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Lives of Doctor Wives: Financial Aid Part 2

Sunday, April 25, 2010

Financial Aid Part 2

Sorry it took me so long to get the second post up but this has been a crazy week.

Once the med student graduates from med school you start on a sticky path of managing all of the debt accumulated up to this point. Residency is not considered school so the loans are no longer in "in-school" deferment. All Stafford loans have a 6 month grace period. This grace period does not start over each time that you put it back into deferment so if you wait the six months after school ends to apply for another type of payment suspension (deferment or forbearance) you don't get another six months once the loan goes back into repayment at a later date.

One of the most common questions is the difference between deferment and forbearance. With any type of deferment the subsidized loan does not accrue interest and no payment is due. It is as if the borrower is still in school. With forbearance the interest begins to accrue. Just like when the student is school they can choose to defer payment on the interest but it will accrue all the same and once the forbearance has ended the accrued interest will capitalize. Meaning that the interest accrued will then become principal. One misconception about forbearance is that it will hurt your credit score. A loan in forbearance will not show up on your credit negatively. The only time a loan will hurt your credit is when it has been defaulted on. Meaning the loan is in repayment status and not being repaid. A defaulted loan will SERIOUSLY affect your credit so this should be avoided at all costs. (This is one of the reasons it is SO important to keep track of all loans).

With regards to the resident's loans there are several options for repayment/deferment/forbearance that they may qualify for. Sometimes if you are on the lender's website it can be confusing to see Internship/Residency Deferment form. This option is only available for loans taken out prior to 1993 (which does not apply to most of us).

So then you have to decide do you a)try to not make any payments what so ever or b) try and make a small monthly payment.

If you decide that you want to not make any payments you have two options. The first is economic hardship. The College Cost and Reduction Access Act changed the requirements that helped qualify most residents for this option. Before this act they would look at what your monthly payment would be and what your discretionary income was and if the monthly payment exceeded 20% and your discretionary income was less than 2.2 times the poverty line for the family size you qualified. They eliminated this and in it's place added new repayment options. The qualifications now simply look at the borrower's income compared to the poverty line. We have a family of 5 and still don't qualify for economic hardship anymore. This is not an option that will apply to very many residents but still should be looked at first if you are trying to not make payments because it is the only one that will defer interest.

The only other option for residents to not make any payments is forbearance. Residency is an automatic qualification for forbearance. There is still a form that you have to complete and most likely have your department sign off on but you don't have to make a certain level of income to qualify you just have to prove that you are in a supervised program that is required for licensure. Just remember that your interest will accrue and eventually capitalize.

If you want to make payments while in residency (this also applies to your repayment plan once residency is complete) there are several repayment options. There is the standard, extended, graduated, income-contingent, income-sensitive, and income-based repayment plans.

Standard- Same monthly payment for up to 10 years with a minimum monthly payment of $50.

Extended- Similar to the standard repayment plan except extends repayment period to 12-30 years.

Graduated- Starts off with a lower monthly payment plan that gradually increases over the years. Loan term is 12-30 years. Monthly payment amount cannot be less than 50% of the payment with standard repayment and no more than 150% of the monthly payment of a standard plan.

Income-Contingent- Only available for direct loan borrowers. Based on borrower's income and debt levels. It is very important to not that all of the income based payment plans look at both the borrower and the borrower's spouse's income but only looks at the borrower's debt. Many claim that this is a marriage penalty. As the spouse this plan would never be an option b/c using my husband's income but not his loans would really hurt what my monthly payments would have to be. The amount you pay would change each year as your income and debt levels change. After 25 years of repayment the balance is forgiven.

Income-Sensitive- This is the FFELP version of income-contingent. The payment is a percentage of the monthly income ranging from 4% to 25%. The percent is determined by the borrower and must be equal to or greater than the monthly interest accruing. There is a limit of 10 years for the repayment option.

Income-Based- This is the new repayment plan that became available July 2009. This repayment plan determines your monthly payment the same way the old economic hardship deferment was determined. They look at 15% of your discretionary income, where discretionary income is the difference between your adjusted gross income and 150% of the federal poverty line that is matched up with your family size. There is no minimum so you may have a monthly payment of $0. Any balance that remains unpaid after 25 years of payments is dismissed. Also if your payments do not cover the interest that accrues, the government pays or waives the unpaid interest for the first three years.

So that in a nut shell is some brief information about deferments, forbearance, and repayment options. In the next post I will cover loan consolidation, residency/relocation loans, loan forgiveness programs, and any questions that this post may have generated. I hope that this information is helpful (and that you haven't fallen asleep yet).

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18 Comments:

Blogger TheFamousStacie said...

I'm curious if Dr.H can still qualify for forbearance in fellowship?

Or are they going to cart us off to debtors' prison??? ....

April 25, 2010 at 1:44 PM  
Blogger Melisa said...

Great stuff, Adriana!

Just wondering, we had a loan that was in forebearance and my DrH forgot to send in the yearly form. Because of that, they made us make a payment before we could put it back in forebearance. Now that the year is up, they won't let us put it in forebearance anymore because we made a payment on it. Is that pretty typical?

April 26, 2010 at 10:03 AM  
Blogger Adriana said...

