Put low interest loans in forebearance, pay on high interest loans?

[Poitiers2]

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Anyone else doing this? It makes the most sense to me. I have a few years of loans at lower interest rates...like 3.4% or so from my first year of med school + from undergrad. I was anticipating consolidating these federally and putting them in forebearance and just making payments on my higher interest 6.8% interest loans.

The way I'm looking at it, I'm hitting more principle on higher interest loans this way.

Do I need to consolidate the loans I plan on making payments on into a separate Direct Loans account than those I plan on putting into forebearance when I start making payments?

Just curious if anyone else has any feedback on this. My wife is working, so I figure we should be able to make some headway in beating down the principle of the higher interest loans...at least a little bit.

 

[IceMan0824]

Anyone else doing this? It makes the most sense to me. I have a few years of loans at lower interest rates...like 3.4% or so from my first year of med school + from undergrad. I was anticipating consolidating these federally and putting them in forebearance and just making payments on my higher interest 6.8% interest loans.

The way I'm looking at it, I'm hitting more principle on higher interest loans this way.

Do I need to consolidate the loans I plan on making payments on into a separate Direct Loans account than those I plan on putting into forebearance when I start making payments?

Just curious if anyone else has any feedback on this. My wife is working, so I figure we should be able to make some headway in beating down the principle of the higher interest loans...at least a little bit.

Well, like most things in life, it depends on your situation. If your situation permits, might I suggest that you consolidate your low interest loans (the new loans will be an average of all the loans plus a few percentage points) and pay off the minimum balance each month. Then pay the maximum that you are afforded on the higher interest (I am assuming that you can also consolidate those too).

At least this way, you can still reduce principal on both loans and you are still directing most of your energy towards the higher interest loans.

Now, if you were me, you would also create a excel spreadsheet that compares the amount saved (or lost) with this technique versus going into forbearance and waiting for the interest to capitalize.

In saying all this, there is a caveat. If the loan is subsidized, then throw all this out the window anyway. The government will pay the interest while in deferment or forbearance. Private loans are also a whole different beast.


Alternatively (and this is the crazy way that my brain works), you could go with your method in the first place and just pay off the interests that accumulates on the low interest rate so that you don't have any amount to capitalize and you will just have the principal again when the forbearance wears off.

P.S. I have also assumed that you know the requirements for forbearance and you believe you are able to meet them.

 

[TMP-SMX]

Forbearance does not waive the interest accrual on subsidized loans. Deferment other than in-school deferment is gone.

 

[soulofmpatel]

Anyone else doing this? It makes the most sense to me.

Yes...I plan to do exactly this. Even if you are only paying interest, this is still the best strategy to avoid capitalization of a high interest loan (capitalization is when accrued interest is added to the principal, and you are paying interest of interest).

I have a question: I am still within the grace period, but I would like to arrange my loans now (I started residency 7 weeks ago). Exactly what steps must I take to arrange this? I have so many different lenders that it seems as though it would be a logistical nightmare.

Thank you for your time.

 

[John Deere Gree]

Each lender has different rules about forbearance. I would get all your ducks lined in a row well before your deferments end, toherwise you might end up paying on loans that you meant to be in forbearance.

As for me right now, I am pretty sure I will be putting all my loans in forbearance (unfortunately), and making pyaments on the higher interest loans first.