too good to be true? 4% cash back upon graduation,10% after 48 payments on time?

[Goldenhair]

I am an incoming MS1 and am so confused which lender to choose. MedPreferred seems to offer the best deal so far:

• 4% cash rebate of the principal balance outstanding after graduating from a graduate program
• 10% credit of the principal balance outstanding after making 48 consecutive, scheduled payments on time
• 0.25% interest rate reduction for enrolling in automatic payments

This sounds too good compared to other companies. Is there a trick? Like, may be they are trying to attract so that I have to stay with them for all the 4 years in order not to lose these 4%? Do they offer 4% just this year and can change it next year?

Also I have a question regarding the 1.3% that THE grants you - is it after graduation or when?

And, lastly, 3 general questions:

Can you get any reduction of principal or interest while in school?
Do students normally choose a different lender each year?
When do you consolidate medical loans?

---

Members don't see this ad.

 

[mshheaddoc]

You know what they say, if its too good to be true ... it usually is.

Here's from their website:

All loan payments, as applicable, must be made on time to be eligible for these benefits. 4% cash rebate must be requested in writing by the student after graduating from a graduate program but within 180 days after graduation. The rebate request form is available online at www.medpreferred.com/rebaterequestform or by calling 888.MED.7777. The interest rate reduction and credit benefits do not require submission of a rebate request form. To receive the interest rate reduction, the borrower must enroll in automatic payments through ACH and remain current. Borrowers who cancel ACH can re-enroll at any time and return to the benefit as long as all loan payments have been made on time. Once applied, cash rebates and credits of the principal balance are not rescinded (Mshheaddoc's comment: does anyone else see this as a red flag? Why would you want free money to be rescinded? Sounds fishy to me). MEDPreferred reserves the right to modify, extend or discontinue these benefits at any time without notice. Borrower benefits will terminate in the event of default or failure to meet qualification criteria. Additional terms and conditions apply; please contact MEDPreferred for details.

I do NOT like it when a lender doesn't explain up front how things are calculated because that means that there is a catch. Ask them what the catch is. Cash rebate doesn't mean your principle balance is reduced. IRR reduction, doesn't mean your payment will go down. Etc. Just because they say you can get benefits, doesn't mean you will get them. Understand the terms.

Do students normally choose a different lender each year? Go to my financial aid question thread and read my thoughts on that.

Consolidation of medical federal loans can only take place when you are in your grace period (after you graduate). During that time period you will probably also be applying for deferment if you are doing a residency/internship.

 

[okbye]

That disclaimer about changing the loan terms looked pretty bad to me too but I have been compiling loan terms all day for our new website and every single company so far has had that same disclaimer somewhere on their site. I think they are just referring to the terms listed on their website, meaning if they have changed their terms and haven't gotten the website updated yet, too bad. Or if it is a less than reputable company they can change the terms when issuing the contract. What you need to make sure of is that it doesn't say that on your actual contract. If they put it in writing, with no disclaimers, than it is binding.
With some lenders if they give you a rebate or credit and you consolidate your loan at a later date with someone else they make you pay back the rebate/credit. I think thats what they mean by the rebate or credit not being rescinded.
I have never seen a loan term where the payment ever goes down, interest reductions take time off the term of the loan. If you get a reduction your loan will be paid off in say 8 years instead of 10, but the payment stays the same the whole time. The only time there's a different payment is if you opt for a graduated payment or income contingent payment, those will generally be lower to begin with then go up.
Cash rebates are almost always a scam. By the time you graduate your loans have gathered ~6.54% (or more for private) interest yearly which is capitalized upon graduation (or more often, depending on lender). Let's say the total interest gathered is 10k. If they issue you a 4% cash rebate (6k) they are still considerably ahead in the amount of interest they are adding to your loan, and that 6k has been added to your principal. They only way this can benefit you at all is if you take that rebate and apply it to your loan, otherwise you are paying interest on it. It's like they are loaning you your own money. I don't know how clear that is but I couldn't think of a better way to explain it.

