Questions about Student Loans

[SnakeDoc9497]

Hey all. Been tossing around some questions about student debt and am wondering if some of you here could help me out.

For undergrad I took on a modest amount of student debt. I don't want to get into numbers, because my questions are mainly conceptual and seeking opinion. But anyway, I have that debt. It's made up of roughly 80% private and 20% federal (sub and unsub loans).

Interest rates for the private loans are roughly 6.5, 6.5, 10, 10 (huge jump, yes...they caught on to the fact that I was receiving a grad level loan...their mistake, not mine). I'm headed to med school in a couple weeks and will be taking loans for that as well. Nothing from the grad PLUS loan, just the Federal Direct unsub loan (for obvious, interest-rate-related reasons).

Here are my questions:
1. Should I consolidate my undergrad debt? I know the answer is ultimately yes, but I am wondering if that should happen now or after medical school? I was told by the private lender to wait based on the consolidated amount being high.

2. Do deferred (meaning while in school, not voluntary forbearance for residency, etc.) loans accrue interest? Probably a stupid question, but again, the people at my private lender, who I am beginning to think are *****s, have said no interest accrues on deferred loans.

3. Once I graduate med school, what is the first step to take? Refinance/consolidate all student debt? I want to begin making payments fresh out of med school if possible. So if someone could briefly explain the repayment options that would be great.

I know that was hefty, but I'm hoping someone with a true passion for loans/financial aid/student debt can help me out here. Thanks a million in advance

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[Psai]

wtf 10%? Market doesn't even provide that and this is practically guaranteed

Deferred loans accrue interest. You just don't pay for it and it doesn't capitalize until the grace period is over (like 6 months after graduation).

If I were you I'd sign up for something like repaye or paye

 

[Darth Doc]

As far as I know, the only loans that don't accrue interest are subsidized federal loans. Unsubsidized loans and private loans DO accrue interest while deferred.

Also, medical schools are required to offer financial counseling - mine did it during an intro week of first year. We also have very knowledgeable medical school financial/ loan/ grant/ scholarship people. If your school does too, take advantage of their presence and make an appointment to talk to them. They'll be able to do more to help you specifically.

 

[drwoofs]

If I recall correctly only under certain conditions can you consolidate your loans then defer them, so your answer is most likely after medical school. As far as repayment of your loans after school, there is a thread somewhere on SDN which debates when consolidation outweighs the benefits of repaye. Repaye is your best bet during residency. If I can find it I will PM it to you.

 

[Donald Juan]

Given that your loans are such high interest rate, you should immediately find a lender who will consolidate your loans to a better rate. Make sure they know you are a med student, and get a cosigner if need be, because your interest rates are WAY too high for private loans.

Also, yes, they will accrue interest while deferred.

 

[Mansamusa]

don't consolidate the federal loans. You get your interest on the subsidized stafford loans subsidized during med school, but you lose this benefit if you consolidate.

I would personally try to use PLUS loans to pay for the 10% interest loans if you are unable to consolidate down to a lower rate. Interest accrues on federal loans during school- no idea how your private loans work.

 

[SnakeDoc9497]

I have applied for consolidation of just the private loans, and was quoted a variable interest rate of 8.5%, and a fixed of 10.5% How can that be? I am really at a loss here on what to do.

The variable range was from 3.99 to 8.74%, fixed was from 6.74 to 10.99. Does that 8.74% act as an unmoveable cap that won't go up or down? If so, the choice is clear over the fixed rate. Can anyone recommend a proper next step? Consolidating would mean that I automatically enter repayment unless I apply for deferment, which I would do.

Someone mentioned using grad PLUS loans to pay down undergraduate loans. Sorry if this is naive, but is that something I can actually do? It makes sense logistically since the rates are so different.

 

[Mansamusa]

I have applied for consolidation of just the private loans, and was quoted a variable interest rate of 8.5%, and a fixed of 10.5% How can that be? I am really at a loss here on what to do.

The variable range was from 3.99 to 8.74%, fixed was from 6.74 to 10.99. Does that 8.74% act as an unmoveable cap that won't go up or down? If so, the choice is clear over the fixed rate. Can anyone recommend a proper next step? Consolidating would mean that I automatically enter repayment unless I apply for deferment, which I would do.

Someone mentioned using grad PLUS loans to pay down undergraduate loans. Sorry if this is naive, but is that something I can actually do? It makes sense logistically since the rates are so different.

You would just have to spend under your school's suggested cost of attendance.

Like this year my suggested COA is $64K, but I am taking out $55K. I could take that extra $9K and use it to pay for other things if I needed to- I just can't take out more than $64K total. It's not the most effective method, but it is much better than a 10% interest rate

 

[SnakeDoc9497]

You would just have to spend under your school's suggested cost of attendance.

Like this year my suggested COA is $64K, but I am taking out $55K. I could take that extra $9K and use it to pay for other things if I needed to- I just can't take out more than $64K total. It's not the most effective method, but it is much better than a 10% interest rate

Thanks, that helped clear it up for me definitely.

 

[SnakeDoc9497]

Thanks, that helped clear it up for me definitely.

Another question,
You said you are taking out $55K What about the federal lifetime aggregate limit of $135,000? I'm not sure what year of school you are in, but wouldn't this tactic of taking out more loan money than one needs only exhaust the lifetime limit on federal loans even faster?

Sorry if these are basic questions. I have not had much education on these topics at all.

 

[Mansamusa]

Another question,
You said you are taking out $55K What about the federal lifetime aggregate limit of $135,000? I'm not sure what year of school you are in, but wouldn't this tactic of taking out more loan money than one needs only exhaust the lifetime limit on federal loans even faster?

