In this episode learn everything you need to know about paying back your medical school, or other types of, student loans. Listen as Danette Wells, the Financial Aid director at Bastyr University, brings a ton of clarity to a confusing topic. We talk about:
- The latest student loan news
- The best repayment option for you
- The five different repayment options
- What consolidation is and if it’s right for you
- What a loan servicer is and why you don’t get to choose yours
- What happens to the multiple types of loans (grad plus, stafford subsidized, stafford unsubsidized) once you graduate
- What an exit interview is and what you have to do for it – hint “the answer is b”
Danette kindly offers advice to all students with loan questions, not just those at Bastyr, so give her an email if your questions aren’t answered after listening.
The latest news was about the pay as you earn plan. It isn’t law yet that the new regulations are in effect, right now they are just recommendations. It looks like that naturopathic medical students will be eligible for this option though. Check with Danette to see if this is right for you.
The repayment options we discuss are:
1. Standard Repayment
2. Graduated Repayment – pay just interest for the first 2 years, interest and principle for the next 2, and than standard repayment after.
3. Income contingent – 20% of discretionary income
4. Income based – 15% of discretionary income over 25 years
5. Pay as you earn – 10% of discretionary income over 20 years
Danette gives more clarity on the podcast to what each of those mean and what the bast options are, but basically the first two are not based on income and the last 3 are.
With the income based plans there is yearly paperwork that has to be filled out in order for the government to know what you have to pay back for the following year. If your income is $17,000 or less, at least for a single filer, that repayment will be $0. This will be the case for a lot of new grads.
The student loan rate now (June 2014) is lower than it was a couple of years ago. It has just recently dropped and will be going up soon (I think). When you graduate there will be a weighted average of the interest rates from each chunk of money you get and you’ll be paying on that weighted average.
At the end of the payment term for the income based loan repayment plan (25 years) and the pay as you earn repayment plan (20 years) the rest of the loan amount is forgiven. You will be taxed though on the amount forgiven the following year. You’ll be issued a 1099 and then will be responsible for taxes on that chunk of money. To prepare for this Danette advises setting up an automatic transfer of $50 to a savings account monthly and using that money for the taxes when that time comes.