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Student loan terminology is confusing. When you graduate from medical school and enter repayment, you have many options, including 3 traditional repayment plans and 4 income-driven repayment (IDR) plans. You can read about payment plans and get advice on how to pick the best strategy here. There are also options that allow you to delay making payments altogether. These include the grace period, forbearance, and deferment. In this post, I will teach you the difference between grace periods, deferment, and forbearance.
The Grace Period is typically 6-9 months and is automatically applied to most federal student loans when you graduate from school. The purpose of the grace period is to give new graduates time to find employment and get their finances in order before student loan payments are required.
Unfortunately, you cannot begin making income-driven payments (IDR) while your loans are in their grace period. This means you cannot take advantage of the interest subsidies or start getting credit toward loan forgiveness until the grace period is over. To make matters worse, interest accrues on your loans and is capitalized when your grace period is ends, increasing your loan principal.
If you plan to enroll in an IDR plan during residency, it's a good idea to consolidate your loans right after graduation. This is helpful because your consolidated loan will not have a mandatory grace period. Although consolidation takes 30-60 business days, consolidating your loans will still allow you to enter repayment sooner, saving you money and getting you on track for forgiveness sooner.
During periods of student loan forbearance, you can stop making payments or make reduced payments on your loans. To enter forbearance, you must apply with your student loan servicer and show evidence that you cannot make your payments.
Interest continues to accrue on your loans during forbearance. You can pay interest during forbearance or allow it to accrue and be capitalized when you go back into repayment. Interest capitalization will increase your principal balance.
Forbearance is generally a poor choice for physicians. IDR plans offer a better way to make affordable payments and have added perks, including interest subsidies and loan forgiveness.
Student loan deferment is similar to forbearance. You can apply for deferment if you are unable to make loan payments due to economic hardship, or if you are undergoing cancer treatment, in active military service, or pursuing a graduate fellowship.
Interest continues to accrue on unsubsidized federal student loans during deferment, but not on subsidized student loans. This makes deferment preferable to forbearance in most circumstances.
As with forbearance, IDR plans offer a better option for physicians than deferment.
The Grace Period is typically 6-9 months and is automatically applied to most federal student loans when you graduate from school. The purpose of the grace period is to give new graduates time to find employment and get their finances in order before student loan payments are required.
Unfortunately, you cannot begin making income-driven payments (IDR) while your loans are in their grace period. This means you cannot take advantage of the interest subsidies or start getting credit toward loan forgiveness until the grace period is over. To make matters worse, interest accrues on your loans and is capitalized when your grace period is ends, increasing your loan principal.
If you plan to enroll in an IDR plan during residency, it's a good idea to consolidate your loans right after graduation. This is helpful because your consolidated loan will not have a mandatory grace period. Although consolidation takes 30-60 business days, consolidating your loans will still allow you to enter repayment sooner, saving you money and getting you on track for forgiveness sooner.
During periods of student loan forbearance, you can stop making payments or make reduced payments on your loans. To enter forbearance, you must apply with your student loan servicer and show evidence that you cannot make your payments.
Interest continues to accrue on your loans during forbearance. You can pay interest during forbearance or allow it to accrue and be capitalized when you go back into repayment. Interest capitalization will increase your principal balance.
Forbearance is generally a poor choice for physicians. IDR plans offer a better way to make affordable payments and have added perks, including interest subsidies and loan forgiveness.
Student loan deferment is similar to forbearance. You can apply for deferment if you are unable to make loan payments due to economic hardship, or if you are undergoing cancer treatment, in active military service, or pursuing a graduate fellowship.
Interest continues to accrue on unsubsidized federal student loans during deferment, but not on subsidized student loans. This makes deferment preferable to forbearance in most circumstances.
As with forbearance, IDR plans offer a better option for physicians than deferment.
The Grace Period is typically 6-9 months and is automatically applied to most federal student loans when you graduate from school. The purpose of the grace period is to give new graduates time to find employment and get their finances in order before student loan payments are required.
Unfortunately, you cannot begin making income-driven payments (IDR) while your loans are in their grace period. This means you cannot take advantage of the interest subsidies or start getting credit toward loan forgiveness until the grace period is over. To make matters worse, interest accrues on your loans and is capitalized when your grace period is ends, increasing your loan principal.
If you plan to enroll in an IDR plan during residency, it's a good idea to consolidate your loans right after graduation. This is helpful because your consolidated loan will not have a mandatory grace period. Although consolidation takes 30-60 business days, consolidating your loans will still allow you to enter repayment sooner, saving you money and getting you on track for forgiveness sooner.
During periods of student loan forbearance, you can stop making payments or make reduced payments on your loans. To enter forbearance, you must apply with your student loan servicer and show evidence that you cannot make your payments.
Interest continues to accrue on your loans during forbearance. You can pay interest during forbearance or allow it to accrue and be capitalized when you go back into repayment. Interest capitalization will increase your principal balance.
Forbearance is generally a poor choice for physicians. IDR plans offer a better way to make affordable payments and have added perks, including interest subsidies and loan forgiveness.
Student loan deferment is similar to forbearance. You can apply for deferment if you are unable to make loan payments due to economic hardship, or if you are undergoing cancer treatment, in active military service, or pursuing a graduate fellowship.
Interest continues to accrue on unsubsidized federal student loans during deferment, but not on subsidized student loans. This makes deferment preferable to forbearance in most circumstances.
As with forbearance, IDR plans offer a better option for physicians than deferment.
Dr. David Flynn is an anesthesiologist and advisor for Attend. He is passionate about personal finance and student loan repayment strategies for physicians. He earned an MBA from the Wharton School and is the only practicing physician to have completed the Certified Student Loan Professional (CSLP) program from the CSLA Board of Standards.
