Student Loans and Debt Management

1. Student Loans and Debt Management Spring 2009

2. 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

3. Class of ’08 Indebtedness • 87% of class report having educational debt • 56% of class report debt $150,000 or higher

4. Agenda • Know Your Loan Portfolio • Know How to Postpone Payments • Forgiveness Options • Run the Numbers • Other Considerations

5. “An investment in knowledge always pays the best interest” - Benjamin Franklin

6. Know Your Loan Portfolio 1

7. Master Promissory Note A contract with the lender Details borrower’s Rights and Responsibilities Defines Terms and Conditions of the loans

8. 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

9. 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

10. 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

11. 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)

12. Interest Rates * 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.

13. Repayment Strategy • Prioritize repayment efforts - prepay the most expensive • debt FIRST!

14. Capitalization • Addition of unpaid interest to the principal Increases the total amount due The less frequent the better Identify your lenders policy 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.

15. Repayment Strategy • Pay the interest on unsubsidized loans PRIOR to capitalization

16. Loan Repayment Timeline

17. Know How to Postpone Payments 2

18. Postponement Options • Deferment Economic Hardship Graduate Fellowship – unlimited Military For a complete list and details on types of deferment:www.aamc.org/students/financing

19. Postponement Options • 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

20. 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

21. Economic Hardship Deferment Economic Hardship Deferment Calculator: www.aamc.org/students/financing

22. Postponement Options • Internship/Residency Forbearance Used to postpone payments Requested annually from lender Interest accumulates on sub and unsub loans Continuous periods may avoid capitalization

23. Postponement Options • 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

24. 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

25. Income Based Repayment (IBR) Monthly Gross Income $3,805 150% of the poverty line - $1,300 = $2,505 15% of differencex .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

26. Forgiveness Options 3

27. 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

28. Terms and Conditions • What is considered Public Service? Non-profit, tax exempt, 501(c)(3) organizations Federal, state or local government Military service Public schools and colleges

29. Terms and Conditions • 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

30. Terms and Conditions • Discharge may also be available in cases of: • Death/Disability • Closed school / False certification • Certain public school service professions • Identity Theft • Bankruptcy (rarely)

31. Run the Numbers 4

32. Repayment Strategy • To reduce the cost of student loans, • make additional • principal payments.

33. Repayment Plans Standard (Level) Repayment Extended Repayment Income Based Repayment (IBR) Graduated Repayment Income Sensitive Repayment (FFELP) • Income Contingent (Direct)

34. 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

35. 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

36. Repayment Plans • Effects of each Repayment Plan on Cost • Repayment Timeline – Side 2

37. Repayment Plans • Estimated Monthly Payment Amounts • Debt Manager Booklet: Page 18-19

38. Other Considerations 5

39. 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

40. 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)

41. 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

42. 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

43. The Taxpayer Relief Act of 1997 Deduction may not exceed $2,500 per year Voluntary payments may be eligible Capitalized interest may be included www.irs.gov/publications/p970

44. Consequences of… • 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

45. Check your Credit Report www.annualcreditreport.com

46. Support Along the Way www.aamc.org/FIRST : FIRST for Residents Mailbox www.ombudsman.ed.gov 1-877-557-2575 “MD2 – Monetary Decisions for Medical Doctors” Your loan servicers’ and their web sites Your residency program Your medical school financial aid office

47. Questions?