Spinoff: How do loans work?

[hunterjumper12]

I was reading the vet school debt thread and it got me thinking. I am fortunate enough that I have not yet had to take out loans. However, I am going to have to take them out for vet school. How does the loan process work? When do you get your money? Does it accrue interest while you are in school? Do you have to make payments while you are still in school?

I'm sure the answers vary from school to school, but was just wondering if someone could tell me what to expect. Thanks!

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[l2vet]

I also have no UG loans, but here's what I was told (I can regurgitate this pretty well, got the fin aid presentation in front of me lol):

1. How does it work?
That's a pretty broad question. If you're asking how you "get" the loans, for the most part you fill out a FAFSA. If you want private loans, you'll have to seek those out and apply for them yourself. If you're asking how you're going to get enough money, here's what OSU (can't say for other schools) told us. OSU figures what they call a "cost of attendance" where they take the cost of tuition, budget out what they think are reasonable living expenses for living with a roommate (sad for those of us planning to live alone, read: me), and add all that up, that is the "cost of attendance." Federal loans are awarded up to COA, and everyone gets the same amount. If you need more money, or are taking out too much, they said you do paperwork at the fin aid office to have your COA modified. Each year, loans (federal, again you handle private loans completely on your OWN) are awarded up to COA, or whatever you've modified your COA to be.

2. When do you get your money?
I have heard differing accounts from people at different schools. Some say that you get the entire amount once a year. Most people say, however, that the loan is given out (disbursed) at the beginning of each session, say the beginning of each semester/quarter (whatever your school is on).

3. Does it accrue interest in school?
Some do and some don't. I assume that private loans will all accrue interest while in school, but I don't plan to be taking out any, so I'll tell you what I know of federal loans. Stafford Subsidized loans do NOT accrue interest while in deferment (while you are a full-time student). They can be awarded up to $8000/year. Stafford Unsubsidized loans DO accrue interest while in deferment, and can be awarded up to $32,000/year. Grad+ Loans generally make up the difference (i.e. meet the "COA") and also DO accrue interest in deferment. There is also a small Health Professions loan that is based upon parent income; this also DOES accrue interest during deferment.

4. Do you have to make payments in school?
For loans that are in deferment, as far as I understand the process, no. And, as far as I understand the process, student loans can be deferred as long as you're a full-time student, and can also sometimes be deferred when going into residency or intern positions after graduation.

Disclaimer: This is ONLY what I have been TOLD, as I stated I haven't been through the loan process. But since this was sinking to the bottom of the page I thought I would try to help out with the info that was given to me by OSU.

 

[sumstorm]

Good explanation!

COA can only be adjusted upwards with certain pre-determined factors.

also, as a DVM student, you are independent, and you do not need your parents info unless you are applying for HPSL.

Even if you, your spouse, your family has an EFC beyond your COA, you can get up to the COA.

 

[LetItSnow]

COA can only be adjusted upwards with certain pre-determined factors.

Can you elaborate, SS? What kind of factors?

(Feel free to say "Don't worry, the fin-aid people will make it clear soon enough" if it's too much hassle.)

 

[EllieGirl89]

Can you elaborate, SS? What kind of factors?

(Feel free to say "Don't worry, the fin-aid people will make it clear soon enough" if it's too much hassle.)

From what I know, factors such as living alone (and thus needing more money for rent), having an unexpected car repair, etc. The fin aid lady here at OSU told us that if we ever felt like we needed our COA adjusted to come talk to her and she would help us work it out.

 

[sumstorm]

Can you elaborate, SS? What kind of factors?

(Feel free to say "Don't worry, the fin-aid people will make it clear soon enough" if it's too much hassle.)

LOL! I don't know all of them, but there is a list of what can be considered a reasonable addition to COA that you might be able to find online. I know that child care is one. I do know some students that have gotten additional directs for acquiring/repairing a vehicle (couple grand) and I know that at least one student has gotten extra funds for medical care. It's never a lot, though.

Oh, and likely you will never hear about them unless you have a need and approach FA to discuss it?

 

[hunterjumper12]

Thank you so much for the replies everyone! This loan process is starting to make sense. I have already filled out the FAFSA and had it sent to the vet school I will be attending. Am I just waiting for the financial aid office there to contact me now? Also, I know that I don't have to take the whole amount of loan offered to me. If I choose to only take part of the loan, is it pretty easy to get the rest of the money later on in the semester if I need it?

