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A Strategic Approach to Managing Your Debt and Finances During Your Utah Residency

A Strategic Approach to Managing Your Debt and Finances During Your Utah Residency. University of Utah Resident Orientation Presented by Jason DiLorenzo Director of Education, GL Advisor. Changes in Student Debt Levels. ~$300k+. ~$ 220k. ~$89k. ~$50k. 2000. 2013. 1993.

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A Strategic Approach to Managing Your Debt and Finances During Your Utah Residency

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  1. A Strategic Approach to Managing Your Debt and Finances During Your Utah Residency University of Utah Resident Orientation Presented by Jason DiLorenzo Director of Education, GL Advisor

  2. Changes in Student Debt Levels ~$300k+ ~$220k ~$89k ~$50k 2000 2013 1993 Debt levels have quadrupled in the last 20 years * Based on data collected by AAMC, AMA and GL internal student database

  3. Regulatory Changes • 2007: Public Service Loan Forgiveness enacted • 2009: (July 1st): Income-Based Repayment (IBR) effective • 2012: Pay As You Earn (PAYE) • Available to “new borrowers” on or after Oct. 1, 2007 • 2014: New Direct Consolidation Process • Choose your own servicer and apply for IBR/PAYE with new application Public Service Loan Forgiveness and IBR/PAYE provide greatest savings opportunity to medical graduates

  4. Income-Based Repayment / PAYE • Partial Financial Hardship • Limit monthly payment to 15% of discretionary income, capped at 10-year standard • PAYE: Monthly payment limit reduced to 10% • Government Subsidy • Subsidized interest not covered by reduced payment is paid by government • Subsidy is provided for maximum of 3 years • Loan Forgiveness • After 25 years of repayment, 10 years if in Public Service • PAYE: Forgiveness after 20 years

  5. Payment unmanageable during residency • Deferment regulation changes necessitate forbearance Total Forbearance Cost = $64,518 Forbearance: No Payment, No Problem? Salary: $ 48,000 $48,410 $49,862 $51,358 10-Year Standard Payment: $2,525 $2,662 $2,808 $2,965 Extended Term Payment: $1,519 $1,603 $1,693 $1,789 Cost of Forbearance

  6. Income-Based Repayment 1st Year 2nd Year 3rd Year 4th Year $ 48,000 $48,410 $49,862 $51,358 Salary: $2,525 $2,662 $2,808 $2,965 10-Year Standard Payment: $1,519 $1,603 $1,693 $1,789 Extended Term Payment: $ 0 $84 $384 $389 IBR Payment: $14,819 IBR Subsidy Interest Paid Subsidy Earned Interest Paid Greater Subsidy and Lower Interest Payments

  7. Pay As You Earn 1st Year 2nd Year 3rd Year 4th Year Salary: $ 48,000 $48,410 $49,862 $51,358 $2,525 $2,662 $2,808 $2,965 10-Year Standard Payment: $1,519 $1,603 $1,693 $1,789 Extended Term Payment: $ 0 $ 57 $256 $259 PAYE Payment: $14,819 PAYE Subsidy Interest Paid Subsidy Earned Greater Subsidy and Lower Interest Payments Interest Paid

  8. Public Service Loan Forgiveness • Eligible Loans: Direct Stafford & Grad PLUS • (FFEL, Perkins, HPSL and LDS can be consolidated for eligibility) • Specific requirements: • Borrower must make 120 qualifying payments on a Federal Direct Loan • Borrower must work for a public service entity as defined by the program, such as a Federal, State, Local, or non-profit organization • Employment Certification Form is available • Will trigger transition to FedLoans as servicer Approximately 80% of hospitals are non-profit

  9. Loan Forgiveness – True Cost of Debt $164,590 IBR $109,726 PAYE $395,160 Standard 4-Year Residency

  10. Pay As You Earn Scenarios Savings: $28,441 (Present Value)

  11. Obama 2015 Budget Proposal • Expansion of PAYE to all federal loan borrowers • Helps reduce cost for borrowers, simplify process for servicers • Removal of the cap on payments • New cap on amount forgiven through PSLF • $57,500 limit, based on max borrowing amount for independent undergrads • Balances above $57,500 will not be forgiven until 25 years of participation • 20 and 25 year forgiveness options to be tax-free

  12. Other Objectives and Tactics

  13. Taxes • Taxes in final year and post-graduation: • Lifetime Learning Tax Credit OR Tuition and fees tax deduction • Married: Filing Jointly OR Filing Separately • Identification of other AGI deductions (e.g. moving expenses) • Qualified retirement plan contribution considerations Most Students and Residents Do Not Consider Impact to Student Loans

  14. Considerations for Loan Consolidation Do I need to consolidate? PSLF and PAYE are available for Direct Loans only IBR available for FFEL loans but not PSLF eligible Perkins, HPSL, LDS (some don’t appear on NSLDS!) Option to choose servicer FedLoans is PSLF servicer Varying turnaround times for processing applications Varied standards for income verification (best to file tax return) Service considerations Servicer Errors Eligible loans not included in consolidation Wrong repayment plan implemented Incorrect advice regarding consolidation for forbearance, IBR/PAYE/PSLF You have 10 business days to make changes once Loan Summary Sheet is issued

  15. Tying the Knot A PGY2 resident with $207k in federal student loan debt on academic career track gets married. How does the loan repayment strategy change if the spouse has no student loan debt and makes $90K salary? Forgiveness Potential $232,039 Forgiveness potential $150,305

  16. EXIT INTERVIEW After 4 years of training, a graduating resident contemplates the next step in her career. How does loan forgiveness impact the economics of working for a non-profit? Original Debt: $250,000 Debt after training: $308,000 Non-profit salary offer: $155,000 For-profit salary offer: $205,000

  17. Salary Equivalent Public VS Private Actual For-Profit Practice Salary Additional from Public Service derived from forgiveness Actual Public Service Salary Assumptions: PAYE eligible. The taxable equivalent amount assumes a marginal federal tax rate of 20% and a marginal state tax rate of 5%.

  18. Action Plan • Consolidation: Evaluate and complete a consolidation with the Direct Loan Program. • Tax Filing: • Incorporate impact of taxes on federal loan subsidy programs when filing • Income-Based Repayment/ Pay As You Earn: • Apply for and enter IBR or PAYE (during residency). Re-apply annually with income documentation and family-size verification. • Public Service Loan Forgiveness: • Track eligible payments, maintain documentation, utilize employment certification form if applicable. • Manage Liquidity: • Ensure you have sufficient cash flow to make all loan payments. • Manage Discretionary Income: • Determine how to allocate extra cash to achieve highest returns.

  19. For more information and to schedule a complimentary personal consultation, please see Jason DiLorenzo in the lobby at the break or after Orientation: jdilorenzo@gladvisor.com Cell: 415.722.8552 Main: 877.552.9907 All government sponsored programs are subject to their continued existence, availability and participation requirements. GL Advisor is a division of Graduate Leverage, LLC. GL Advisor currently does not offer all services to residents of North Dakota.

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