Dear Steve,
I graduated from undergrad with a degree in Psychology and $20,000 in school loans.
My loans were private and were deferred. I went into graduate school, a PhD program in Neuroscience, because in my program, the program pays you a $20k/year stipend and pays your tuition. This seemed extremely practical to me financially. I will graduate next year, May 2014, with my PhD in neuroscience.
However, I decided to attend medical school directly after graduating. My private loans are no longer able to be deferred, I have passed the allotted amount of time allowed. I just received a statement for a payment of $135/month -- which on my salary of $20k/year is not going to be possible.
Also, next year when I start medical school, I won't be making ANY money, and won't be able to make any payments.
My question is what is the best way to deal with this situation. I'd like to consolidate the private loans into a federal loan so that I can take advantage of the income-based payback program.
However, the interest rates are higher for the federal loans. If I take out a federal loan to pay the private loans, the federal loans will likely be deferrable, but it will be much more costly in the long run.
Should I consolidate with another private bank, at a reduced interest rate? My interest rate right now is 3.75%, but Wells Fargo has a student loan program with about 2.5% in interest.
I'm very confused and I don't know who to talk to about this situation for advice.
Thank you.
Ellie
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Dear Ellie,
First off, congratulations on your path to becoming a doctor. It must feel very rewarding.
But here is a hard reality many have to face these days in the face of exploding student loans, it might just be that you can't afford to continue your education with the current loans looming.
Truly private loans are not eligible to be consolidated into federal loans. Your only option would be to consolidate them with yet another private student loan lender. But before you rush off to do that, you need to consider your future obligations to finish your education. Not only do we have medical school ahead but also a residency and maybe a stint of speciality training. If you can't afford to pay your student loans for all those years the balances will grow and grow. And let's not forget the other loans you will probably take on to finish your education.
And while I'm raining on your parade here a bit, I might as well get it all out. Your struggles with student loans are just starting. Today there is a crisis brewing of medical school graduates struggling to even find residency programs to complete their training so they can become a practicing physician.
Remember that in all sorts of training, the big payoff only comes once you achieve the degree. About three out of four people who owe student loans never do complete their degree and are left with some education and a lot of debt.
You are obviously a very smart person. In a perfect world I'd rather see you work hard, scrimp and save to pay off your current student loans before taking on more. And then take those on with an informed idea if you will be able to afford them in the future if something happens and you don't become a doctor or finish medical school.
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