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).

Financial Aid

I was on my evening girlfriend walk the other day and one of the girls that I walk with started asking me a bunch of questions about her and her husband's student loans. It occurred to me then that there might be others who would benefit from this information as well since there have been a lot of changes in the last few years.

My name is Adriana. I have been working in financial aid for just over 8 years. My husband is just finishing his third year of residency in OB/GYN. We have three kids Emily (5), Palmer (3), and Logan (3 months). After Logan was born I cut my hours back to part time and I now work from home. Things are crazy at our house but we wouldn't have them any other way. I started blogging about three years ago when Bret started residency. We relocated from KS where we had both grown up and all of our family lived to PA where we knew no one. Needless to say it was a really rough first year but has gotten much better. My blog FromKStoPA is private but I am happy to invite anyone who is interested to have access just send me an email.

Financial aid is a really big topic even when you narrow it down to things we as wives would need to know (like deferment, repayment, consolidation, etc). Sometimes when I give presentations I would get the glossy eye way over the head look from people. I realized a long time ago that it helps to break it down into smaller topics in more than one post. Also feel free to post questions or other topics too. If I don't know the answer I can probably find it out or at least point you in the right direction.

Like most students, taking out student loans is a very buy now pay later mindset. We borrow because we need the money now and we have this assurance that "someday" we will have a good job and will be able to pay those loans back. Most of us try to hold off on making any payments as long as possible. In fact most students that I see (and most of my husband's colleagues) have only a general idea of how much they have actually borrowed, what the interest rates are, and or how much their monthly payments will be. Realizing that most them have borrowed for at least 8 years (assuming 4 years undergrad and 4 years med school) we sometimes lose track.

The first step is to figure out how much you owe, who you owe to, and what your interest rates are. One of the best places to do this is at the National Student Loan Data system www.nslds.ed.gov To have access to this information you will need to have the borrower's PIN which can be found at www.pin.ed.gov

This website keeps track of all of the student's Stafford loans. Each individual loan is listed with the amount, date taken, outstanding principle, and outstanding interest. If you have consolidated the loan it will also list the consolidated loan total as well. You can find information on who the lender is and their contact information.

Because of the costs of going to school are so high most students have borrowed more than just Stafford loans. Other types of loans include Perkins and private loans. To find these totals you have to do more leg work. To find out your Perkins total you should contact the school attended. Be sure to contact all schools attended including undergrad. Most schools use University Accounting Service as the collector for repayment. You could also contact them for initial information.

For private loans the easiest way to find all of them at once is to run your credit report. You can run this for free three times a year. Although this doesn't give you your credit score you can get contact information for each of the private loans held. Even if you are pretty sure that you know all of the loans and their contact information it is a good idea to double check. It is the small loans that you forget about that can turn into a real pain in your side.

Once you have a good list (or in our case a spreadsheet lol) of all of your student loans you want to make sure that each lender has accurate contact information. My husband is really bad about keeping track of anything bill wise. We have an email address set up that we both have access to so that I can help keep track of things like student loan notices.

Keeping track of all of the loans is half the battle. The second half of the battle is repayment (or keeping from having to pay them until residency is over). In my next post I will talk about deferment, forbearance, economic hardship, minimal income repayment, consolidation, and repayment options. I am happy to cover other topics that there might be questions about. I wasn't sure where to start and what all to cover. Like I said at the beginning financial aid is such a huge topic that it is hard to know what everyone already knows/understands and what there are questions about. Other topics I feel confident discussing is residency/relocation loans, medical school private loans, and repayment strategies. Something that we are currently working through personally is contract negotiations with the inclusion of student loan relief and medical underserved area loan forgiveness programs. I hope that this information helps!