Please Help

[Coolio30]

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Hi yall. I was wondering if anyone can help me with my dilemma. My current loan situation is:

1rst 3 years of med school (consolidated twice)-- $63000 at 3.5%
4th year of med school --$28000 6.8%
Perkins loan --14000 at 5%

Is it better to consolidate all these loans into one, leave them separately. In terms of repayment, should I just pay back the fourth year loans which are at a higher interest rate, and defer the other loans.

I will go into economic hardship deferment, but I believe I can make some payments throughout residency. I am just wondering what the best option is in terms of saving the most money.

I plan on consolidating with graduate leverage, or the educational loan company.

 

[okbye]

In terms of interest charges with your loan amounts it won't make much difference if you combine them or not, depending on the repayment incentives you are going to be receiving on your already consolidated loan. For these calculations I'm going to use my companies repayment incentives of .5% for auto deduct and 1% after 24 months and a 25 year term for all loans. YMMV on exact figures.

Consolidating them all together
105000.00 4.625% fixed base 591.00/mo 72324.00 total interest
after incentives
3.125% 39860.00 total interest



keeping them separate (but consolidating the new loans)
68000.00 3.5% fixed base 315.00/mo 31600.00 total interest
after incentives
2% 15480.00 total interest

new loans
42000.00 6.25% fixed base 277.00/mo 41000.00 total interest
after incentives
4.75% 24000.00 total interest

combined total 592.00/mo 72600.00 total interest
after incentives 39840.00 total interest

So it's pretty close. If your repayment incentives on the already consolidated loan are less then the ones I used it would definitely tip the scales towards consolidating them all together. However, if you are going to defer them for the time being it would make more sense to wait to consolidate them until you were ready to go into repayment. All your rates are fixed already so you don't have to worry about them going up and if you can pay down the higher rate loans any it will lower your weighted average when you are ready to consolidate. You can also use the consolidation benefit of renewing your deferral and forbearance time if you run out.

On your Perkins loan - Perkins loans are eligible for forgiveness. Requirements vary by state but in general you have to work for 3 years in a clinic or hospital that serves low income people. You will lose the ability to get any forgiveness on Perkins loans if you consolidate them so if you think you might qualify leave them alone.

 

[edubbs5]

These numbers that were crunched above aren't taking into consideration the fact that you may find that you can pay the higher interest rate loan off at a faster rate than if you combined them and lost the low interest rate loan that you have because of consolidation.

In my opinion it comes down to the lender - if you have multiple lenders (more than one) consider consolidation a way of movement to get everything to the same place. The other thing to consider is IF you will receive a repayment incentive- also as punched above - consider when and how the incentive is received with your current lender - ask how many borrowers actually receive the repayment incentive at any given time - that is usually a good indicator of how likely you will receive the incentive.

Good luck - but remember having an interest rate lower than 5% is going to be a hot commodity - you will probably never have another loan that low in your life - why not keep it for a long time!

 

[okbye]

These numbers that were crunched above aren't taking into consideration the fact that you may find that you can pay the higher interest rate loan off at a faster rate than if you combined them and lost the low interest rate loan that you have because of consolidation.

Actually I did address that. Because the lower interest rate balance is quite a bit higher than the higher rate balance and consolidation works on a weighted average of your interest rates the lower rate loan pulls down the rate on the higher rate loan. The only variable is in the repayment incentives his current consolidated loan has and when he wants to start making payments. They should certainly be kept separate until repayment time if he can make any payments on the higher interest loan before then, giving him an even better rate when he does consolidate.

It can be hard to get a lender to tell you their incentive success rate. I have tried compiling statistics for an article I was writing and with most companies I couldn't even get anyone to admit they had those numbers available. I'm going to assume that means they are pretty low or else they would want to share them. I don't really understand why they would be so low though, all you have to do is make your payments on time and with the auto debit it should be easy. I just sent an email to our lender, if they have any numbers I'll post them.

