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Disadvantages to forebearance?

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  • Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5401
    Joined: 01/12/2016

    Some basic background.

    I would assume it’s better for your credit score to go into forebearance vs. missing loan payments or even refinancing to a lower rate?  Hopefully, after a year my salary in the HCOL area will rise enough for me to resume paying at the rate I did before.

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    You are partially incorrect (forbearance doesnt affect and neither does refinancing, both better than missing) and it frankly makes no sense. It has zero to do with your credit score its simply a choice how fast/hard you pay them back.

    It sounds like you just want to forbear for some odd reason. Just extend the term even if refinancing is how its done. Forbearance makes little sense. Stretch out your current employment as long as possible and give as little clue to your plans as necessary, it can take a while to find a job let alone get credentialed and start earning.

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    I currently have a relatively low fixed interest rate (4%).  Presumably if I forebear I retain the interest rate but if I refinance I’ll end up with a higher interest rate?  Unfortunately, I’m limited by how much I can stretch out my employment.  The new contract also requires a longer notice of termination which is not compatible with the standard notices in the HCOL area.  Unlikely practices in the new area will wait for me to finish my termination period when they have a line of highly qualified candidates able to start sooner.

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    Hard to say without looking but what does it ultimately matter? You need liquidity right now. Maybe you pay a slightly higher rate for a while. No big deal. You can either over pay or refinance to better terms later.

    It will only appear that you have the same interest rate with forbearance. Since the interest is racking up and then gets capitalized, its similar to having a much higher rate overall. It’d be easy to do the math and show this to yourself. Dont get too focused on the minutiae.

    #198305 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 298
    Joined: 06/18/2018

    Sounds like what you really need to figure out is your job situation.

    After that, you can decide the best approach for your student loans.

    The story you’ve told thus far is incomplete, so advice beyond that is limited. It hasn’t been made clear whether the ‘unsustainable’ rate at which you’re currently paying your student loans is because you’re making additional payments (in which case you could swing the minimum) or because you opted for a short term repayment window with resultant higher monthly payments (which seems unlikely given you’re not great rate of 4%).

    How massive are your loans or how low paying will a job be in your new location such that as a working physician you can’t keep up with the payments? Even if you’ve got $500k in loans (which would seem absurdly high given that you’ve been ‘aggressively repaying’) at 4% on a 10 year repayment note, your payments would only be 5k/mo. Find a locums gig somewhere to make ends meet until you find your next dream job.

    #198362 Reply
    Avatar wcinewbie 
    Participant
    Status: Physician
    Posts: 37
    Joined: 09/30/2017

    I believe refinancing does affect your credit score; at the very least, there is a hard credit pull.  The very first time I refinanced, shortly after starting my first job and building up my e-fund, I was able to receive the very lowest interest rates posted.  As I noticed interest rates were steadily climbing, I decided to lock in to a fixed interest rate while rates were low.  When I went back to refinance then, I was consistently offered higher interest rates than what was advertised. I’m currently on a 7 year fixed interest rate.  Even shopping around for refinancing now, I’m consistently offered higher interest rates than the lowest advertised rates.  I have not borrowed money for a house, never missed a payment on anything, applied to no new credit cards for years.  Only thing that’s changed is 2 student loan refinancing.

    While I really enjoy my specialty, it is pretty saturated and does not pay well in major metropolitan areas.  I will expect to see about 30% decline in both starting and peak compensation.

    #198446 Reply
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5401
    Joined: 01/12/2016

    I believe refinancing does affect your credit score; at the very least, there is a hard credit pull.  The very first time I refinanced, shortly after starting my first job and building up my e-fund, I was able to receive the very lowest interest rates posted.  As I noticed interest rates were steadily climbing, I decided to lock in to a fixed interest rate while rates were low.  When I went back to refinance then, I was consistently offered higher interest rates than what was advertised. I’m currently on a 7 year fixed interest rate.  Even shopping around for refinancing now, I’m consistently offered higher interest rates than the lowest advertised rates.  I have not borrowed money for a house, never missed a payment on anything, applied to no new credit cards for years.  Only thing that’s changed is 2 student loan refinancing.

    While I really enjoy my specialty, it is pretty saturated and does not pay well in major metropolitan areas.  I will expect to see about 30% decline in both starting and peak compensation.

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    Refinancing might change your score by a few points for a week or two. Its never moved the needle for me. Maybe if your score wasnt great it could, but I’ve refinanced up to 3 times a year, and its really about thresholds, not exact numbers.

    Rates have been changing lately. Could be lots of reasons why rates are different for you. The lowest advertised rates usually only apply for the shortest term and very specific conditions. If you do anything else, of course they will be higher.

    #198450 Reply
    Liked by Tim

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