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Student loans can make you feel like you’re carrying a heavyweight. We understand the frustration and confusion you can feel as you’re sorting through repayment options.
Here are some commonly asked questions about medical school debt, loan forgiveness, refinancing and repayment, and more!
Q: Who should you talk to about public service loan forgiveness or refinancing?
A: There are a number of consultants out there that will take a fee to tell you what is the right program for you.
Most importantly, You should talk to your HR representative at your organization to make sure that you are Public Service Loan Forgiveness eligible in your organization.
You should also determine if you want to work for a public service eligible employer until you get to 10 years.
If you are currently eligible and you want to stay at an organization that is a 501(c)(3) nonprofit, Public Service Loan Forgiveness can help you get your loans forgiven.
Keep in mind that as of 2018 the PSLF had a low acceptance rate, though experts say that the acceptance rate will improve as the program becomes better understood and administered.
The people who were denied in 2018 either had incomplete paperwork or were given bad information from loan servicers.
So if you’re interested in utilizing PSLF, be very sure that your organization qualifies and that you are filing the proper paperwork throughout the length of the program.
Q: If I have a large amount of debt over $200,000 but would potentially be able to pay it off in less than 5 years, is there an advantage to refinancing?
A: Maybe, if you can get a lower interest rate through refinancing.
No matter how quickly you pay your loans off you're going to be accruing interest on that balance until you pay it off.
This means over the course of that 5 years you're looking to pay your debt off, you're going to accrue less interest.
And if you have a high loan balance of $200,000 a lower interest rate can save you a significant amount of money.
However, this might not be true depending on your credit score.
Refinancing involves taking out a loan at a variable interest rate based on your credit score, so if your credit score isn’t great you might not have access to a better interest rate than you have now.
A: Direct federal loan consolidation takes all of your federal loans and combines them into one payment with a weighted average of the entire interest rate balance.
So if you have a bunch of loans with interest rates ranging from 5% to 6%, they'll take them all together and you'll likely come out with an interest rate of about 5.5%.
Refinancing also combines your loans together, but with the potential of giving you a lower interest rate.
It does make your loans ineligible for federal benefits like income-based repayment and Public Service Loan Forgiveness.
And you shouldn’t refinance if you don’t have life or disability insurance, since not all refinance companies discharge your loans if you die or become disabled.
Q: Is your rate fixed or does it change over time when refinancing?
A: You can choose between fixed and variable. A fixed interest rate generally means that the interest rate is not going to change and you'll have the same monthly payments throughout the duration of the loan.
If you have a variable-rate loan that means your loan or interest rate is tied to the market interest rates.
The benefit of a variable-rate loan is that you can access low-interest rates when market interest rates are low, as they have been in recent years.
But as the market interest rates go up, your monthly payment would go up.
A hybrid loan is five years with a fixed interest rate followed by five years with a variable interest rate.
The benefit of a hybrid loan is that the fixed rate given for the first five years is lower than the rate for a 10-year fixed-rate loan.
A hybrid loan gives you the flexibility to say, “Okay, well, maybe I want to pay it over six, seven, eight years.”
And by the time you get to that variable piece, your loan principal will hopefully have been reduced drastically.
Q: Does a mortgage loan affect my application for refinancing?
A: Absolutely. Anytime you are looking to take out a loan, whether that's refinancing or taking out a mortgage, one of the things they're going to look at is your debt-to-income ratio (DTI).
This is the amount of debt you have versus the amount of money you're earning.
So if you're a renter and you refinance your loans, your rental doesn't count against your DTI ratio.
But if you have a mortgage your DTI will be higher, which can impact your refinancing interest rates.
Q: What is the difference between Revised Pay As You Earn (REPAYE) and Pay As You Earn (PAYE)?
A: There are a number of differences between PAYE (Pay As You Earn) and REPAYE (Revised Pay As You Earn).
The PAYE started first and is more restrictive on who can take advantage of it because it’s more generous.
PAYE is maxed out at your 10-year repayment. So your 10-year standard repayment plan amount is going to be the max you will ever pay on a PAYE program.
On the REPAYE program, if your income goes above a certain threshold you will owe more on your loans than you would pay monthly on the standard repayment plan.
But if you’re not going to utilize Public Service Loan Forgiveness and can afford to make your standard repayment plan payments, you should.
That will minimize the interest you’ll pay on your loans.