Medical Residents Losing Ability to Defer Student Loans for 'Economic Hardship'
Beginning next year, medical school residents will no longer be eligible to defer their federal student loans because of new criteria the government will use to determine “economic hardship,” according to an article in the American Medical News (“New Rule Excludes Medical Graduates from Federal Loan Deferment Plan,” June 16, 2008).
An economic hardship deferment allows students with a high debt-to-income ratio to postpone their federal student loans for up to three years, during which time the government pays the interest on any subsidized student loans. According to the Association of American Medical Colleges, medical school students typically graduate with about $140,000 in college loans, $34,000 of which are subsidized loans.
Based on the new deferment eligibility criteria established by the U.S. Department of Education, a borrower’s debt-to-income ratio will no longer be taken into account. About two-thirds of medical school graduates qualified for deferment under the previous eligibility criteria.
The new definition of economic hardship, which takes effect July 1, 2009, only considers a borrower’s income for qualification, which is limited to $15,600 a year or less. Under the previous criteria, a medical resident making $45,000 and carrying at least $76,000 in debt generally qualified for economic hardship deferment.
To help students affected by the new rules, the Education Department will debut an income-based repayment program next July.
Medical residents, whose income is not over 150 percent above the poverty line for their family size, can have their loan payments capped at 15 percent of their income under the new program.
Once the government’s new criteria takes effect, a medical graduate who earns $45,000 — the average salary for first-year residents — would be required to make monthly payments of $365. As residents earn more money each year, their monthly payments would likely increase.
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