Hello Heather,

I really appreciate all the help you provide here.

I just graduated from pharmacy school and I have been considering the IBR plan. I am currently in the 6 month grace period.

I currently have $25,500 in subsidized loans (fixed at 6.8%), $79,375 in unsubsidized loans with $8,409 in accrued interest (fixed at 6.8%), and $1,700 in federal perkins loans(fixed at 5%). I have not consolidated any of my loans. 

During 2011, I was on clinical rotations and made very little income. Based on the IBR calculator, I would owe $0/month! I will start working next month as a pharmacy resident, but it is my understanding that I will only need to show documentation of income annually to my lender. After this year or possibly two of residency, making about 1/3 pharmacist salary, I plan to get a full time pharmacist job and really start paying off my loans. I just want to stay above water during this year or two of residency so..

My current plan is to:

1. Pay the minimum on my perkins loans
2. Enroll in the IBR at owing $0/month
3. Have the government pay my subsidized loans interest
4. Pay off the interest on my unsubsidized loans

Also, a family member has agreed to loan me the $8,409 at a rate of 5% for 3 years, so that I could pay off my accrued unsubsidized loan interest before it is added to principal after my grace period ends. However, I am confused as to how subsidized interest is treated during the first three years of the IBR plan. I know it still accrues, but it kind of sits in limbo?

Thanks,

Andrew

The IBR subsidy on subsidized loans is the difference between the amount of interest that accrues and the amount of the IBR payment that is attributable to the subsidized loans.  In effect, during the first three years, there should be $0 in interest in “limbo” on your subsidized loans. 

That’s not the case for your unsubsidized loans.  The difference between the interest that accrues on those loans and the IBR payment amount attributable to those loans sits out there in another accounts receivable bucket in your account.  And, each time you make a payment against your unsubsidized loan, your payment goes toward the interest in that separate bucket before it is applied to anything else.  It’s usually called “outstanding interest balance” as opposed to “outstanding principal balance”.