 

[Pelagia]

Thank you so much for the replies everyone! This loan process is starting to make sense. I have already filled out the FAFSA and had it sent to the vet school I will be attending. Am I just waiting for the financial aid office there to contact me now? Also, I know that I don't have to take the whole amount of loan offered to me. If I choose to only take part of the loan, is it pretty easy to get the rest of the money later on in the semester if I need it?

From my experience with subsidized and federal perkins loans in undergrad, you take however much you want when the financial aid is offered and decline the rest. You can't later decided that you want some of the money you originally declined and get it later in the semester, unfortunately. Financial aid is usually disbursed once, and that's either right before or as the semester/quarter starts.

 

[hunterjumper12]

From my experience with subsidized and federal perkins loans in undergrad, you take however much you want when the financial aid is offered and decline the rest. You can't later decided that you want some of the money you originally declined and get it later in the semester, unfortunately. Financial aid is usually disbursed once, and that's either right before or as the semester/quarter starts.

So if this is the case in vet school as well, it sounds like it would be better to take the whole amount offered, and then use what you have left at the end of the semester/year to pay back toward the loan. Can you do that?

 

[Pelagia]

So if this is the case in vet school as well, it sounds like it would be better to take the whole amount offered, and then use what you have left at the end of the semester/year to pay back toward the loan. Can you do that?

Yes, that is the better idea. That's exactly what I planned on doing with my undergrad loans. I still have a small lump sum of money that I could use to pay back a chunk of my loans, but I'm holding on to it at least until I move to North Carolina and get settled in for school before I do that.

 

[hunterjumper12]

OK, thank you! The financial aid people are probably going to hate me when it comes time to get the money, etc. because I'm going to ask a LOT of questions lol

 

[Pelagia]

Also, keep in mind that you can pay the interest on your unsubsidized loans during school. Unlike subsidized loans, unsubsidized loans accrue interest from the moment they are disbursed to you. Boo. Their interest rates are higher than subsidized loans, too (6.8%, but that is a fixed rate that does not fluctuate). You can choose to pay the interest on the unsubsidized loan while in school, or you can wait until you begin the repayment period (which typically begins after a 6 month grace period after you graduate, unless you defer payment because you are enrolled in school again). Keep in mind that if you choose not to pay the interest until the repayment period, then all of the interest accrued will be added to the original amount you borrowed (aka the principal amount). This process is known as capitalization, and it means you will have a much higher amount to pay back (that will still be accruing interest!) than if you paid the interest during school.

Sorry if this is TMI. I completed my exit counseling for my loans not too long ago and the info is still fresh in my head.

 

[Pelagia]

OK, thank you! The financial aid people are probably going to hate me when it comes time to get the money, etc. because I'm going to ask a LOT of questions lol

Nah, it's good to ask tons of questions! It's a lot of money that you're dealing with!

 

[sumstorm]

Just remember that you may need to take some of that extra money and keep an emergency buffer (care repairs, pet illness, unexpected travel) and/or cover summer expenses if you don't have work or want to pursue a non/low paying externship.

 

[hunterjumper12]

Also, keep in mind that you can pay the interest on your unsubsidized loans during school. Unlike subsidized loans, unsubsidized loans accrue interest from the moment they are disbursed to you. Boo. Their interest rates are higher than subsidized loans, too (6.8%, but that is a fixed rate that does not fluctuate). You can choose to pay the interest on the unsubsidized loan while in school, or you can wait until you begin the repayment period (which typically begins after a 6 month grace period after you graduate, unless you defer payment because you are enrolled in school again). Keep in mind that if you choose not to pay the interest until the repayment period, then all of the interest accrued will be added to the original amount you borrowed (aka the principal amount). This process is known as capitalization, and it means you will have a much higher amount to pay back (that will still be accruing interest!) than if you paid the interest during school.

Sorry if this is TMI. I completed my exit counseling for my loans not too long ago and the info is still fresh in my head.

OK, so you can make payments toward the interest while in school. Does the loan accumulate interest on just the principal or interest on the principle plus other interest not paid yet? Does this change depending on if you are in school or not?

If that's confusing, I'll reword it. And if it's too complicated, just tell me to wait and ask financial aid LOL

 

[sumstorm]

its an annual compound. does that answer your question?

 

[hunterjumper12]

its an annual compound. does that answer your question?

That does. Thank you sumstorm!

 

[Pelagia]

This is straight from studentaid.ed.gov, the official government website regarding federal loans.


"Interest accrues on a daily basis on your loans. Factors such as the number of days between your last payment, the interest rate, and the amount of your loan balance determine the amount of interest that accrues each month."


