What is the best way to minimize student loan repayments or even deferring payment for an extended period of time after graduation? I've been asked by my sister for some financial help in accomplishing such a task. She is graduating from medical school and is beginning her residency, and her lender (Wells Fargo) is requesting repayment.

She currently has several different types of loans, including subsidized and unsubsidized Stafford loans, and a couple of personal loans to make up the amount that the Stafford loans wouldn't cover. The total debt she has incurred over the last four years is about $245,000, and her monthly payment is approximately $600.

During her residency she will be making less than $40,000 per year, and while she will have enough money to cover her living expenses (lives in downtown Portland, OR) and live a somewhat comfortable lifestyle, the $7,500 in annual loan payments will put a strain on her financial well being.

After her residency, her income will increase dramatically (probably 6 or 7 times her residency salary) and she won't really feel the pinch of these loan payments, even if the principal were to increase due to the capitalization of deferred interest payments.

What are some of her options for either deferring her loans for an additional period of time (maybe 3 or 4 years?) or minimizing the monthly amount she has to pay during the duration of her residency?

Her current loan breakdown is:
- Consolidated Stafford: $78,000
- Nonconsolidated Stafford: $93,000
- Personal/alternative: $73,000

I'm still doing some research on this, but would appreciate some guidance as to where I might want to focus my efforts.

If she can afford some repayment, I would think consolidating all of her personal loans to a fixed rate and paying some of them down would be a good idea, and use an internship/residency deferment for 3 years (and maybe an additional two if she claims financial hardship) on her federal loans. The last option I'd like her to stay away from would be to go into forbearance on the personal loans; I would think this could damage her credit.

Thanks for your feedback.

5/30/2008 11:13:33 AM

I would call wells fargo.

5/30/2008 11:16:07 AM

I would see if you can make interest only payments on the unsubsidized ones. That way, at least she's looking at the same principal amount after her residency.

5/30/2008 11:18:47 AM

yeah

lenders are almost always open to working something out if you call them and work it out BEFORE it becomes an issue

they'll probably just offer forbearance until she's done with residency or something

think about it - they're gonna get their money either way. this way, they keep making interest on the principal.

5/30/2008 11:42:28 AM

I'm really surprised her monthly payment is that low, are you sure thats right? That is unless she has a really long period to pay it back >30 years? I would just talk to an older med student, she is definately not the first person to do a residency after school

5/30/2008 11:59:54 AM

Quote :

"The last option I'd like her to stay away from would be to go into forbearance on the personal loans; I would think this could damage her credit."

forbearance != default

5/30/2008 12:00:32 PM

student loans blow

if i had been a minority, i wouldn't have them

5/30/2008 12:15:06 PM

^ haha amen

How does she pay $600 a month with $245,000 in loans?? I have about $80,000 out and my monthly loan payment is about $700. My breakdown is about the same as hers in terms of personal vs. federal loans.

5/30/2008 1:23:18 PM

Yeah, $244,000 at $7,500 per year would take 32.5 years to pay off at 0% interest.

She is probably making interest-only payments already, good lord that's a lot of money.

5/30/2008 1:29:07 PM

lord help us--doctors that can't read promissory notes

5/30/2008 1:35:48 PM

^^^^ i'ma minority and i still have them. maybe i missed the meeting where they decided to just hand out $$ minorities.

5/30/2008 1:50:37 PM

Quote :

"^^^^ i'ma minority and i still have them. maybe i missed the meeting where they decided to just hand out $$ minorities. "

yeah, maybe my comment has a tinge of the bitterness I harbor. seen several minorities get these freebies just to toss them away like it's nothing.

5/30/2008 1:53:26 PM

If you got to http://www.creditboards.com they have a student loan forum with a lot of experts that will be able to give you some input.

5/30/2008 2:04:22 PM

Have her call Sallie Mae and discuss loan consolidation with them. It should result in a lowered monthly payment, but more to the point, they were awesome when I had student loans.

I had CFNC before I switched to Sallie Mae and the improvement was like night and day.

5/30/2008 2:28:39 PM

yeah, we're in the process of figuring this out for my wife, who will also be a resident with a mortgage size loan.

i'll post up anything good that we find out.

5/30/2008 2:37:02 PM

Uhm, Sallie Mae is fucking evil.

http://consumerist.com/search/sallie%20mae/

Here, look at this story
Fortunately, Sallie Mae stopped doing consolidation loans, so the OP's sister can't follow that terrible piece of advice.

Telling someone to switch to Sallie Mae is nearly akin to telling someone who needs a short-term loan to stop considering a personal loan from a credit union, and instead visit a payday lender.

5/30/2008 2:37:17 PM

Well, it seems like he had a good experience with them. The credit score drop was an error and seems to have been fixed. The only bad thing I see in that link is a guy who lost his job because he was not paying his loans back.

5/30/2008 2:50:42 PM

Thanks all for your advice.

I wish I had more information about her loans and how they were offering her $600 monthly payments (which some say is quite low for the amount of debt she has). All I have to go on for now is a short email from her asking for help; she's in India right now and won't be back for a few more weeks.

Creditboards.com is a fantastic website. Thanks Shawna. I'm finding lots of good information on there.

5/30/2008 2:55:44 PM

I gotta say that is an extremely low payment amount. I'm thinking thats because her 6 or 12 mo. grace periods (might be longer for med school) to start payments on the particular loans havent kicked in yet. Stafford loans - both types - personally I wouldn't worry about right now. Deal with the higher-interest private loans like from Wells Fargo immediately. I assume she's pretty confident in eventually being able to take care and repay of all this from her nice job eventually, so on that note most lenders offers a forbearance option for a particular amount of time for an upfront fee, depending on the size of the loan.

[Edited on May 30, 2008 at 4:04 PM. Reason : .]

5/30/2008 4:03:05 PM

She could try to minimize her payments or...

Move out of downtown Portland. Next to Lake Oswego, that's probably the single most expensive place to live in Oregon. Vancouver WA is much cheaper, and isn't too far from downtown Portland. Depending on where her residency is, Beaverton or Gresham would be less expensive too.

5/30/2008 4:35:35 PM