Melisa- is the loan a stafford loan or private loan?

April 26, 2010 at 10:58 AM  
Blogger Melisa said...

I think it was private. Wachovia. They've been a nightmare to work with. That is the first loan I'm paying off. Can't wait to be done with them!

April 26, 2010 at 11:00 AM  
Blogger Adriana said...

Unfortunately the private loan industry is not as heavily regulated as stafford loans. Therefore each lender sets the terms for their loan repayment policies. We got stuck in a similar situation where we found out too late that they only allow you to defer payments on one of our loans for three years. They failed to mention this to us until we sent in our application this year for our fourth year. My suggestion is to keep calling and hounding them. They would rather work out payment arrangments then have you default on the loan and sometimes getting the right person on the phone is what you need.

April 26, 2010 at 11:09 AM  
Blogger Melisa said...

They are letting us do interest only payments, but I still don't like them. They've been tough to work with the last 3 years.

April 26, 2010 at 11:11 AM  
Blogger TheFamousStacie said...

grumble, grumble.... that just makes me so aggravated!!!

Blood from a turnip. Just wait until they are out of training and are making a livable salary!

Why not be easy to deal with now, so we will want to work with them later?

We, too, have learned who not to work with again.

April 26, 2010 at 11:41 AM  
Blogger Kathi the wingspouse said...

TheFamousStacie, you hit the nail on the head! Banks will want you as their client later. If your current loan structure isn't working for you, you may consider visiting a local bank and asking them what they can do for you. Play the "doctor" card and mention you like the idea of keeping all of your banking/financing with one institution. I've been surprised how many local banks will creatively refinance a loan to make your life easier in return for banking loyalty. I'm sure there are tighter restrictions now, but it's not like they were doing anything questionable...

April 26, 2010 at 2:40 PM  
Blogger Adriana said...

My only caution with this is that most student loans forgive the loan if something happens to the borrower..even disabilty. Make sure that any new loan you replace it with has some sort of protection to cover that or up your life insurance to protect yourself for this as well.

April 26, 2010 at 2:45 PM  
Blogger Timani said...

Hmmmm. My husband started residency this year and we were able to get all loans, even private loans deferred because he was in residency! Residency is really "Graduate Medical Education" and should qualify if you are in a (whatever type of nationally recognized acronymed)program. He called each lender and most of them wanted a letter from his residency director stating his start and end dates. His director faxed it to them. It was really easy. Look into it!

April 29, 2010 at 4:21 AM  
Blogger Tif said...

These are some great posts and I love that you are doing it in little snippets! It makes it easier to digest it all!! Thank you so much!!

April 29, 2010 at 11:18 AM  
Blogger Chelsey said...

Hi,

I am new to this blog :) and I am so thankful I found it!! My husband is currently a MSIII (almost MSIV) and we are currently considering taking out a personal loan for 4th year to do interviews.. has anyone else had to do this? If not - how did you get by just on student loans for interview traveling and away rotations?

Thanks!
Chelsey

April 30, 2010 at 6:39 PM  
Blogger Tif said...

Chelsey,

We did take out some residency relocation loans and I wrote a long thing about them on my blog. If you are interested, I would be happy to share the link with you. It can be a controversial topic, but every family needs to make the choice that is best for them. In our case, it was the best choice!! :)

April 30, 2010 at 6:59 PM  
Blogger Chelsey said...

Thanks Tif,

I read your blog entry on the topic.. its was very helpful! Thank you! I also read your entry on purchasing a house using a 'doctor loan' {don't know if thats what its really called :) } which was very helpful as well. The only thing that makes me nervous right now is that more and more people {we know} are getting denied loans.. banks are saying its because of the economy. We havent applied for anything yet... but we will have to soon.

- chelsey

May 1, 2010 at 12:06 PM  
Blogger Elisabeth said...

Timani, I thought you could defer loans through residency anymore? Everything I've read says that getting loans deferred is not possible! Can you provide more details?

Or, Adriana, can you provide more info about a defferal option?

May 2, 2010 at 4:29 PM  
Blogger Tif said...

@Chelsey . . . I'm glad you found it helpful! If you have any questions about what I wrote, please feel free to email me! I'm always happy to answer questions!! And, the loan we received was actually called a Physician's Loan. It is only available to doctor's and they are more open. However, I have also heard of some people getting denied this year but it had to do with a current home ownership. Either way, I wish you the best of luck!! :)

May 2, 2010 at 10:26 PM  
Blogger Liz said...

Thank you so much for these posts. They were so great - I would have loved to have them during med school. You're sweet to post it all.

May 14, 2010 at 1:24 AM  
Blogger Amanda said...

Thanks so much for your post! My husband is MS4 so we haven't gotten into the loans during residency mess, but it sounds like it will be fun. However, I have some loans from my [very expensive] undergrad schooling that have been in economic hardship deferment. If you qualify for any type of public assistance, like Food Stamps or Medicaid, then you automatically qualify for economic hardship deferment. You just have to provide proof of benefits on the deferment application. The down side to economic hardship deferment is that you're only allowed to use it for 3 years (unless that has recently changed with the new legislation- any one know?)

May 18, 2010 at 10:07 PM  

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