Here's the link to that page: http://studentaid.ed.gov/PORTALSWebApp/students/english/repaying.jsp


Check out the little table on the page, too, and it will show you the daily interest rate factor.

 

[thedogisgreen]

Hm, so a few more questions that tie into this.
1) What's the deal with income-based loans? I've heard those tossed around and but don't know any specifics aside from the obvious, that you pay back a certain amount each month based on your earnings. What are the pros and cons of those, and how does it work to apply for those? Are those better than the unsubsidized stafford loans?
2) I don't like to think about this but my mom brought it up and got me thinking.. I will get inheritance money from my grandma at some point in the future. If I have a bunch of loans and am able to pay some of them off early with much more than the required monthly amount (and thus reducing the compounding interest), would they charge me some fee for paying back too much at once? It probably varies between loans, but anyone have general ideas on this or know how this would affect different loans?
Thanks!

 

[Minnerbelle]

Hm, so a few more questions that tie into this.
1) What's the deal with income-based loans? I've heard those tossed around and but don't know any specifics aside from the obvious, that you pay back a certain amount each month based on your earnings. What are the pros and cons of those, and how does it work to apply for those? Are those better than the unsubsidized stafford loans?

You're talking about income-based repayment, which is what happens AFTER you've graduated. And that's just the repayment option on federal loans - subsidized AND unsubsidized that you've already taken out during school. Just to clarify, regardless of income, I'm pretty sure you can take out enough loans to cover your cost of attendance. The only thing that's income contingent is the amount that you can take out at a lower interest rate (and subsidized).

The pros for this is that it ensures that you will be able to make your monthly payments no matter how big your loan is, and how small your salary is. The cons is that the less you pay/month, the more interest you'll accrue, the longer it'll take you to pay your loans, AND the more money you'll pay overall. Given the salaries of new grads and the monstrous debt some students carry, it's very possible that the amount you pay/month on the IBR plan is less than even the interest on your debt (meaning your debt can balloon).

Also, given the 25 year forgiveness happening right now (dunno how long it'll be around), the less you pay, the more will be forgiven later. If you decide to risk it by maximizing the potential forgiveness amount here, just remember to balance the amount you'll have to pay in income tax on the remaining balance to the amount you'll be forgiven. I'm personally weary of this option since who knows when it'll be cancelled... and as a taxpayer don't really agree with it from a moral standpoint to use for myself. I most likely will become a general practitioner in a private business enterprise to profit off of a commodity (pets). Why should taxpayers pay for that?

But, I will almost 100% likely be paying back on IBR. Like I've said before, the monthly payments calculated on IBR are just MINIMUM payments. No one's stopping me from paying more. I'll pay as much as I can afford to pay down my debt as fast as humanly possible, but I like the safety net of IBR. Think your first year or so out, if you're unfortunate as to accept a contract that is based on production pay (though I don't think that's as common with new grads)... and you hit winter months in a bad economy and clients don't walk through the door... you're kind of screwed.

2) I don't like to think about this but my mom brought it up and got me thinking.. I will get inheritance money from my grandma at some point in the future. If I have a bunch of loans and am able to pay some of them off early with much more than the required monthly amount (and thus reducing the compounding interest), would they charge me some fee for paying back too much at once? It probably varies between loans, but anyone have general ideas on this or know how this would affect different loans?
Thanks!

NOPE NOPE NOPE. At least definitely not with the federal loans, for which you can get up to cost of attendance (or at least that's what I was told). I don't think even car payments, mortgage charges you for paying more...do they? Pay it up all you want when you can.

 

[Minnerbelle]

Also, keep in mind that you can pay the interest on your unsubsidized loans during school. [...]

Sorry if this is TMI. I completed my exit counseling for my loans not too long ago and the info is still fresh in my head.

ha! if you thought that was TMI, you don't know what's comin!


So I've always been wondering about how much this made sense. Is it better to take an extra amount of loans to pay back the interest during school and send in that check, or better to not pay interest during school and only take out the amount you need. This is assuming that I'm so poor I'll get everything back in taxes that I paid in so that's not a factor.

SCENARIO 1: A bit simplified (since I dunno how having 2 disbursements of loans/year changes things), but let's say I NEED to take out $10k in unsubsidized loans a year to cover my costs at 6.8% interest compounded annually for 4 years. In order to have $10k in cash and not inflate the principle above what I originally took out, I'm going to have to take out extra loans (the extra represented by x). That would be:

10,000 + x = (10000 + x) (1.068) - x

x = 729
So you take out $10,729 for your first year.

