FIRST Financial Information, Resources, Services, and Tools for Medical Education Student Loans and Debt Management Spring 2009

FIRSTFinancial Information, Resources, Services, and Tools

for Medical Education

Student Loans and Debt Management

Spring 2009

©2008 Association of American Medical Colleges. All rights reserved.

The reality is this…

Financial planning starts now, not when you get out of residency

You may be able to reduce the total amount you pay back on your student loans

Strategy is key to your success


Class of ’08 Indebtedness

• 87% of class report having educational debt

• 56% of class report debt $150,000 or higher

All Schools Public Schools

Private Schools

Mean $154,607 $143,140 $173,304

Median $155,000 $145,000 $180,000


Agenda

1) Know Your Loan Portfolio

2) Know How to Postpone Payments

3) Forgiveness Options

4) Run the Numbers

5) Other Considerations


“An investment in knowledge always pays

the best interest”

- Benjamin Franklin


Know Your Loan Portfolio


Master Promissory Note

A contract with the lender

Details borrower’s Rights and Responsibilities

Defines Terms and Conditions of the loans


Rights and Responsibilities

Rights include the ability to:

Prepay any federal loan without penalty

Request a shorter repayment schedule

Change repayment plans

Request a deferment or forbearance

Review your promissory note for all rights


Rights and Responsibilities

Responsibilities include:

Make on time loan payments

Make payments despite receipt of bill

Notify the lender of changes in contact info

Attend an Exit Counseling session

Review promissory note for all responsibilities


A serious obligation

Student loans must be repaid whether or not:

Program was completed

Program completed in normal amount of time

Satisfied with your experience

Employment is obtained


Finding Your Federal Loans

www.nslds.ed.gov

To access you provide:

- SS#

- Date of Birth

- First 2 letters (last name)

- PIN # (www.pin.ed.gov)


Interest RatesIn school, Grace and Deferment

Forbearance,Repayment

Stafford Loans(disbursed on or after 7/1/06)

6.8% Fixed

6.8%Fixed

Stafford Loans*(disbursed between 7/1/98 and 6/30/06)

3.61%Variable

4.21%Variable

Grad PLUS Loans**

8.5%Fixed

8.5%Fixed

Perkins Loan / PCL / LDS 5.0% Fixed

5.0% Fixed

Private Loans Typically Variable – Check the Promissory Note

Institutional Loans Varies by Loan – Check the Promissory Note

Consolidation Loan Fixed rate based on weighted average interest rate of underlying loans rounded up to nearest one-eighth of a

percent (capped at 8.25%)

* Variable rates change every July 1 based on the 91-day treasury bill

** Interest rate for Direct Grad PLUS Loans 7.9%

*** Fixed interest rates will not be reduced in consolidation; they will be included in a weighted average with the other loans and rates and then rounded up 1/8th.


Repayment Strategy

Prioritize repayment efforts - prepay the most expensive

debt FIRST!


NOTE: Direct Loan Program capitalizes interest on unsubsidized loans at the end of grace and again at the end of uninterrupted periods of authorized deferment.

Capitalization

Addition of unpaid interest to the principal

Increases the total amount due

The less frequent the better

Identify your lenders policy


Repayment Strategy

Pay the interest on unsubsidized loans PRIOR to

capitalization


Loan Repayment Timeline


Know How to Postpone Payments


Postponement Options

Deferment

Economic Hardship

Graduate Fellowship – unlimited

Military

For a complete list and details on types of deferment: www.aamc.org/students/financing



Economic Hardship Deferment (as of July 1, 2009):

No longer available to apply for

Applications submitted prior will be processed

Alternatives include:- Forbearance- Income-based repayment


Steps to Obtain

Economic Hardship Deferment

Only loans in repayment are considered

Submit application prior to July 1, 2009

Work closely with your lender(s)

Allow 30 days for processing


Economic Hardship Deferment

Economic Hardship Deferment Calculator:

www.aamc.org/students/financing



Internship/Residency Forbearance

Used to postpone payments

Requested annually from lender

Interest accumulates on sub and unsub loans

Continuous periods may avoid capitalization


Income-Based Repayment (IBR)

Payment based on household income/family size(annual verification required)

Unpaid interest paid on subsidized loans (first 3yrs)

Unpaid interest on does not capitalize*

Balance forgiven after 25 years

* Capitalization of interest occurs when borrower moves out of IBR



Income Based Repayment (IBR)

Defined: 15% of income that exceeds 150% of the poverty line for a borrower’s family size.

