Question:
Dear Steve,
My spouse and I are both currently in Dental School with about $150,000 in loans each (with Direct, unsubsidized Stafford loans and Grad PLUS loans). We’re only halfway through, so our loans are in deferment or listed as “in school”. We’ve recently heard that we can take our loans out of deferment and, since we don’t have any income, would have a $0 payment (and possibly knock some interest off?). We’re already accruing interest on these loans, since they are unsubsidized.
Is there anyway taking our loans out of deferment prematurely can negatively effect us, now or in the future? Is there a way that it could possibly be beneficial to us? This plan sounds too good to be true!
Grace
Answer:
Dear Grace,
The reason the plan sounds too good to be true is because it is.
What it sounds like you are describing is moving your loans into a Direct Consolidation Loan and then into an income driven repayment plan. Based on your low income at the moment the monthly payment could be as low as $0 per month. But the interest will still accumulate and inflate the balances.
You should read Why Income Based Student Loan Payments Can Be a Terrible Trap.
Now, you might want to wait till you graduate and then wrap all your loans up into a Direct Consolidation Loan and take a look at the federal student loan repayment options. This handy and clever online payment estimator will give you an idea what your payment might be under the different options.
So let’s say your total loans will be around $150,000 each. I made some big assumptions based on filing taxes as married and what your initial combined income would be out of school. I took a guess at $175,000.
But here are examples of the different repayment plans that might exist for just you.
Your income when you graduate and become employed is probably going to eliminate any income driven plan benefit. And keep in mind that the least expensive overall plan will be the standard 10-year repayment plan. That repayment approach gives you higher monthly payments but for less time and overall interest.
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