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New Program Helps Consolidate Medical School Debt

AAMC and Sallie Mae partner to offer MEDLOANS Consolidation Loans

A new program to help physicians consolidate medical education loans into a single monthly payment is now available from Sallie Mae, the nation's leading provider of education funding, and the Association of American Medical Colleges (AAMC). The MEDLOANS Consolidation Loan is a federal loan program that enables borrowers to lower monthly student loan payments by as much as 50 percent or more by locking in current low interest rates.

The consolidation loan allows a borrower to combine the balances of previous medical school loans into a new loan with one monthly payment. The new interest rate, a weighted average of the underlying loans' interest rates, is adjusted up to the nearest 0.125 percent. The new rate, which is locked in for the life of the loan, cannot exceed 8.25 percent.

"The MEDLOANS Program is designed specifically to meet the needs of medical students, residents and practicing physicians," says Paula Craw, AAMC's Director of Student Financial Services. "The streamlined application process includes an online application, and consolidation counseling services are available," she notes.

Additional Savings Benefits

There are two major advantage to a MEDLOANS Consolidation Loan, according to Craw. "The first is the ability to lock in a historically low interest rate that will never change over the life of the loan. The second is to gain the three benefits that are specific to MD and DO borrowers. These borrower benefits are the best available on federal consolidation loans," she says.

First, borrowers who have their monthly payments directly debited from a checking or savings acount are eligible for a 0.25-percentage point reduction in their interest rate.

Second, borrowers can also earn a benefit equal to 1 percent of the initial MEDLOANS Consolidation Loan balance once they have made their first 33 scheduled payments on time, enrolled in Manage Your Loans and signed up to receive loan information via e-mail. "The MEDLOANS Consolidation Cash Back benefit is a 1 percent rebate based on the initial loan balance. The borrower receives this as a check or as a loan credit," says Craw.

"Manage Your Loans is Sallie Mae's on-line account management tool. It allows borrowers to access their loan account information via Sallie Mae's Web site. Borrowers can update contact information, apply for deferments or forbearance, make a payment, calculate payoff balances and view their loan account in detail at their convenience." says Craw. "By signing up for Manage Your Loans, borrowers can receive correspondence via e-mail that previously was received via U.S. Mail, such as monthly billing statements.

And finally, after making their first 48 payments on time, borrowers receive a further rate discount of 1 percent as long as they continue to make on-time payments.

How It Works

There is no application fee, no credit check and no prepayment penalty. Application can be made on-line using e-signature, which streamlines the process by allowing borrowers to apply for a consolidation loan, review their rights and responsibilities on-line and submit signatures electronically, eliminating the need to sign a printed copy and minimizing processing time. Borrowers may also download an application at the Web site (www.aamc.org/medloans) or request one by calling (800) 622-6214. The application process can take from two to eight weeks, depending upon the complexity of the borrower's loan portfolio.

When Sallie Mae originates a consolidation loan, they pay off the balances on the borrowers loans and establish a new loan for the total amount of the old loans. The consolidation loan has new repayment terms and the terms of the previous loans no longer apply. In most cases, Sallie Mae handles the paperwork and coordinates with the borrower's loan holders.

The MEDLOANS Consolidation program offers a variety of flexible repayment options, including standard, extended, graduated (interest-only payments) and income-sensitive repayment. Borrowers can repay their consolidation loan with payment terms ranging from 15 to 30 years based on their total education loan indebtedness (not just the amount being consolidated). "For instance, $60,000 or more in educational debt will allow the borrower to obtain a 30-year payback term. Of course, this can be shorter if the borrower requests a shorter term," says Craw.

A MEDLOANS Consolidation Loan is eligible for the income tax provision that allows borrowers to take a tax deduction for education loan interest. To qualify for this deduction, a borrower must meet certain federal requirements. It's best to consult the IRS or a tax advisor regarding details.

Who Is Eligible?

Borrowers who have attended allopathic or osteopathic medical schools are eligible for a MEDLOANS Consolidation Loan if they have a minimum initial loan balance of $10,000. Most federal education loans are eligible, including:

  • Federal Stafford Loans
  • Federal Direct Stafford Loans
  • Federal PLUS Loans
  • Federal Direct PLUS Loans
  • Federal Consolidation Loans
  • Federal Direct Consolidation Loans
  • SLS Loans Supplemental Loans for Students (also called ALAS or SLS/ALAS or Student PLUS)
  • Federal Perkins Loans (formerly National Defense Student Loans or National Direct Student Loans)
  • Health Education Assistance Loans (HEAL Loans included in a consolidation loan are subject to special interest rate terms.)
  • Health Professions Student Loans (HPSL)
  • Loans for Disadvantaged Students (LDS)

"Borrowers consolidating Federal Perkins Loans lose their interest subsidy during periods of deferment," notes Craw. "So borrowers may want to keep Perkins Loans out of a federal consolidation loan if they qualify for deferment."

Although, by law, private loans may not be consolidated under a MEDLOANS Consolidation Loan, the program does offer the convenience of combined monthly billing for a number of private loan programs.

Support Services

The MEDLOANS Consolidation program is supported by customer service representatives who can provide expert guidance on issues such as how to take advantage of deferment and forbearance options and how to select a repayment plan. Sallie Mae and the AAMC encourage borrowers to seek expert advice before deciding whether and when to consolidate. For more information go to www.aamc.org/students/medloans, or call (800) 622-6214.

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