STEP I - Determine 150% of poverty line

STEP II - Subtract from Monthly gross income*

STEP III - Multiply remaining income by 15%

*Married filing jointly includes both incomes



Monthly Gross Income $3,805

150% of the poverty line - $1,300

= $2,505

15% of difference x .15

Monthly Loan Payment = $ 376*

www.IBRinfo.org

* Based on a family size of”1 and an annual salary of $47,500 and 2008 Poverty Levels


Forgiveness Options


Terms and Conditions

Public Service Loan Forgiveness

Must make 120 loan payments to Direct Loans

Must work 10 years in Public Service

Does not have to be continuous work

Payments made after October 1, 2007



What is considered Public Service?

Non-profit, tax exempt, 501(c)(3) organizations

Federal, state or local government

Military service

Public schools and colleges



Loan Forgiveness Options

NIH Loan Repayment Programs: www.lrp.nih.gov

NHSC Repayment Programs: www.nhsc.hrsa.gov

Other programs listed at AAMC website: www.aamc.org/stloans

Loan Forgiveness Options

NIH Loan Repayment Programs: www.lrp.nih.gov

NHSC Repayment Programs: www.nhsc.hrsa.gov

Other programs listed at AAMC website: www.aamc.org/stloans



Discharge may also be available in cases of:

Death/Disability

Closed school / False certification

Certain public school service professions

Identity Theft

Bankruptcy (rarely)


Run the Numbers


Repayment Strategy

To reduce the cost of student loans, make additional

principal payments.


Standard (Level) Repayment

Extended Repayment


Graduated Repayment

Income Sensitive Repayment (FFELP)

Income Contingent (Direct)

Repayment Plans


Repayment Plans

Standard Equal monthly payments Higher monthly payments Lower total cost

Extended Repayment term of 25 years Low monthly payment Possibly the most expensive option


Repayment Plans

Income Sensitive / Income Contingent Lower initial payments (tied to income) Possible higher costs

Graduated Payments start low, increase over time Higher overall cost

Income-Based Repayment Possibly the lowest monthly payment


Repayment Plans

Effects of each Repayment Plan on Cost Repayment Timeline – Side 2


Repayment Plans

Estimated Monthly Payment Amounts Debt Manager Booklet: Page 18-19


Other Considerations


Private Loans

Details of Private Loans

Typically unsubsidized for life of loan

A grace period/forbearance may be available

Cannot be included in a hardship deferment

Cannot be included in IBR


Private Loan Consolidation

Private Loan Consolidation – BE CAREFUL

Understand all fees and costs involved

Do NOT include Federal loans

Federal loans will lose all rights (i.e.- tax, forgiveness and subsidies)


Federal Loan Consolidation

Effects of consolidating in today’s environment

Longer term = Increased interest costs

Possible forfeiture of borrower benefits

Rounding may result in a higher rate

May negatively affect grace, deferment, or forgiveness options


Federal Loan Consolidation

When to consider Consolidation*:

Variable rates are low

Multiple lenders to repay

To obtain Public Service Loan Forgiveness (DL)

To make Perkins or LDS loans eligible for IBR

*Benefits may differ between lenders


Full Deduction Partial Deduction NO Deduction

Single $54,999 or less $55,000 to $69,999

$70,000 or more

Married filing

Jointly

$114,999 or less

$115,000 to $144,999

$145,000 or more

www.irs.gov/publications/p970

The Taxpayer Relief Act of 1997

Deduction may not exceed $2,500 per year

Voluntary payments may be eligible

Capitalized interest may be included


Delinquency

Reported to credit bureaus, affects your credit

Default

Negatively affects your credit

Wages and tax returns can be garnished

Lawsuit leveled against you (responsible for costs)

Other federal debt collection methods

Consequences of…


Check your Credit Report

www.annualcreditreport.com


Support Along the Way

Your residency program

Your loan servicers’ and their web sites

“MD2 – Monetary Decisions

for Medical Doctors”

www.aamc.org/FIRST : FIRST for Residents Mailbox

Your medical school financial aid office

www.ombudsman.ed.gov

1-877-557-2575

FIRSTFinancial Information, Resources, Services, and Tools

for Medical Education

Questions?

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FIRST Financial Information, Resources, Services, and Tools for Medical Education Student Loans and Debt Management Spring 2009