Okay, I've discovered I'm pretty much fucked. Apparently I've been denying the severity of my student loans and it's all coming to a head right now and I'm having a bit of an "oh shit" moment and need some serious advice.
Here's the deal, I currently owe $114,592 in student loans ($93,957 in principal, $20,635 in accrued interest that has not capitalized to the principal amount). To date, this has never been a problem in my mind because I am on the Income-Based Repayment plan and work for a non-profit organization and have always planned on going the Public Service Loan Forgiveness route and I'm currently 4 years in. I didn't worry at all about paying extra because I knew it would be forgiven. Well, recently I've decided to go to back to school and pursue my dream of becoming a physician, and I start in 2 months.
Going back to school creates issues, if I defer my loan repayment, interest will continue to accrue on the unsubsidized portion of my loan to the tune of $408 per month ($76,862). After my in-school deferment ends, I will have the opportunity to pay off any accrued interest before it capitalizes, but any interest that has not been paid off will capitalize to the principal. At $408 per month, that would be $19,600 of additional interest in the next 4 years of school, in addition to the current interest balance of $20,635. This means that if I were to pay none of the interest, an additional $40,000 would be capitalized to the principal of $93,957, bringing my loan balance to $134,000 at 6.25% interest ($700 per month in interest alone at that point).
School will cost me $20,500 in annual tuition and fees, plus books and living expenses. My plan in going back has been to take out only the loans to cover tuition and to get by on my wife's salary of $40,000 plus a little extra we get in rental income. However, I have been "awarded" $45,000 in financial aid to cover cost of living and all of the other junk included in the cost of attendance calculation. The breakdown of my current financial aid offer is up to $42,722 in a direct unsubsidized loan with interest accruing as soon as the loan is disbursed at 5.41%, and an additional $2,602 in a Grad Plus loan at 6.41%, which begins accruing interest immediately as well.
I'm wondering now if I should take out the full amount possible and use it to pay down my existing student loan debt. Does that make any sense? So I would take $45,000 in loans, use $20,500 for tuition and take the remaining $24,500 and pay that toward my existing loans. In one year I would be able to pay the accrued interest down to $0, and in the ensuing years I could take out most of the principal, lowering the monthly interest that accrues as well. On the other hand, in doing that, interest would be accruing on my new loans so maybe it's a total wash in the end?
I'm having trouble wrapping my mind around this one in my moment of despair so any thoughts are much appreciated!