To Consolidate or Not to Conslidate?

[itseasyummk]

Hey guys, I have been wrestling with this thought for awhile now and I was hoping to get some advice on this thread. Just as a little bit of background I begin residency this July and I am wondering if I should consolidate my loans or not. I currently have all my loans (>10) through the same servicer (Navient) and they are all Direct loans (either Unsubsidized or Grad PLUS) with interest rates varying from 5.3-6.8. My original plan was to use REPAYE during residency and fellowship (~6 years in total) and then hopefully switch to PAYE or IBR after fellowship and do 4 more years in a nonprofit thus qualifying for PSLF. Obviously, Trump's new orders may completely scrap REPAYE and PSLF may get capped, but it didn't seem like I had any better options considering I currently owe >225,000 and that numbers going to grow during my training.

I guess I didn't really know if there was any benefit to me consolidating my loans because they are 1) already through the same servicer and 2) wouldn't my overall interest payments increase because consolidating apparently rounds up to the nearest 1/8 of a percentage? Is it also true that consolidating waives the grace period during the start of residency? The only reason this comes into play for me is that AAMC financial advisors told my med school that if we did our tax returns this year, we would essentially pay 0$ for all of intern year if we stated that our increase in income wasn't "significant" thus nullifying any negative consequences of waiving the grace period.

Sorry for the long post, but any help is really appreciated!

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[TMP-SMX]

What residency are you starting? There are lots of calculators confirming what your payments will be. If you have all direct loans and have the same servicer I don't see much benefit to consolidating as you would already have eligible loans for PSLF. It would just average out your interest rate into one payment and round up to nearest 1/8th of a percent.

If you really want PSLF you want to start repayment ASAP if it really is $0. Some depends when your loans were all taken out. Subsidized loans taken out prior to 7/2012 or after 7/2014 do not accrue interest during grace but they do if taken disbursed between 7/2012 and 7/2014.

Since you mentioned you have all unsubsidized loans I guess this doesn't apply to you so there's no benefit to being in a grace period for you other than avoiding any potential payment. In fact, in REPAYE it looks like they subsidize 50% of your unpaid interest even on unsubsidized loans. The issue though with REPAYE is your cap is removed (unlike in IBR) when you start making good money. You'd have to switch at the end of residency prior to you making more money while you are still under partial financial hardship. The downside of this is that your interest would capitalize at this time. This is not true if you stay in REPAYE. So you would have to do the math of all of the interest accrued and capitalized compared to how high your payments would end up being without the cap of REPAYE. (You'd have to calculate this and make a lot of assumptions). Fortunately for you you have a lot of time to decide that.

Some programs have a small interest reduction if you have auto debit. Are you eligible for this now? You can also ask to enter repayment by your servicer early if you really want to do this. Assuming you get no benefit of subsidized loans and your payments really are that low then sure knock yourself out with ending grace early. All of your impending accrued interest will capitalize after you finish residency and are no longer qualify for REPAYE.

There were mixups when I finished med school as IBR was new and I didn't start repayment until May of PGY-1. When I started med school I was in the FFEL program but my last 1-2 years were direct loans and I didn't have a choice. I had to consolidate to be eligible. I'm finishing residency next month and instead of 6 years of repayment completed towards PSLF I will have just over 5 due to the long delay in starting repayment. I did save on subsidized interest during this grace period since I graduated in 2011 but in the end if PSLF is fully implemented as it exists now sure I will end up paying more. Do you really want to do academics/nonprofit work? I find it hard to believe lower repayment plans would be available anymore. All residents would be rightfully pissed as their low pay doesn't make it possible to repay their loans unless they marry rich.

In the end, we can only speculate we don't know what will or will not actually happen with PSLF.

 

[itseasyummk]

Thanks for the reply, I am doing IM with hopes of specializing which is why I said that I will have approximately 6 years towards a repayment plan/PSLF (3 years residency, 3 years fellowship). Like you were saying, I don't really see the benefit of consolidating either cause it seems like I would pay slightly more in the end while gaining no repayment eligibility, but I was not sure if I was missing something since I have heard lots of people say its beneficial. @Student Loan Planner also stated that consolidation under the new administration may result in the removal of PSLF from the promissory note which scares me.

Some programs have a small interest reduction if you have auto debit. Are you eligible for this now?

I do believe that I get an interest reduction for linking the payment to my bank with an automated monthly payment. Not exactly sure what the timeframe is on that though, may have to call my servicer.

Do you really want to do academics/nonprofit work?

I do enjoy teaching, not sure if I am as into constant grant writing and research though. Truthfully, I would likely do the non-profit for 4 more years to qualify for PSLF at the very least, assuming it still exists.

I find it hard to believe lower repayment plans would be available anymore. All residents would be rightfully pissed as their low pay doesn't make it possible to repay their loans unless they marry rich.

I am slightly confused about this statement. Are you suggesting that lower repayment plans will be gone once I am an attending or due to the potential Trump changes while I am a resident?

 

[TMP-SMX]

I am slightly confused about this statement. Are you suggesting that lower repayment plans will be gone once I am an attending or due to the potential Trump changes while I am a resident?

The income based repayment plans will not be available after you get out of residency due to your high income. Once you no longer have partial financial hardship you can't switch to a repayment plan that requires partial financial hardship (IBR and PAYE). A lot of it is going to depend how much you make in terms of your payment amounts (there's a cap on IBR but not REPAYE to who the standard 10 year plan is. Run the calculators to see what is worse for you in terms of the total amount you end up paying (having a huge amount of money capitalize that had been in accrued interest). Note if you stay in REPAYE you will never have the interest capitalize but you do have to re-certify each year so they can change your payment amounts depending on your income.