With the rising costs of dental school and education, student debt is a common reality for many dental students. It is important to understand the terminology that will allow for better communication between you and your lender, especially before signing the promissory note. Additionally, this knowledge will help you effectively advocate for initiatives at the local, state and national levels that alleviate the student debt burden. Here is a guide to seven must-know terms that will help you understand your contractual agreement and how these terms relate to ASDA’s advocacy efforts in the student debt crisis.
Capitalization
The base amount you borrow from your lender is called the principal balance. While you are not required to make payments in dental school, interest will still accrue. Once that period ends, all the unpaid accrued interest will consolidate with the principal balance and that entire sum will then become the new total from which interest will accrue. Capitalization increases the balance owed and charges interest on the already existing interest. Therefore, it is favorable to take advantage of the lowest possible interest rate once you graduate.
During the reauthorization of the Higher Education Act, ASDA advocated for specific principles that improve the loan borrowing process for graduate students:
- Maintain or increase the availability of Direct Unsubsidized Loans for dental students
- Lower the interest rates on federal Direct Unsubsidized Stafford Loans, as well as the total amount of interest that can accrue on federal graduate student loans
- Reinstate eligibility for graduate and professional degree students to use federal Direct Subsidized Stafford Loans to finance their graduate education
Deferment
This benefit is a temporary postponement of federal loan repayment, in some cases with a lower interest rate during this period, due to a specific circumstance outlined by the government. In some specific situations, you also may not be required to accrue and pay interest during this period, which is one of the distinguishing factors from forbearance. You must apply for deferment through your lender to qualify.
At the 2018 ADA Dentist and Student Lobby Day, students advocated that members of Congress preserve public loan forgiveness programs and extend the period of deferment for repaying loans when reauthorizing the Higher Education Act.
Forbearance
Based on the type of loan you have and the terms outlined by the lender, you may be able to qualify for forbearance, which is the postponement, reduction or extension of loan repayment due to hardship. The payments and interest accrued during the accepted period of forbearance will eventually still be required. Similar to deferment, you must contact your lender to apply for forbearance.
In 2018, ASDA signed onto a coalition letter supporting H.R. 5734, the Resident Education Deferred Interest Act. The bill intends to stop interest accrual while loans are in forbearance or deferment for dentists or physicians in a residency or internship. Keep an eye out to see if this bill will be reintroduced in 2019.
Loan consolidation
This is the act of combining multiple loans into one single loan when you are ready to start making payments. In addition to making it easier to keep track of payments, you may also be able to take advantage of lower interest rates. However, loan consolidation may also affect or restrict certain benefits, such as loan forgiveness.
Refinancing
This is the act of replacing a single or multiple loans with an entirely new loan that has lower interest rates. Like loan consolidation, refinancing may limit or restrict some benefits you currently have.
ASDA continues to support legislation that allows recent grads to refinance their federal student loans more than once, such as H.R. 1614 the Student Loan Refinancing Act. ASDA members also have access to save money on their student loan debt by refinancing through SoFi.
Delinquency
Any late or missed payment is considered a delinquency. Delinquent loans can result in default based on the severity.
Default
The promissory note you sign when accepting your loans outlines the terms in which you must pay back the loan. A violation or failure to repay the loan according to its terms is known as default. Legal action can be taken from the school, lender, or even state and federal government.
Student loans can be a scary venture, as it may involve hundreds of thousands of dollars, but know that there are many resources that are available to help you through this process, namely, SoFi or ADA’s Laurel Road. Student financial services at your school also is a great way to discuss the details of your financial situation.
You are not alone in the student debt crisis. Most dental students graduate with debt and the current average is over $287,000. However, ASDA continues to make efforts advocating for different avenues that can reduce this burden. You, too, can play a role in making a difference by learning more about the issue, educating your peers, and attending local and national lobby days. Look out for more information about the ADA Dentist and Student Lobby Day this April.
~Anisha Pandya, Boston ’20, ASDA Legislative Coordinator, Districts 1-3
