Doctors often take on six-figure student loan debt as they make their way through school. To navigate the world of student loans successfully, it’s essential to grasp the various terms and concepts associated with them. In this comprehensive guide, we’ll break down the key student loan definitions you need to know.
Loan Types For Medical, Dental & Veterinary School
- Direct Subsidized Loans: Federal loans based on financial need. The government pays the interest while the borrower is in school or during deferment.
- Direct Unsubsidized Loans: Federal loans that are not based on financial need. Interest accrues while the borrower is in school and during deferment.
- Direct PLUS Loans: Federal loans for graduate or professional students and parents of dependent undergraduate students. They require a credit check and may have higher interest rates.
- Private Student Loans: Offered by private lenders, these loans are credit-based and often come with variable interest rates. They may require a cosigner if you have limited credit history.
Student Loan Rates
- Annual Percentage Rate (APR): A comprehensive measure of the cost of borrowing money, expressed as a percentage, including the interest rate and any additional fees and costs associated with the loan.
- Fixed Interest Rate: A set interest rate that remains constant throughout the life of the loan.
- Variable Interest Rate: An interest rate that can change periodically based on market conditions.
Origination & Student Loan Terms
- Principal Balance: The original amount borrowed, before interest accrues.
- Interest Capitalization: When unpaid interest is added to the loan’s principal balance, increasing the total amount you owe.
- Cosigner: A person who agrees to be legally responsible for repaying a loan if the primary borrower fails to make payments. Cosigners are often required for private student loans.
- Origination Fee: A fee charged by some lenders to cover the cost of processing and disbursing a loan.
- Autopay: A repayment option for student loans. Borrowers can set up autopay with their loan servicer to have their monthly loan payments automatically deducted from their bank account on a specified date. This can help ensure that payments are made on time and may often come with a slight interest rate reduction as an incentive.
Student Debt Repayment & Forgiveness
- Public Service Loan Forgiveness (PSLF): A federal program that forgives remaining loan balances on federal student loans for borrowers who work in qualifying public service jobs after making 120 qualifying payments.
- Income-Driven Repayment Plans: Plans available for federal student loans that adjust monthly loan payments based on your income and family size. Any remaining balance may be forgiven after a certain number of payments.
- Deferment: A period during which you can temporarily postpone loan payments, typically due to enrollment in school, unemployment, or economic hardship.
- Forbearance: A period during which you can temporarily reduce or postpone loan payments during financial hardship, but interest usually continues to accrue.
- Grace Period: The time between when you graduate, leave school, or drop below half-time enrollment and when your first loan payment is due
- Default: Occurs when you fail to make payments on your loans for an extended period, typically 270 days for federal loans. Consequences include damaged credit, wage garnishment, and loss of eligibility for future federal student aid.
Student Loan Management
- Refinance: Replacing one or more existing student loans with a new loan from a private lender to secure a lower interest rate, reduce monthly payments, or change the loan terms to make them more favorable. When you refinance federal student loans with a private lender, you may lose certain federal loan benefits, such as income-driven repayment options and loan forgiveness programs.
- Consolidation: The process of combining multiple federal loans into a single loan with a single monthly payment. It can simplify repayment but may affect interest rates and forgiveness options.
Managing Your Student Loans
Understanding these student loan terms is essential to managing your student loan balance effectively, especially if you are one of the many doctors with significant student loan debt.
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