 

[AMDFAO]

I've read the language you have quoted and I tend to think if you are in a degree program, graduate that program and get your degree you would pretty much lose the benefit instantly UNLESS you were willing (and able) to make all the payments during your residency or advanced degree program if dental for the next 48 months to keep it. I would call and ask that exact question and then make your decision. I also found it a bit odd that you could only initial either Stafford or PLUS. Is the rebate only good for one or the other? Ask that as well.
The other poster who explained the adding back of the benefit (this could also mean loan fees payed by a lender or recalculating the balance using the higher of the rates going back to when the loan was disbursed) if the loan is consolidated is pretty standard in the industry as they are for the most part based on timely payments etc... Ask any lender about upfront benefits and what happens if you consolidate later on. The interest rate of record will always be the actual rate without any reduction in a consolidation. For example: you borrow from HoopieMae and they give you .8 off the 6.8 rate from the day it's disbursed (the day the money changed from the lender to you) and you decided to consolidate a year later, I would be fairly certain the rate would be consolidated using the 6.8 (not the lesser) and that the interest accrued would be recalculated based on the 6.8 as well (let me know if I lost you at that one).
If you are likely to do that for 1 lender/1 payment later on that should be the factor that guides your decision in choosing lender for stability and servicing over the next 4-8 years. Repayment incentives vary from lender to lender competing for your business and each will most likely attempt to outdo the others. Again, if you are already thinking 1 lender/1 payment will trump the incentives, you may decide to spare yourself the aggrivation of multiple lenders and "shopping" from year to year. I also think that as Congress is pretty close to cutting the payments they make to lenders you may see a waning of incentives across the industry... It's a wait and see situation but until then, you will be bombarded with incentives from every lender in the country fortifying their portfolios that will guarantee them the largest subsidies from the feds while you're in school and for the length of your repayment and enticing you with incentives.
With the rates set on Stafford at 6.8 and Grad PLUS at 8.5 (or 7.9) in Direct for the next few years the compelling reason to consolidate becomes by in large for 1 lender/1payment over potentially 30 years of anything federally backed or funded (Sub Unsub, PLUS, Perkins, HPSL, LDS). The current rate for consolidation is a fixed rate but that could change as well. Consolidation was a variable rate, changed to a fixed several years ago so in short: what is in play today may not be what is in play 4, 6, 8 or 10 years from now.
If you want to post back with any questions, I'll let you know what I think.

 

[quinsy]

Can you get any reduction of principal or interest while in school?
Do students normally choose a different lender each year?
When do you consolidate medical loans?

I can't comment on the loan company except that I would be very suspicious about it.

As for question #1, you mean by paying it down, right? Because I have THE and as long as you check the right check-box when you sign up, you have the ability to make payments while you are in school etc. I inherited a few thousand dollars from a great aunt and put some of it towards loans while I was in 4th year.

Question #2 I would say definitely no, people are nowhere near motivated enough and I don't really think that you would benefit much from switching around. Just about everyone at my school had THE and I don't know of anyone who changed lenders at all.

Question #3 You won't consolidate with high interest rates like these! The time to consolidate is when rates are relatively low, and you have a reason to believe they are about to rise. You could consolidate with the current rates of like 7%, for example, if you thought that rates were about to jump to 10%. This just happened in 2006 when rates went from 3% to 7% or so on government loans. Everyone who had a clue consolidated at the low rate. I always wondered how many people out there did not get the message and lost a lot of money.

 

[TMP-SMX]

Can you get any reduction of principal or interest while in school?
Do students normally choose a different lender each year?
When do you consolidate medical loans?

I can't comment on the loan company except that I would be very suspicious about it.

As for question #1, you mean by paying it down, right? Because I have THE and as long as you check the right check-box when you sign up, you have the ability to make payments while you are in school etc. I inherited a few thousand dollars from a great aunt and put some of it towards loans while I was in 4th year.

Question #2 I would say definitely no, people are nowhere near motivated enough and I don't really think that you would benefit much from switching around. Just about everyone at my school had THE and I don't know of anyone who changed lenders at all.

Question #3 You won't consolidate with high interest rates like these! The time to consolidate is when rates are relatively low, and you have a reason to believe they are about to rise. You could consolidate with the current rates of like 7%, for example, if you thought that rates were about to jump to 10%. This just happened in 2006 when rates went from 3% to 7% or so on government loans. Everyone who had a clue consolidated at the low rate. I always wondered how many people out there did not get the message and lost a lot of money.

What's preventing you from making a payment with THE during school/deferment? Will that go toward the principal before capitalization, will that go toward interest, or will that somehow screw something up and put you into repayment if you did not check the box. I'm not quite sure what the box is all about and I don't see how they wouldn't want you paying when you don't have to.