no payment are required) for as long as the borrower is in a residency program. This does not hurt one's credit history. The key to this is for the borrower to understand that interest accrues on the entire loan balance (both subsidized and unsubsidized). After the residency, the accumulated accrued interest will be capitalized (added to principal balance). I always recommend that borrowers try to make at least interest payments so their loans don't "grow" too much, but often even this is not possible if a resident has a family."

Hopefully this helps shed some light on the subject. Good luck in The Match, everyone!

 

[Impromptu]

How does that work if one has taken loans from 2 different lenders. I'm sure that both would appreciate being paid.

 

[tabula0rasa]

I have a question on the income-based repayment: Is this money taken out of your paycheck so that it would not be considered part of your income? If so, does that mean you have to pay less tax since your income is now say $20k instead of $45k. Another question: How much tax does the average resident pay?

 

[SurferBoyMD]

How does that work if one has taken loans from 2 different lenders. I'm sure that both would appreciate being paid.

Ah, isn't this the case where you'd want to consolidate your loans? I know that I have >2 lenders from undergrad, and I think itd be a bloody mess to deal with all of them.

 

[DO4lifer]

not to defend him or anythign but it was the democratic congress who wanted to give an extra 500 dollars to the PELL Grant a year that screwed everythign up. They removed the incentives for lenders and the defferement option. That act was the reason why so many lenders stopped lending it lost profitability. Thank God I will not be lookign for loans this eyar

just to clarify...i hope you aren't referring to this recent increase in pell grant of $500 last month. jdovez i think meant the past 8 years.

interest rates at 8.5%...its probably a better idea to start paying back as much as possible...

 

[JonnyG]

just to clarify...i hope you aren't referring to this recent increase in pell grant of $500 last month. jdovez i think meant the past 8 years.

interest rates at 8.5%...its probably a better idea to start paying back as much as possible...

nope they did it about two years ago aiding a previous 500 to it. It was right when they got rid of deferment. When looking for the 2008-2009 loans there were fewer lenders before. THis was not related to the credit crisis as much as the loss of incentives to lend. Kinda hard to pay back money when you have none.

 

[akpete]

Ah, isn't this the case where you'd want to consolidate your loans? I know that I have >2 lenders from undergrad, and I think itd be a bloody mess to deal with all of them.

my understanding is that none of the lenders are offering consolidation currently. this is gonna be a bloody mess. the only reason i have 2 lenders is because my first lender didn't have any money to lend to students this past year.