New legislation: what this means for med students

On September 27, President Bush signed the College Cost Reduction and Access Act. The new legislation went into effect October 1, 2007. For a breakdown of these changes, see our College Cost Reduction and Access Act highlights.

For medical students, this new legislation may mean the end of economic hardship deferment, says the American Medical Association’s Medical Student Section (MSS). This will leave forbearance as the only option for many. And while under economic hardship deferment, your subsidized loans do not gather interest, interest will now accrue on the entire balance when you’re in forbearance.

So what does this mean for medical students about to enter residency? For one, an average of almost $7,000 of additional interest you have to repay. After capitalization, that extra interest accrual will end up costing you $9,578 on a 10-year term (adding $80 to your monthly payment) or $14,442 on a 25-year term (adding $48 to your monthly payment). In addition, a new repayment plan created to help students who no longer qualify for hardship deferment but face a “partial financial hardship” doesn’t start until July 1, 2009, leaving you with limited options for minimizing your payment obligation both during and after residency.

The news is generating big buzz — find out more about what this law means for med students and what you can do on the AMA’s website. Interested in what other med students are saying about the issue? Check out the Student Doctor Network.

Highlights of the College Cost Reduction and Access Act
What’s New Who Loses/Who Benefits Requirements Effective Date

Pell Grant Increases

  • $490 for 2008-09 and 2009-2010
  • $690 for 2010-2011 and 2011-2012
  • $1090 for 2012-2013
Benefit — undergraduate students with financial need.
  • Pell Grant awarded based on need analysis; includes an income maximum.
 7/1/2008

TEACH Grants Introduced

  • Grants of up to $4000 per year
  • Not to exceed $16,000 for undergraduates and $8000 for graduate students
Benefit — undergraduate and graduate students who commit to full-time teaching for at least four academic years at a high-need school in a specific field of study.
  • Student must complete teaching service within eight years of graduating or grant aid becomes Federal Direct Unsubsidized Stafford loan.
 7/1/2008

Subsidized Stafford Interest Rate Reductions

  • 6.8% for loans disbursed 7/1/2006-7/1/2008
  • 6% for loans disbursed 7/1/2008-7/1/2009
  • 5.6% for loans disbursed 7/1/2009-7/1/2010
  • 4.5% for loans disbursed 7/1/2010-7/1/2011
  • 3.4% for loans disbursed 7/1/2011-7/1/2012
 Benefit — undergraduate Students.
  • Only for undergraduates
  • Must be in repayment or forbearance to benefit
  • Only temporary decrease, rates increase to 6.8% for loans disbursed after 7/1/2012 (unless government finds a way to continue to pay for the costs).
7/1/2008

Elimination of Debt-to-Income Ratio for Full-Time Employment Borrowers

 Loss — high-debt, low- to mid-income borrowers (e.g. medical residents).
  • Borrower working full-time must earn the federal minimum wage of $5.85 per hour or less, or their annual income must be equal to or less than 150% of the federal poverty level (based on family size).
 10/1/2007

Introduction of Income-Contingent Repayment

 Benefit — students with high debt and a career path with low to average income.
  • Loan payments are established at 15 % of the borrower’s income that is more than150% of the poverty line depending on the borrower’s family size
  • Borrower must qualify for plan each year
7/1/2009

Loan Forgiveness Availability

 Benefit — borrowers with Federal Direct Loans may qualify
  • Make 120 monthly payments after 10/1/2007 as part of an income-based repayment plan, standard repayment plan, or income-contingent plan (starting 7/1/2009) based on a 10-year repayment schedule
  • Must work in a public service job for the entire 120 monthly payment period
 10/01/2007
  • October 09, 2007
  • filed under: Student Loan Strategies and Tips

Actually, for law students this is great if you work in public interest (nonprofit or govt) because you quality for total forgiveness after 10 years. And as for other law students, it's not bad either because the repayment is income-based, as opposed to just having to pay off everything you owe regardless of your income.

Well, this harms pretty much anyone with student loans who is in any graduate school. Unless you're making near poverty level wages (i.e. working part time/not working) having completed grad school, you're paying a moderate sum more for your student loans. Not the end of the world, but not exactly good news. With the option of forbearance, no one should have to default on their loans. For law students, if you're working at a fancy firm and making the touted six figures, this doesn't affect you as you wouldn't have gotten the hardship deferment anyway. If you're working a normal job after graduation and making normal people money, you're in the same boat as us medical residets.

I look forward to the "good news for teachers" post that will surely now be coming soon from T.H.E.

I would like to know what this means for law students.