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Dental Students’ Finances: A Strategic Approach to Debt Management

Dental Students’ Finances: A Strategic Approach to Debt Management. ASDA Western Regional Meeting 2010. *Detailed assumptions are available upon request. Changes in Student Debt Levels. ~$190K. ~$115k. ~$50k. 1993. 2003. 2010. Debt levels have more than tripled in the last 17 years.

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Dental Students’ Finances: A Strategic Approach to Debt Management

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  1. Dental Students’ Finances: A Strategic Approach to Debt Management ASDA Western Regional Meeting 2010 *Detailed assumptions are available upon request - Confidential Document, Property of Graduate Leverage, LLC -

  2. Changes in Student Debt Levels ~$190K ~$115k ~$50k 1993 2003 2010 Debt levels have more than tripled in the last 17 years * Based on data collected by ADEA and GL internal student database - Confidential Document, Property of Graduate Leverage, LLC -

  3. Agenda • Federal Loan Basics • Regulatory Update • Opportunities and Strategies • Summary and Action Plan • TWO PRIMARY OBJECTIVES: • Maximize your Liquidity • Lower the Cost of your Debt - Confidential Document, Property of Graduate Leverage, LLC -

  4. 3 Most Common Federal Loan Types • Subsidized Stafford Loan • 6.8% fixed rate (variable rate if disbursed prior to 7/2006) • 6 month Grace period after graduation • Government pays interest during in-school, grace, and deferment periods • Unsubsidized Stafford Loan • 6.8% fixed rate (variable rate if disbursed prior to 7/2006) • 6 month grace period after graduation • Interest accrues during all periods and is the borrower’s responsibility • Grad Plus • 7.9% fixed fate under Direct Loan Program • 8.5% fixed rate under Federal Family Education Loan Program (FFELP) • Interest accrues during all periods and is borrower’s responsibility • 6 month grace period after graduation for those loans disbursed after 7/2008 - Confidential Document, Property of Graduate Leverage, LLC -

  5. Regulatory Update • All new federal student loans originated through Direct Loan Program (July 1, 2010) • In-school borrowers with qualified loan portfolio allowed to consolidate loans (July 1, 2010 to July 1, 2011) • New Income-Based Repayment (IBR) plan provides low payment and interest subsidies (July 1, 2009) It is Critical To Know Your Options - Confidential Document, Property of Graduate Leverage, LLC -

  6. Benefits Lock in historically low rates on variable rate loans 1.875% No interest rate rounding & Grad PLUS loophole. 30 year term: Lower payment & Debt to Income Ratio Administrative Simplicity: A single lender Costs Loans will capitalize Forgo grace period Lose any remaining lender benefits Federal Loan Consolidation In-school consolidation window: July 1st 2010 to July 1st 2011 All Students Must Evaluate This Option - Confidential Document, Property of Graduate Leverage, LLC -

  7. Payment Reduction Options • Postpone Payments: • In-School Deferment:FULL SUBSIDY • Economic Hardship Deferment (EHD):FULL SUBSIDY • Forbearance:NO SUBSIDY • Significantly Reduce Payments: • Income-Based Repayment Plan (IBR):PARTIAL SUBSIDY • Limits payment to 15% of discretionary income (changes to 10% in 2014*) • Subsidized interest not covered by reduced payment is paid by government • Subsidy limited to 3 years • Extended Repayment Plans:NO SUBSIDY • Consolidation 30 year Term • Extended 25 year Term - Confidential Document, Property of Graduate Leverage, LLC -

  8. 3 Scenarios, 3 Strategies $190,000 of debt. (weighted interest rate 7.05%) Graduate A Graduate B Graduate C Salary: $40,000 $90,000 $90,000 Best Approach: IBR EHD IBR Payment: $47 $0 $322 Subsidy Savings: $2,296 $2,312 $1,706 Tax Savings : $73 $0 $398 Total Savings : $2,369 $2,312 $2,104 Liquidity, Tax Savings, & Subsidy Savings - Confidential Document, Property of Graduate Leverage, LLC - Based on current IBR Regulations as of July 1st 2009

  9. How much house can you afford? Total Mortgage Payment (PITI) Top Ratio: Total Gross Income < 28% Total Mortgage Payment (PITI) + All Other Loan Payments Bottom Ratio: Total Gross Income < 36% Dental school debt can significantly impact the bottom ratio Obtaining Additional Credit - Confidential Document, Property of Graduate Leverage, LLC -

  10. $1,500 + $1,951 46% Bottom Ratio (<36%): $7,500 Applying for a Mortgage $1,500 Top Ratio (<28%): 20% $7,500 $322 24% Benefits of an Increased Down Payment Must Also Be Considered *Assumes IBR payment from previous slide. - Confidential Document, Property of Graduate Leverage, LLC -

  11. Other Benefits of a Reduced Payment Structured Payment Strategy Targeted Repayment Standard Repayment Consolidation – 4.75% 4.75% Non-payment Loans Fixed Stafford Loan – 6.8% 6.8% Non-payment 8.5% Grad PLUS – 8.5% Non-pay Private Loan - 9.25% 9.25% Repayment Period 8 yrs 10 yrs 1/2 yrs 1 yrs 7 yrs 10 yrs $11,675 Effective Rate (APR) = 6.29% Effective Rate (APR) = 5.69% *Assumes $168,000 in federal debt and $8,000 in private loans - Confidential Document, Property of Graduate Leverage, LLC -

  12. Dental Student Action Plan • What every dental student with student loans should do: • Get to Know Your Loans • What kind of loans do I have? (Federal Stafford, GRAD Plus, Perkins, etc.) • Who is my lender? (Federal Direct, Federal through Private Lender, Non-Federal Private Lender) • What are the interest rates on my loans? (fixed, variable, 6.8%, 7.9%, 8.5%, etc.) • Evaluate the In-school Consolidation Option • Cost / Benefit analysis based on individual situation • Take action by April, 2011 • Prepare & File Taxes Advantageously • Preparation in fall of final year to understand tax implications for loan subsidy programs • Understand the trade-off of filing jointly with spouse • File taxes in final year as appropriate • Position Loans for Maximum Interest Subsidy • Income, tax status, family size, career path, loan portfolio, and application timing impact which program will provide greatest benefit • Initiate evaluation and preparation prior to graduation • Allocate additional funds appropriately • Only invest when returns exceed cost of debt and liquidity issues met • Understand implications of retirement accounts on subsidy programs - Confidential Document, Property of Graduate Leverage, LLC -

  13. Thank You Free Assessments Available to All ASDA Members $75 Discount for ASDA Members on Fee Based Service If you have any questions or would like a personalized assessment, please feel free to call or visit our website. Andrew Franger afranger@gladvisor.com Direct: 847-894-2050 www.glAdvisor.com *The information in this presentation is for informational purposes only. - Confidential Document, Property of Graduate Leverage, LLC -

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