questions for pro-school students

[DrGero]

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Sorry if these questions are a bit uncomfortable, but I'm curious: For those of you who have or will have significant debt when you leave your school (which is probably a majority of you) - how do you plan to address it? Also, I am curious - with federal loan rates now with a floor of 6.8% (is that right?), does this mean that when you consolidate your loans in the future, you can't consolidate for less than 6.8%? How does that work?

I'm just curious - the financial landscape seems so different now than it was when I was graduating from grad school, I'm wondering how this affects current students.

 

[jonathansmith86]

I don't know about the loan consolidation question, but I'm entering a professional school program in August and when I finish I expect to have over $150k in debt. I know there are a couple of federal programs where you can work in underserved areas for up to 5 years and have a certain amount of debt forgiven, or where you can work for a non-profit for ten years, paying based on your income during that time, and then have the remainder of the debt forgiven. I've considered both of those options. During undergrad I spoke to a few psychologists who had gone to a professional school and they discussed the debt load and basically said it's like an expensive car payment each month if you do a 30 year repayment plan. Obviously that's a burden, but it's not unmanageable.

 

[Neuropsych2be]

Loan repayment for government-backed loans like Stafford loans has changed. Look up http://www.ibrinfo.org. Income based repayment means that you will only pay back a percentage of your income. This is typically capped at around 12% of any income that is 150% above the poverty line. After 10 years of of work in government jobs (local county state or the Federal government) or work in a 501C nonprofit such as a community mental health center or other non-profit organization, students will have the entire balance of their loan forgiven tax free.👍

 

[DrGero]

Loan repayment for government-backed loans like Stafford loans has changed. Look up http://www.ibrinfo.org. Income based repayment means that you will only pay back a percentage of your income. This is typically capped at around 12% of any income that is 150% above the poverty line. After 10 years of of work in government jobs (local county state or the Federal government) or work in a 501C nonprofit such as a community mental health center or other non-profit organization, students will have the entire balance of their loan forgiven tax free.👍

I wonder about that loan forgiveness program. It only just started, and one would have to trust that Congresscritters wont pull the plug on it over the next 10 years in order for it to work for you.

IBR is fine, if you need it.

 

[Neuropsych2be]

My impression is that loan forgivness is intended primarily for lawyers (who run the world) to be enticed out of corporate America and enter public service. Law grads from Duke or Harvard are graduating with massive debt and have to go into corporate law because of the debt. They rarely go into civil rights law, family law, or working as public defenders. Since lawyers rule all, I think ways will be found tom maintain public service loan forgiveness. Anything for lawyers, by lawyers and in the interests of lawyers is unstoppable by congresscritters since they are mainly lawyers 😛

 

[aequitasveritas]

I wish you didnt post this thread. I was happily delusional while repressing my financial anxiety😀

 

[futureapppsy2]

Sorry if these questions are a bit uncomfortable, but I'm curious: For those of you who have or will have significant debt when you leave your school (which is probably a majority of you) - how do you plan to address it? Also, I am curious - with federal loan rates now with a floor of 6.8% (is that right?), does this mean that when you consolidate your loans in the future, you can't consolidate for less than 6.8%? How does that work?

I'm just curious - the financial landscape seems so different now than it was when I was graduating from grad school, I'm wondering how this affects current students.

Just curious... how do you (all) conceptualize "substantial debt"? $50k? $100k? $150k? More? Less?

 

[Wildcat06]

Just curious... how do you (all) conceptualize "substantial debt"? $50k? $100k? $150k? More? Less?

Yeah, I too was confused by this statement. I will get out with less than $10k and most of my classmates will have no debt. I guess this varies more than I thought. What's the debt load like for the rest of y'all in funded programs?

 

[futureapppsy2]

Yeah, I too was confused by this statement. I will get out with less than $10k and most of my classmates will have no debt. I guess this varies more than I thought. What's the debt load like for the rest of y'all in funded programs?

Hopefully, zero or close to it, provided something drastic (e.g., getting fired from my GAship, big medical issues, etc.) doesn't happen (*knocks on wood*), though I might take on a small amount of debt for internship interview expenses.