 

[okbye]

I just heard back from our lender, they said about 20% of borrowers qualify for the on time repayment incentives. This is actually higher than estimates I have seen elsewhere but still seems awful low to me.

 

[dpmd]

These numbers that were crunched above aren't taking into consideration the fact that you may find that you can pay the higher interest rate loan off at a faster rate than if you combined them and lost the low interest rate loan that you have because of consolidation.

Not sure if I understood you correctly, but I left my prior consolidated loans separate from my lovely low interest rate loan. The lender tried to convince me to combine them by giving me numbers showing how much interest I would save by combining them. What they did not take into account is the fact that I will pay as slow as possible on my low interest rate consolidation, but I plan on having my higher interest rate loans (about the same amount as the OP) paid off by the end of residency (saving me a ton over consolidating them together and dragging the payments out, and still coming out ahead if paying faster). You have to decide what is reasonable for you (my spouse has a good income so paying early is possible without difficulty), and crunch the numbers yourself (don't rely on the person that wants your business to look out for your best interest).

 

[Coolio30]

thanks all for your replies.

is it better to consolidate just the fourth year then, and get some incentives, and keep the low interest rate loan as in economic hardship defermnet. this way if i just make payments during residency for this part of the loan (which I think i can do), it will allow me to save more money.

 

[dpmd]

Well, the nice thing about doing it that way (keeping the fourth year stuff separate-if you do consolidate it just be careful that they don't try to lump everything together at the end), is the option it gives you to pay off a higher interest rate loan faster. When you go into deferment for your big consolidation, you will go into deferment on all your loans (if you send them proof of qualifying for a deferment from one of the loan servicers). This is good because you pay down on the higher interest rate loan when you can, but if you want to go on vacation or if you have unexpected expenses you can skip some payments without it being a problem. If the loans are with different servicers you can try to have one in deferment with the other in repayment (so you can get to your on time payment incentive faster-I don't think most companies apply payments while in deferment to the on time payments they require to qualify for incentives). With one servicer, if one loan is in deferment they all are. My situation may not reflect the norm since I have a spouse with a good income, but I have already paid off about 10K of my higher interest rate loans over the year that I have been doing a research fellowship (and making less than an intern). When I start internship I will be slowing down my repayment since we will have a mortgage plus housing costs in our new city (hopefully we will have good renters in our condo, but I want to make sure we have a large safety net just in case we get a deadbeat who doesn't pay-if all goes well, part of that safety net will go towards a second house).

There are probably a million ways to deal with this issue, but I am the type of person that likes to pay stuff off (unless the money is better spent or saved elsewhere). Adding the half a percent or so (I forget how much, but it was under 1%) to my low interest rate loans, just for the privilege of taking 20 yrs to pay everything off wasn't worth the extra thousands I would pay in interest on my original amount. I did the calculations long ago, but I think I came out ahead by around 10K in interest with my strategy (but I did not factor in inflation or tax issues-although with my strategy I get to deduct student loan interest that I pay during residency which should be helpful)

 

[okbye]

Student loans work like credit cards in that you are in control of how much they cost you. You can make the minimum payments and pay less per month or you can pay as much as possible and save money.
It doesn't really matter financially if you consolidate the 4th year loan at this point or not if you're not going to be making regular payments, you won't be working towards your reduction anyway and your rate is already fixed. But, your monthly payment on the 28k would be $214.99, or $165.00 on a graduated scale where you pay interest only for the first 2 or 4 years. If you can swing either of those payments during your residency then go for it and start earning your reductions. With our old lender say you made 6 on time payments and then needed 2 months of forbearance (or however long) when you started paying again you didn't lose those 6 months you already paid toward earning your reduction. Make sure your lender does this and pay attention to when your payments are due. If you have a tight month just call them up and ask for a forbearance and you will never be late. I know it's not as easy to keep up with as it sounds, if you don't think you can stay on top of it don't do it.