Smart ways to tackle med school debt

American medical students are graduating with ever-larger amounts of debt. The mean debt for 2004 graduates, including college debt, was $115,218, according to the Association of American Medical Colleges. That's a 27 percent increase over the mean debt for 1999 graduates, which was $90,745. Un-fortunately, too many students graduate with-out having a firm plan in place to repay these loans.

On the bright side, there are a number of loan-repayment programs available, and the interest rate for federal consolidation loans is lower now than it's been in years. There are also a number of programs that help you learn about ways to pare down your loans. The Association of American Medical Colleges offers educational debt management workshops (see http://www.aamc.org/students/financing/debthelp/start.htm) at medical colleges and teaching hospitals. These workshops are open to doctors at any point in their careers. And Sallie Mae ( http://www.salliemae.com) and the US Department of Education's Federal Direct Consolidation Loans Center (loanconsolidation.ed.gov/index.shtml) offer advice on loan consolidation and debt management.

Here are some strategies to help you achieve solvency.

Federal consolidation loans are available through Sallie Mae, banks, and other lenders. There are some tricky rules that govern consolidation, though. The "single holder" rule requires that if a borrower's loans are all through the same lender, then the borrower has to go to that lender for a consolidation loan unless that lender doesn't offer consolidation loans or that lender doesn't offer an income sensitive repayment schedule. However, if you have loans with different lenders, you can go to either lender for consolidation or to any federal loan consolidation program.

The formula for the interest rate is federally mandated and thus the same from lender to lender. It's based on a weighted average of the loans being bundled, and rounded up to the next highest one-eighth of 1 percent. This rate won't be above 8.25 percent, and it's fixed for the life of the loan. Last year, the rate on Stafford loans, the most common type of student loan, dropped to 3.37 percent, the lowest point in more than 30 years.

Those who consolidate student loans before July 1, 2005 can lock in a consolidation interest rate based on this low rate. The rate is likely to rise in July, so it's worthwhile for those who haven't yet consolidated to do so. Be careful if you're consolidating Health Education Assistance Loans (HEALs) with other types of loans, however. In some types of consolidations, HEAL rates aren't figured into the weighted average calculation. Ask your loan officer how HEALs would be treated in the consolidation loan you're considering.

Federal consolidation loans will pay off if you're holding loans with interest rates higher than the current formula based on the federally mandated rate, and if you pay off the consolidation loan in the original time frame. If you consolidate but extend the repayment period, you could end up shelling out more interest.