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Student and Resident
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| Grace | |
| Deferments | |
| Forbearance | |
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| Consolidation | |
| Debt Mgmt Assistance | |
| Credit Questions | |
| Financial Planning | |
Long
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All federal student loans have a grace period (usually six months) following graduation before entering the repayment phase. At that point, borrowers may apply for a deferment of payments on their education loans for a certain reason, including economic hardship.
Currently, qualified borrowers are entitled to use the Economic Hardship Deferment for periods of up to one year at a time, not to exceed three years cumulatively. During the deferment, the federal government continues to pay the interest on the subsidized portion of the resident's loan portfolio. Interest on the unsubsidized portion of the borrower's portfolio continues to accrue during this time.
Eligibility for the Economic Hardship Deferment is based on an individual debt-to-income ratio. To qualify, a borrower must be employed full-time, the borrower's federal education debt burden (defined as the required monthly payment) must be equal to or greater than 20 percent of the borrower's monthly income, and the borrower's income minus the education debt must be less than 220 percent of the greater of the minimum wage rate or the federal poverty line for a family of two. For a medical resident making the average first year stipend of $40,788, who consolidates at the current in-school interest rate (4.70%), the borrower would need approximately $99,900 in federal education debt to qualify for this deferment. (If the maximum interest rate is used, a borrower would need approximately $85,400 in debt to qualify.)
Medical residents whose eligibility for Economic Hardship Deferment
has expired (either through no longer qualifying under the debt-to-income
ratio or having used all three years) have the option of beginning to
repay their loans, or going into forbearance. Under forbearance, no payments
are required; however, interest continues to accrue and the federal government
no longer pays interest on the subsidized portion of a borrower's loans.
In addition, interest may be capitalized under forbearance, making this
an expensive option for borrowers. Under a special provision passed in
1993 (when the 2-year internship residency deferment was eliminated)
borrowers are able to forbear their federal loans throughout the duration
of thier ACGME-accredited residency program, regardless of the length
of the program.