So for your second year, you need another 10k in cash AND extra (x) enough to cover interest for the loans from 2 years. That would be:

20,729 + x = (20,729 + x) (1.068) - x
x = 1512
So you take out $11,512 for your second year.

Same calculation for 3rd year: $12,192
And 4th year: $13,241
FOR A GRAND TOTAL OF $47,674 in loans owed after 4 years.
(If you don't want to take out that extra amount on your 4th year because you'll presumably start earning income at the end of it: $47,454)


SCENARIO 2: Alternatively if you took out just the necessary $10k in unsubsidized loans and didn't pay interest, at the end of 4 years, you would owe:

10,000 (1.068)^4 + 10,000(1.068)^3 + 10,000(1.068)^2 + 10,000(1.068) = $47,278 in loans owed after 4 years



Dunno if I'm thinking this through correctly this hour of the morning, but my inkling's always been that it's probably not really worth it to take out extra loans to pay the interest on your loans during school. Same goes for taking out extra loans to save/invest money (outside putting a little in savings account for emergency buffer). At least with my skills, no way in hell I'll get a return of over 6.8 - 7.8% in investment.

Someone check my math though, and lemme know if I should be taking out extra next year to cover my interest. And ugh, I WISH I could only take out $10k in unsubsidized loans/year!

 

[Minnerbelle]

So if this is the case in vet school as well, it sounds like it would be better to take the whole amount offered, and then use what you have left at the end of the semester/year to pay back toward the loan. Can you do that?

Wait, question. Is it possible to PAY BACK loans before you're in repayment (as in setting up monthly payments you're obligated to)?

I thought all you could do was just take out less the next semester (ends up essentially being the same thing I guess... you can't make a one time payment for your loans during the semester if you're not in repayment yet right?). I know you can go into repayment whenever you want, but that's different from paying back $2000 during your sophomore year and not making another payment again until after graduation?

 

[Pelagia]

Wait, question. Is it possible to PAY BACK loans before you're in repayment (as in setting up monthly payments you're obligated to)?

I thought all you could do was just take out less the next semester (ends up essentially being the same thing I guess... you can't make a one time payment for your loans during the semester if you're not in repayment yet right?). I know you can go into repayment whenever you want, but that's different from paying back $2000 during your sophomore year and not making another payment again until after graduation?

I don't know about making payments on loans before entering repayment. If you make a payment on a loan before graduating, does that automatically enter you in repayment? That's something I'm gonna ask my financial aid counselor about, because it would be nice to be able to make periodic payments on the loans while in school, without being into enter the official repayment plan and then being obligated to.

If you really don't want to pay too much interest on the loans, you could always take out the full amount offered, set aside the money you didn't use, and then use it to immediately pay back a large portion of the loan upon graduation while you're in the 6 month grace period.

 

[sumstorm]

You can make a payment on your loans before they are in repayment. I do this every year, pay off the interest. This is technicaly what subsidized loans are. the government writes a check for the interest (which was why I thought it was annually compounded while you are in school.) It does not enter you into repayment. At least, I have not had any issues with them asking me for more money, nor have I had any issues getting the next semesters financial aid.

Now, I'm not sure how the math would work out on whether taking out more in the next year would make sense to cover any part of the previous year, but I am fortunate that all my income goes to covering my loans, plus any extra my husband and I get also goes to my loans. My goal is to have less than $10k at graduation.

I do take out the max, then pay back any left over (minus my 3k buffer) every semester. My husband has a 6mo bare bones buffer for emergencies (like job loss, which we experienced last year)

If you take it out, and repay within a certain amount of time (I dont know the time frame, probably 30d) it just changes the amount given to you (doesn't act like a payment) so you can adjust that way as well.

 

[2CatMatt]

2) I don't like to think about this but my mom brought it up and got me thinking.. I will get inheritance money from my grandma at some point in the future. If I have a bunch of loans and am able to pay some of them off early with much more than the required monthly amount (and thus reducing the compounding interest), would they charge me some fee for paying back too much at once? It probably varies between loans, but anyone have general ideas on this or know how this would affect different loans?
Thanks!

NOPE NOPE NOPE. At least definitely not with the federal loans, for which you can get up to cost of attendance (or at least that's what I was told). I don't think even car payments, mortgage charges you for paying more...do they? Pay it up all you want when you can.

