Questions about deferment, undergrad loans, consolidation, private loans

[medblazer21]

I have 23k in debt in Federal Stafford (sub and unsub). I have 60k from Bank of America (education maximizer), and 55k in perkins and stafford for med school. My total debt for undergrad and med is 150k.

1) Stafford and Perkins loans from my undergrad can be defered all the way thru residency and all the way thru fellowship, right?

2) Does anybody know the deferment options for the Bank of America education maximizer loan? On the website is does say you can defer for 4.5 years, but thats for undergrads not med students. It doesnt say anything about residency or fellowship or economic hardship deferment. Their website doesnt say crap, it just says call a number and wait on hold for 3 hours. Their interest rate is 9.5% OUCH I forgot to look at that when I borrowed 60k!

3) I have an IRA that seems to be doing well. I dont know the interest rate, but I have about 15k in there and it increases by about 500/month. Is this a good option for paying off the interest while in residency so it doesnt capitalize? The only problem is that everytime you withdraw money from the IRA to pay interest, you incur penalties as high as 10%! OUCH!!!

4) When exactly does interest capitalize? Every month, every quarter, every year, or anytime there is a change in status? When I graduate from med school in May does that mean all my interest will capitalize on that date? Whens the next time it capitalizes, at the end of residency?

5) Current federal loan interest rates are 6.8% and 9.5% on my private BOA loan. I'm assuming that 9.5% is too high to expect any kind of investment strategy to overcome, so I'll have to pay that off directly. What about hte 6.8% loans?

6) I have private loans from BOA. I assume those cant be consolidated with my federal loans?

7) Is now a good time to consolidate? What kind of interest rates are people getting on consolidated packages right now? Should I wait until AFTER graduation or after residency starts to consolidate? Does the federal exchange lowering interest rates have any effect on consolidated loan offers or not?

8) My undergrad loans already had their grace period expire (between the time I graduated college and started med school). So that means they will into repayment between med school graduation and July 1 when residency starts. Should I apply for economic hardship deferment right now or wait till after graduation?

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[Doctor Bagel]

I'll try to tackle the questions I can answer. Unfortunately the federal loan deferment economic hardship system is changing probably in 2009. You can defer your loans until then and after that, you'll either have to pay a reduced amount on them or do forbearance.

Generally private loans can't be consolidated with other loans. And all the terms on those are just by the lender, so you might have to go with the 3 hour phone call. Hopefully someone else here with loans from BOA can help you out before you have to go through that.

I'd go ahead and call your lender now about the undergrad loans. I think they usually want some type of income documentation for economic hardship, so they might not be able to approve it yet but they can at least set up a temporary forbearance for you so you don't get stuck being late on a payment.

About the IRA, I wouldn't take out money just because of the fees/tax penalties. As for making the choice between putting aside money for retirement or paying off loans, I'd try to do a mix of both. I agree, though, that 9.5% puts you to the point where it might make more sense to pay off the debt rather than save. IMO, 6.8% is borderline, and it's a personal decision about whether or not to invest or pay them off. However, be sure to figure in the benefits associated with federal loans when making this decision. Also, always take advantage of any matching your residency program will offer you if possible, and think about Roth IRAs for savings.

On to interest capitalization, interest is not capitalized on the federal loans until you enter repayment (and maybe forbearance?). I don't know how frequently they are capitalized after that.

 

[medblazer21]

Thanks for your help!

Let me ask more about consolidation. My old undergrad loans (from 1997 to 2000) are 5.8% right now according to the servicer website. Is that considered a good rate to lock at for consolidation or will the interest rates keep going lower and lower throughout the year?

Whats the lowest interest rates people have been getting on consolidated loans?

 

[Doctor Bagel]

Thanks for your help!

Let me ask more about consolidation. My old undergrad loans (from 1997 to 2000) are 5.8% right now according to the servicer website. Is that considered a good rate to lock at for consolidation or will the interest rates keep going lower and lower throughout the year?

Whats the lowest interest rates people have been getting on consolidated loans?

They used to be a lot lower several years ago. My previous loans are locked in at 3%. 5.8% has been pretty good for the last few years, though. However, the fed just announced another rate cut a few days ago, and the market is still hosed, so who knows? The rate on the federal loans is a little weird in that it's adjusted each year on July 1, so any time between now and then will leave you with the same rate. This one website is recommending that you wait because it's probably the interest rate will drop on July 1.

http://www.finaid.org/loans/

 

[RockfordWF]

I have 23k in debt in Federal Stafford (sub and unsub). I have 60k from Bank of America (education maximizer), and 55k in perkins and stafford for med school. My total debt for undergrad and med is 150k.

1) Stafford and Perkins loans from my undergrad can be defered all the way thru residency and all the way thru fellowship, right?

2) Does anybody know the deferment options for the Bank of America education maximizer loan? On the website is does say you can defer for 4.5 years, but thats for undergrads not med students. It doesnt say anything about residency or fellowship or economic hardship deferment. Their website doesnt say crap, it just says call a number and wait on hold for 3 hours. Their interest rate is 9.5% OUCH I forgot to look at that when I borrowed 60k!

3) I have an IRA that seems to be doing well. I dont know the interest rate, but I have about 15k in there and it increases by about 500/month. Is this a good option for paying off the interest while in residency so it doesnt capitalize? The only problem is that everytime you withdraw money from the IRA to pay interest, you incur penalties as high as 10%! OUCH!!!

4) When exactly does interest capitalize? Every month, every quarter, every year, or anytime there is a change in status? When I graduate from med school in May does that mean all my interest will capitalize on that date? Whens the next time it capitalizes, at the end of residency?

