Student Loans - Repayment

Your ultimate goal is to find the best repayment plan for your given situation. The best way to avoid paying additional costs is to pay off the whole loan (but if you had that money sitting around you probably would not have taken out the loan in the first place). Paying off your loans as quickly as possible while still having enough money for all of the other fun and necessities is a balancing act and is unique for your given situation.


1. When to start payments - the key factors involved include:

Grace period- the period automatically granted after graduation when you can postpone starting repayment. If your loan is subsidized you typically don't have to pay interest during this period. On unsubsidized loans, however, interest accrues and is added back to the principal as determined by the capitalization schedule.

Deferment - A time period granted after graduation when you are allowed to postpone starting repayment. There are different types of deferments you can apply for including:

You must apply for deferment on each of your loans on a yearly basis. Unlike grace periods both subsidized and unsubsidized loans accrue interest which is added back to the principal as determined by the capitalization schedule.

Forbearance - the option of postponing or reducing payments for a given period of time. Forbearance options vary between loans, but usually add considerably to the total paid.


2. Evaluate your repayment options.

For most loans including federal type IV and VII there are 4 basic repayment options.

Standard Repayment - Fixed payments are made over 10 years. Compared to the given repayment options, short of paying off the loan early, the standard repayment will usually end up costing you the least. Most loans (with the notable exception of HEAL) automatically choose this option for you if you do not specify one.

Income Based - A payment schedule is determined based on a percentage of your income. This can be a viable option particularly if:

  1. you know your income will be making a sizable jump (most residents can say yes to this)
  2. and your available income (taking into account the life style changes you make with the increase in cash) increases as well
  3. and you need the money now

Graduated Repayment - A fixed payment schedule with initially low payments that gradually increase over time.

Extended - Repayment is scheduled from 10 to 30 years. This is a very expensive option and should only be used in extenuating circumstances where the loan burden can not be paid off in 10 years despite the increase in pay after residency.

 

Practicing in underserved areas - there are enticing loan repayment opportunities for those that are interested in practicing in high need areas. Though not for everyone this can take sizable chunks out of your debt.

Consolidation