 

[DrGero]

... I have over 100K of loan principal myself, which I think is "substantial." However, I have the good fortune of paying a very low interest rate (1.3%) and low monthly payments. Particularly with my wife's income on top of it, we're paying well under 5% of our income for debt service. We've been able to afford to buy a house and we both contribute to our retirement accounts and our savings.

Also with a 1.3 percent interest rate, by simply paying the minimum payments on the 30 year plan, inflation actually shrinks my loan principal for me (last year the CPI was 2.2 percent annualized).

So, while my loan principal is definitely significant, my debt service is actually fairly small and fairly manageable - and happily, I just found out I qualify for loan repayment since I work in the public sector. With any luck, in a few more years, with a combination of inflation and loan repayment programs, I may make significant headway on shrinking that principal.

On the other hand, I can see how even a loan principal of even just 10K can be significant, say, if it's run up on credit cards or through payday loans. If the interest is 10, 20, 30 percent or more, the debt service can definitely be difficult to manage.... which is why I asked about the current crop of pro-school students. While 1.3 percent interest is manageable for me, I can see how I would have struggled with 6.8 percent, particularly in the beginning....

Would I have preferred going to a funded school? Absolutely - but the fact was I was not in a place in my life where I would have been able to attend a school for many years in a state far away from my family and possibly my current wife - and how do you attach a dollar value to costs like that?

So, that's what I chose, and now I pay a few hundred bucks a month because of that choice. So far, it's been worth it.

 

[TenaciousGirl]

... I have over 100K of loan principal myself, which I think is "substantial." However, I have the good fortune of paying a very low interest rate (1.3%) and low monthly payments. Particularly with my wife's income on top of it, we're paying well under 5% of our income for debt service. We've been able to afford to buy a house and we both contribute to our retirement accounts and our savings.

how did you get such a low % rate?

 

[Therapist4Chnge]

how did you get such a low % rate?

8-10 years ago the Fed. rates were ridiculously low. I know people who maxed out their loans, effectively taking a near interest free loan courtesy of the government and investing it elsewhere*. Some bought property, while others re-invested the money in higher-yield vehicles. A similar tactic is/was used with 0% credit cards, though only the most savvy investors should attempt that approach.

Some people were able to consolidate at even lower rates, but those have long since dried up. Now students are faced with loans nearing 7% through federal options and even higher rates through private lenders.

*This was particularly popular in MBA and JD programs because it'd provide start-up capital, and then the student would file for personal bankruptcy to wipe out their student loans. The investment would sheltered, and the person would effectively walk away with little to no personal debt. These loopholes were since closed, though for a time it was a popular avenue for those smart enough to do it legally.

 

[DrGero]

8-10 years ago the Fed. rates were ridiculously low. I know people who maxed out their loans, effectively taking a near interest free loan courtesy of the government and investing it elsewhere*. Some bought property, while others re-invested the money in higher-yield vehicles. A similar tactic is/was used with 0% credit cards, though only the most savvy investors should attempt that approach.

Some people were able to consolidate at even lower rates, but those have long since dried up. Now students are faced with loans nearing 7% through federal options and even higher rates through private lenders.

*This was particularly popular in MBA and JD programs because it'd provide start-up capital, and then the student would file for personal bankruptcy to wipe out their student loans. The investment would sheltered, and the person would effectively walk away with little to no personal debt. These loopholes were since closed, though for a time it was a popular avenue for those smart enough to do it legally.

It's worth noting that the short-term Federal Funds rate is still set at 0-0.25% - in other words, extremely low, and actually lower than when I was a student. The reason why rates are 6.8% is actually due to an act of Congress.

So now, the Department of Education borrows money from the Treasury at 2.4% (the number I've heard) and then lends it to students at 6.8%, and uses the difference to fund their pet programs.

I can't speak for private student lenders, but I imagine they wouldn't want to lend at particularly low rates because 1) student loans are unsecured debt and 2) why would they lend at rates any lower than what Stafford loans offer?

I got my rate consolidated at 1.8% when I graduated. I paid 12 straight months in a row, and so Wells Fargo knocked another .5% off my interest rate, essentially for good behavior.

The question I wonder about is - can students get consolidation loans for any less than the 6.8% floor set by congress? I imagine there's little incentive for banks and lenders to offer rates any lower, but you never know.