Figuring out how to pay off your student loans can be overwhelming, especially if you’re a graduating med student with debt in the hundreds of thousands of dollars.
It doesn’t have to be that way. It’s important for you to know that you have options that will allow you to consolidate your loans, defer your payments, align your payment amounts to your salary, or have some of your debt forgiven altogether.
In our three-part series on student loans, we explore the options available to you, so that you can make an informed decision on how you can pay off your debt, maintain your lifestyle, and have some peace of mind.
First, identify what kind of loans you have
The key to managing your student loans effectively is understanding the types of loans you have and what options they offer. If you’re like most medical school graduates, you probably have multiple loans from multiple financial institutions.
Begin by visiting your lender websites or reaching out to them personally to confirm your student loan types, balances, and payment statuses. If you have a federal loan, you may be able to access your information through your loan servicer or at https://studentaid.gov/manage-loans/repayment/servicers.
If you have private loans, they will be subject to the terms and conditions of the lending institution, which are usually different than those established by the U.S. Department of Education for federal loans.
Accessing information for your private student loans may be more of a challenge, so you may have to reach out to the loan servicer via phone or written correspondence to discuss any specific questions you may have.
Federal Loans and the 6-month deferment
Good news! If you have a federal loan you will be given a 6-month grace period after leaving school before your first payment is due. Unless you reach out to your student loan servicer during this time, your loan automatically converts to a 10-year standard repayment plan. If you have a higher loan balance, longer repayment terms are available. You may be able to choose a different repayment plan by contacting your loan servicer or through loan consolidation.
Keep in mind that the 6-month deferment period may also represent 6-months of not making qualifying payments for Public Service Loan Forgiveness. However, if you’re not seeking PSLF and you can fit it in your budget, you can make the interest payments during the grace period to avoid the accrual of this interest.
If you do pursue a Direct Consolidation Loan these are the balance and term thresholds:
|Loan Balance||Maximum Loan Term|
|Less than $7,500||10 years|
|$7,500 to $9,999||12 years|
|$10,000 to $19,999||15 years|
|$20,000 to $39,999||20 years|
|$40,000 to $59,999||25 years|
|$60,000 or more||30 years|
The pros and cons of loan consolidation
The first choice to make when considering consolidation of your federal loans is whether or not you’re going to pursue Public Service Loan Forgiveness (PSLF), which is discussed in more detail in Part 2 of this series.
If you are sure that you will not pursue PSLF, then the consolidation question comes down to interest rate and terms and whether the best of those are available through consolidation or private refinance. If you choose to pursue private refinance, do so knowing that you’ll lose the benefits of federal loans like PSLF and income driven repayment options. Read more about other considerations here.
Some secondary considerations include the flexibility that having multiple loans allows you to focus on one, typically the smallest or highest rate, pay that off and then prioritize the next loan. When you do consolidate, your interest rates are also rounded up to the nearest 1/8th percentage point which can actually have a meaningful impact on the total interest you pay, especially for larger balances.
Especially if you are considering PSLF there may be a need to consolidate in order to be eligible. This is because not all loans qualify for PSLF, and for that matter some income based repayment options, and consolidation can be a way to move non-qualifying loans into a loan type that is eligible.
When you step back and look at the amount of money you owe on your student loans, chances are you’ll be a little overwhelmed. You also need to realize that there are actions you can take to ease your financial burden. The key is understanding what your options are and which ones are right for you. In Part 2 of our series, we will explore the pros and cons of payment deferral and the Public Service Loan Forgiveness Program.
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