Sorry if these are basic questions. I have not had much education on these topics at all.

The federal loan limit is on Stafford and there is a separate limit for undergrad and grad.

So I have $42K in unsub. stafford (the limit my school sets/yr) and the rest is Grad Plus. There is no lifetime limit for Grad Plus

Also from the gov't loan site:
"Graduate and professional students enrolled in certain health profession programs may receive additional Direct Unsubsidized Loan amounts each academic year beyond those shown above. For these students, there is also a higher aggregate limit on Direct Unsubsidized Loans. If you are enrolled in a health profession program, talk to the financial aid office at your school for information about annual and aggregate limits."

So the $135K limit doesn't apply to us.

 

[SnakeDoc9497]

The federal loan limit is on Stafford and there is a separate limit for undergrad and grad.

So I have $42K in unsub. stafford (the limit my school sets/yr) and the rest is Grad Plus. There is no lifetime limit for Grad Plus

Also from the gov't loan site:
"Graduate and professional students enrolled in certain health profession programs may receive additional Direct Unsubsidized Loan amounts each academic year beyond those shown above. For these students, there is also a higher aggregate limit on Direct Unsubsidized Loans. If you are enrolled in a health profession program, talk to the financial aid office at your school for information about annual and aggregate limits."

So the $135K limit doesn't apply to us.

Alright, thanks so much! I think you have just solved my problem...haha

 

[abn632]

You could take out Grad Plus loans (currently at 6.31%) and use those funds to pay off your 10% private student loans.

EDIT: heck, you could also use them to pay off your 6.5% private student loans, too.

 

[Redtwogreen]

Hey all. Been tossing around some questions about student debt and am wondering if some of you here could help me out.

For undergrad I took on a modest amount of student debt. I don't want to get into numbers, because my questions are mainly conceptual and seeking opinion. But anyway, I have that debt. It's made up of roughly 80% private and 20% federal (sub and unsub loans).

Interest rates for the private loans are roughly 6.5, 6.5, 10, 10 (huge jump, yes...they caught on to the fact that I was receiving a grad level loan...their mistake, not mine). I'm headed to med school in a couple weeks and will be taking loans for that as well. Nothing from the grad PLUS loan, just the Federal Direct unsub loan (for obvious, interest-rate-related reasons).

Here are my questions:
1. Should I consolidate my undergrad debt? I know the answer is ultimately yes, but I am wondering if that should happen now or after medical school? I was told by the private lender to wait based on the consolidated amount being high.

2. Do deferred (meaning while in school, not voluntary forbearance for residency, etc.) loans accrue interest? Probably a stupid question, but again, the people at my private lender, who I am beginning to think are *****s, have said no interest accrues on deferred loans.

3. Once I graduate med school, what is the first step to take? Refinance/consolidate all student debt? I want to begin making payments fresh out of med school if possible. So if someone could briefly explain the repayment options that would be great.

I know that was hefty, but I'm hoping someone with a true passion for loans/financial aid/student debt can help me out here. Thanks a million in advance

I would do a couple of things:

1) find another lender who will offer a better rate and refinance your undergrad loans. Not sure who your lender is but 10% is insane. You *should* be able to find a better rate but if you don't have great credit that can be an issue. Can anyone near and dear to you consign on your refinance? That will likely help (but i def understand that this might not be a viable option for you)

2) most def use grad plus to make payments on your higher interest loans

We have a blog post on this topic- feel free to check it out. Hope your first year is going well!

 

[RangerBob]

10% for a private loan is really higher as the others state. I took out a loan at 10% for my post-bac in '09. It dropped to 4.5% when I was in medical school, and rates have barely budged. I'd hate to think how high that 10% rate could get... Maybe your loans are at fixed rates.

Consolidating those loans can be tricky--usually private consolidation loans don't have in-school deferment/forbearance options (or if they do, you have to request it, and the amount of forbearance can be limited). Whereas a private education loan typically automatically gets deferred while you're in school (up to a maximum--I had one loan that started repayment while in medical school).

Be very careful if you do consolidate and read the fine print to clarify when your repayment would begin.

Also read your original MPN (the contract you signed with the terms and conditions, etc.) for your current loans--it's possible, but highly unlikely, that your current loans would not accrue interest while in-school. I had no private educations loans that had that benefit (nor have I heard of any that did)--the interest simply didn't capitalize while I was in school. Your loans could be different, so it's possible the customer service representative was telling the truth when they said your loans won't accrue interest. If that was the case, your smartest move would be to keep your loans as they are, since they'd have an effective interest rate of 0%. However, I I'm pretty sure the customer service representative just meant the interest won't capitalize, or they just don't know what they're talking about.

At the latest, those loans will restart full repayment when you start residency. At that point you could consolidate with DRB to get a better rate and qualify for $100 in-residency payments, since you'd have an income at that time. That assumes their program will still be around, but I'm sure some bank will fill the void if DRB stops refinancing residents' student loans.

I would definitely pay off those 10% loans with the federal loans you take out in medical school. I would just max out on federal loans as much as you can (see if you can get a budget increase as well--talk to your financial aid officer), so that you can essentially transfer those private loans into federal loans. Live on as little as possible--get a roomate (and live in a cheap, but safe, apartment), walk/bike to school the first two years (not paying for a car and auto insurance saves a lot of money), don't eat out much, cook your own meals from scratch, use the free gym at the medical school, etc. If you can live with your parents while in medical school, that could also really help to keep the cost down (though it's not much fun).