What to Do With Your Student Loans as a Resident

What to Do With Your Student Loans as a Resident

by | Jul 25, 2018 | #Millenniallife, Consolidation, Getting started, Loan Forgiveness

You’ve finished school and you’re a few weeks into residency. While it’s awesome to be finally practicing what you went to school so long for, it’s pretty likely you racked up some major student loan debt to do it. The problem is, as a resident, you don’t make even close to enough money to pay back all that debt like you will once you’re finally staff. So what’s a resident to do when you want to stay on top of your student loan debt and set yourself up for success when you graduate residency?

 

After reading or watching today’s post you’ll know exactly what you can do with your student loans to set yourself up for repayment success when you do finally finish residency. Estimated read time ~ 6 minutes estimated watch time at 1.5x speed ~4 minutes.

 

Get started.

 

The first thing you’ll need to do to figure out what to do with your student loans is to learn and acknowledge the basics of your debt. Answer these three questions and move on to the next step.

  1. What type of student loans do you have? (Federal, private, both)
  2. How much student loan debt do you owe?
  3. Are you a resident at a government on non-profit institution? (i.e. a VA or a 501c3 hospital?)

 

Option 1: Public Service Loan Forgiveness (PSLF)

 

One of the most common options residents choose to pursue is PSLF. PSLF forgives the remaining balance of Federal student loan debt after a borrower makes 120 eligible monthly payments on an income-driven repayment plan while employed full-time for an eligible employer (government or 501c3 organization).

 

This can be a good option for residents that have significant amounts of Federal student loan debt. Remember, loan forgiveness options only work for federal student loans so any private student loan balances will still need to be repaid in full.

 

If this is the route you’re planning to go here’s the most efficient way to get it done:

  1. Consolidate your loans into a Direct Consolidation Loan right now. This allows you to enter repayment right away instead of wasting six months in the grace period. If you don’t do this you’ll accumulate interest in the grace period and won’t be making an eligible payments toward loan forgiveness so will delay your forgiveness by six months.
  2. Enroll in your income-driven repayment plan of choice. If you qualify, the PAYE plan is the best because the monthly payment is 10% of discretionary income and never more than the payment under the 10 year standard plan.
  3. Start making payments as soon as your loan is consolidated.

 

Option 2: Income-Driven Repayment, No Forgiveness

 

Maybe you’ve decided loan forgiveness isn’t for you because you have a lot of private student loan debt or not quite enough federal student loan debt to make forgiveness worth it. Or maybe you don’t like the idea of a loan forgiveness program that can be eliminated by a congressional vote. Whatever the reason, you’re not planning on using student loan forgiveness.

 

You want to avoid entering forbearance on your student loans. As a resident, you qualify for this option. The problem with forbearance is that interest will continue to accrue on your student loans the entire time you’re not making payments. That interest can cost you thousands of dollars each year!

 

For most residents, your best bet is going to be to enroll in an income-driven repayment plan. That way you can make low monthly payments and at least pay off some interest. You also have the option to make extra payments each month if you can afford it, but don’t have the pressure of a high monthly payment on a resident salary.

 

If you have private student loans your options may look different. You’ll want to talk directly to the servicer of your private student loans to arrange a repayment strategy that works for you during residency. Private loan servicers may encourage forbearance rather than offering up a lower monthly payment option. If this is the case ask them if you’re still able to make monthly payments while your loans are in forbearance. That way you can work to pay down your debt without the pressure of a high monthly payment.

 

When you’re almost finished with residency.

 

If you’re not considering loan forgiveness you may want to consider refinancing once you’re getting paid market salary for a post-residency graduate. If that’s something you’re interested in check out this post, which is all about whether refinancing during residency is a good choice or not.

 

Are you a resident trying to figure out what to do with your student loans? Leave me a comment below or send me an email jeni@repayable.org having been a resident myself I’m always happy to help other young professionals start off strong with their student loans!

 

The Don’ts of Student Loan Consolidation

The Don’ts of Student Loan Consolidation

by | Apr 9, 2018 | Consolidation

Photo credit for this awesome image: Gratisography

 

Read this if you’re thinking about consolidating your student loans. Estimated read time ~4 minutes.

Making a mistake with your student loans feels like a punch in the face. I mean seriously, you already owe tens of thousands of dollars (hundreds of thousands even) and now you messed something up because even though you’re smart as hell you didn’t learn a thing about repaying your debt in college.

No worries, today’s post is here to help you out. Here’s what every borrower should know about consolidation.

 

What is student loan consolidation?

 

Student loan consolidation combines multiple smaller federal student loans into one big loan, now called a Direct Consolidation Loan. Student loan consolidation can be a handy way to simplify your repayment.

 

Don’t do this:

 

  • Consolidate your federal student loans if you’re planning on getting PSLF or income-driven loan forgiveness and have already made eligible loan payments. A new Direct Consolidation Loan will start your 120 payments (for PSLF) or 20-25 years (for income-driven) all over again.

 

  • Plan on getting an interest rate discount. The interest rate on your Direct Consolidation Loan is a weighted average of your existing loans. Student loan consolidation doesn’t lower your interest rate.

 

  • Pay any type of fee or apply through any company other than the US Dept of Ed. Consolidation is free and easy to apply for. Save your money for paying down your student loans.

 

  • Let interest wipe you out. Consolidated loans are often eligible for longer repayment terms. If you take more time to repay your newly consolidated loan than you would have to pay your current loans you could spend thousands of dollars extra on interest.

 

  • Lose your six month grace period if you need it. You can consolidate your student loans when they’re in the six month grace period. However, payments on consolidated loans start 60 days after you consolidate. That means you could shorten your grace period by four months. It’s fine if you’re ready to pay back your loans, but no good if you planned to have six months before you started repaying.

 

Do this instead:

 

  • Keep making payments as you are and leave your student debt as multiple student loans to keep your forgiveness clock marching forward.

 

  • Plan on getting a fixed interest rate. All Direct Consolidation Loans have a fixed interest rate that doesn’t change throughout your repayment.

 

 

  • Consider what an affordable monthly payment is for you and calculate the interest you will pay under different repayment plans. Choose the plan that sets an affordable monthly payment and minimizes interest.

 

  • Indicate on your application if you would like the loan servicer to delay your consolidation until closer to the end of your grace period. This will keep your six month grace period payment free of payments so you can look for a job.

Have you considered consolidating your student loans? Let me know why you did or didn’t in the comments below or on the Repayable Facebook Page.