Medical school loan consolidation is one of the key things that most students do after they are done with medical school. It is very common practice, and in some cases a pretty smart idea. Let's go over some of the rules and how it will all work out for you if you decide to go that route.
If you take may advice given in my loans for medical school page, you don't take out any private loans during medical school. That is very important advice from a medical school loan consolidation standpoint. If you have private loans, those loans will not be available for a federal loan consolidation. Meaning that many of the advantages of loan consolidation will be lost. Not to mention the other really bad things that private student loans do to their borrowers...just don't do it!
Ok so assuming you have only federal loans (Stafford, Perkins, PLUS, etc), those loans will be organized in different loans, and for some people, different lenders. This will lead to you paying monthly payments to several different people and having to write 3-5 checks each month to each lender and for each loan. So medical school loan consolidation will pay off those loans to all those different lenders and write a new loan for you with just one lender. One check instead of many.
The hidden advantage to having all your money in one loan, is that if you need to do special things with the loan (like forbearance, or deferment, etc) you can do that while only having to fill out paperwork to one lender or calling one company. Again advantages of ease.
Many people don't see the biggest disadvantage of medical school loan consolidation, and that is that federal loan consolidation takes the average of your interest rates and when they make the new loan, your loan will have that interest rate that was the average of all your loans.
Now, this makes ZERO difference if you were just going to pay the minimum on your loans until they are paid off in 30 years. But frankly if that is your goal for paying back your loans you will be broke forever. So, for people that are looking to pay down their loan more quickly this does have implications. They make the total amount you pay back, and the time it takes to pay all your loans back LONGER. Let's see how...
Let's say you pay back your loans by paying the minimum and then adding to that one or two thousand dollars a month. Well, if you were paying back your loans individually without federal loan consolidation, you would put that extra $2000 toward the highest interest rate, usually the Grad PLUS loans. This would in effect cause the higher interest rate to be eliminated more quickly and then you would start on the lower interest rate Stafford loans next.
However if you did a medical school loan consolidation you would have the same interest rate on all your loan, that would be higher than your Stafford loans and lower than your grad PLUS loans. This would cause you to put $2000 into a lower interest rate to start and a higher interest rate to end. Net result: you will pay more for a longer time over the life of your loan. Sometimes thousands more.
You need to decide how important ease is to you. Many physicians just don't have time to deal with 3-5 lenders so they get a medical school loan consolidation. There is nothing really wrong with it, but it does cost more money than it saves.
Also, you may only consolidate one time. This means that if you ever plan on taking out more federal loans, you should be sure you don't want to consolidate with the new loans. Since your loans can only be consolidated one time, most people only do it after graduation.
Medical school loan consolidation is for you if you:
- Are going to have a hard time being responsible with bills (many residents are horrible at keeping up with responsibilities at home).
- Do not plan on making extra payments toward your student loan beyond the minimum
- Believe that the ease of having one lender merits the extra cost of the loan.
If you are serious about getting out of debt very quickly after residency and want to do it as quickly and easily as possible...DO NOT do federal loan consolidation. It wont be worth it for you.
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