5) Current federal loan interest rates are 6.8% and 9.5% on my private BOA loan. I'm assuming that 9.5% is too high to expect any kind of investment strategy to overcome, so I'll have to pay that off directly. What about hte 6.8% loans?

6) I have private loans from BOA. I assume those cant be consolidated with my federal loans?

7) Is now a good time to consolidate? What kind of interest rates are people getting on consolidated packages right now? Should I wait until AFTER graduation or after residency starts to consolidate? Does the federal exchange lowering interest rates have any effect on consolidated loan offers or not?

8) My undergrad loans already had their grace period expire (between the time I graduated college and started med school). So that means they will into repayment between med school graduation and July 1 when residency starts. Should I apply for economic hardship deferment right now or wait till after graduation?

1) Incorrect. You can enter an economic hardship deferment for 3 years only. After that, you would have to enter forbearance for up to 3 years. After that, you enter repayment.

 

[medblazer21]

1) Incorrect. You can enter an economic hardship deferment for 3 years only. After that, you would have to enter forbearance for up to 3 years. After that, you enter repayment.

Are you sure? I looked on the Perkins and Stafford website and they specifically state that there is a deferment option for fellowship that is separate from teh "economic hardship" deferment.

 

[Doctor Bagel]

Are you sure? I looked on the Perkins and Stafford website and they specifically state that there is a deferment option for fellowship that is separate from teh "economic hardship" deferment.

There used to be a special residency/fellowship deferment option, but it expired maybe 10 or so years ago. I think all of us are stuck with forbearance now.

Editing to add an attachment with all the deferment options. Also, I think you're talking about the provision where you get an automatic deferment for "approved graduate fellowship programs." I'm going to do more research on it, but I'm pretty sure that's not for medical residents. Sucks, I know.

 

[RockfordWF]

Are you sure? I looked on the Perkins and Stafford website and they specifically state that there is a deferment option for fellowship that is separate from teh "economic hardship" deferment.

That's fine. I'm not referring to fellowship.

I'm stating that Economic Hardship Deferment (3 years) and Forbearance (3 years) will cover residency prior to fellowship.

 

[RockfordWF]

There used to be a special residency/fellowship deferment option, but it expired maybe 10 or so years ago. I think all of us are stuck with forbearance now.

Editing to add an attachment with all the deferment options. Also, I think you're talking about the provision where you get an automatic deferment for "approved graduate fellowship programs." I'm going to do more research on it, but I'm pretty sure that's not for medical residents. Sucks, I know.

As above, there is no problem with economic hardship deferment....

 

[Doctor Bagel]

As above, there is no problem with economic hardship deferment....

Well, not really. Congress passed a bill and Bush signed it last year doing away with the current economic hardship deferment process. The Department of Education has extended it for now, but the word on the street is that they won't extend it beyond 2009. So unless congress passes something new (apparently also unlikely), the economic hardship deferment process that we have now will be gone. Under the new rules that are expected to go into effect in 2009, residents will be expected to pay 15% of their salary that's 150% above the poverty line -- it works out to about $350/month for most residents.

From the AMA --

http://www.ama-assn.org/ama/pub/category/18025.html

 

[RockfordWF]

Well, not really. Congress passed a bill and Bush signed it last year doing away with the current economic hardship deferment process. The Department of Education has extended it for now, but the word on the street is that they won't extend it beyond 2009. So unless congress passes something new (apparently also unlikely), the economic hardship deferment process that we have now will be gone. Under the new rules that are expected to go into effect in 2009, residents will be expected to pay 15% of their salary that's 150% above the poverty line -- it works out to about $350/month for most residents.

From the AMA --

http://www.ama-assn.org/ama/pub/category/18025.html

It is still valid through 2009, and then forbearance is still an option...This gives 4 years of deferment/forbearance starting now, assuming the deferment rules won't be extended at all.

 

[Doctor Bagel]

It is still valid through 2009, and then forbearance is still an option...This gives 4 years of deferment/forbearance starting now, assuming the deferment rules won't be extended at all.

The problem is that you have to be approved for the economic hardship deferment yearly. So you and other grads will get a full deferment on your loans for one year, but you likely won't get it after 2009.

But yeah, forbearance is always there for you.

 

[ocrx8]

I got my financial aid letter. No question that I will accept my subsidized loans. But is anyone here not accepting all their unsubsidized or grad plus loans? Interest rate for stafford loans are 6.8%. Does that mean they charge 6.8% on the balance every month? That's alot. Has anyone try borrowing from family members or relatives as an alternative? Also I heard some students have locked in at a low 3% interest using consolidation. Can we consolidate our loans before we graduate?

 

[TMP-SMX]

I got my financial aid letter. No question that I will accept my subsidized loans. But is anyone here not accepting all their unsubsidized or grad plus loans? Interest rate for stafford loans are 6.8%. Does that mean they charge 6.8% on the balance every month? That's alot. Has anyone try borrowing from family members or relatives as an alternative? Also I heard some students have locked in at a low 3% interest using consolidation. Can we consolidate our loans before we graduate?

No you can't consolidate while you are still in school. I haven't had to take out my full cost of attendance in M1-M3. I probably will take out the full Staffords for M4 though due to more expenses. I haven't had to take out any grad plus yet but most people do. I've been fortunate to get some scholarships for M2 and M3.

Borrowing from relatives is a good option if you make a formal agreement with them and they can afford to lend you the money. However, what would you do if something happens to you and you wouldn't be able to make payments? Obviously this requires them to be able to eat the loss or something else.

The 6.8% is per year. Divide that by 12 to get about 0.57% per month. During school you are in-deferment and therefore the interest is not capitalized to the total principal amount. This means that your interest doesn't compound upon interest until after you graduate and start repayment. It is kind of in a separate column on its own.