I agree with Minnerbelle, federal loans do not have an early repayment penalty, so you can pay higher monthly amounts than the minimum required. Private loans (for students, cars, or mortgage) have their own repayment policies and may charge a penalty for paying off your loan early. Mortgages used to have this a lot, not sure about now. Basically the bank was banking on (haha) receiving the total loan amount plus interest over the course of the loan. Paying it off early results in the bank getting less of your money, and less profit. Federal gov't doesn't want to profit off of students, so they don't do this (as far as I know - but this is how my loans are from grad school).

 

[Chinola]

I was just filling out the FAFSA for the first time and there was a part of it I'm hoping you guys can give me a little advice on. I'm an independent student and FAFSA even says that I'm independent. However, there's one section that says:


You are considered an "independent" student. This means you are not required to answer questions about your parents.However, you may want to answer questions about your parents if:

* you are a health profession student (such as a medical or nursing student), or
* your school requires parental information from all students.


Since we're health profession students does that mean that I should include my parent information? If I do include it does that mean I'm telling them I'm a dependent? Or is there some way to get extra/better money this way? Thanks to anyone that can decipher this for me!

 

[alliecat44]

I was just filling out the FAFSA for the first time and there was a part of it I'm hoping you guys can give me a little advice on. I'm an independent student and FAFSA even says that I'm independent. However, there's one section that says:


You are considered an "independent" student. This means you are not required to answer questions about your parents.However, you may want to answer questions about your parents if:

* you are a health profession student (such as a medical or nursing student), or
* your school requires parental information from all students.


Since we're health profession students does that mean that I should include my parent information? If I do include it does that mean I'm telling them I'm a dependent? Or is there some way to get extra/better money this way? Thanks to anyone that can decipher this for me!

This is only if you want to be considered for a health professions loan. You would still be considered independent in that case--don't worry.

 

[Chinola]

This is only if you want to be considered for a health professions loan. You would still be considered independent in that case--don't worry.

Thank you!

What is a health professions loan? Is that something that I want to be considered for? Gosh I'm so clueless

 

[thedogisgreen]

Thank you!

What is a health professions loan? Is that something that I want to be considered for? Gosh I'm so clueless

It's given based partly on your parents income. If you can get their information, I think it's worth applying for and can't hurt, at least from the little I've heard. The loan amounts aren't very big, but they cover a bit and interest does not accrue while you are in school. So kind of another version of a subsidized loan. Though correct me if I'm wrong.

 

[squibby]

From my experience with subsidized and federal perkins loans in undergrad, you take however much you want when the financial aid is offered and decline the rest. You can't later decided that you want some of the money you originally declined and get it later in the semester, unfortunately. Financial aid is usually disbursed once, and that's either right before or as the semester/quarter starts.

From my experience, you have to accept the total loan amount for each loan, however, we will probably all have three different loans: subsidized, unsubsidized, gradplus, and maybe even HPSL. You don't have to accept ALL of those loans at once. Accept what you need right now, and then later in the quarter/semester if you decide you need more, you can accept another one of the loans. That way you aren't accruing interest on it while it just sits in your bank account.

 

[Pelagia]

Thank you!

What is a health professions loan? Is that something that I want to be considered for? Gosh I'm so clueless

If your school does the HPSL, then fill out the parent info. Not all schools offer it, though.

 

[cowgirla]

Thank you!

What is a health professions loan? Is that something that I want to be considered for? Gosh I'm so clueless

It's low interest. 5% compared to the usual 6.8-7.8%.
The max amount is relatively low though. I've never heard of anyone getting more than 5K from it, but hey, every little bit helps!

 

[AngSchmange]

To those of you paying off interest in school: How are you doing this? About 90% or more of vet students I've talked to at multiple schools say they don't work and don't really know anyone who is. Are you paying off the interest with your life savings, or the extra loan money, or what? Sounds like a good idea to be paying off the interest, but I just have no idea how you're doing it! I must be missing something haha.

 

[sumstorm]

Quite a few students in my class work at least a few (2-6) hours a week, several work about part time, and at least half works during the summer and holidays.

Some of the jobs are animal related (lots of folks work in positions at the vet school or as vet techs in the surrounding community, I run a dog training business) but I also know folks that teach classes at local gyms, someone who teaches knitting at the local yarn shop, another that teaches cake decorating at michaels, etc. the nice thing about the non-animal jobs is the formation of friendships in the community that aren't related to vet school/med.

 

[AngSchmange]

Ok cool, I've been a waitress/bartender for most of my working life haha I was hoping to maybe pick up a day or 2 a week to make some decent cash. Good to know that others can handle it too! Thanks Sumstorm.