- Confidential Document, Property of Graduate Leverage, LLC -
Dental Students’ Finances:A Strategic Approach to Debt Management
*Detailed assumptions are available upon request
Andrew Franger
ASDA Eastern Regional
Microsoft Office Word 2003.lnk
- Confidential Document, Property of Graduate Leverage, LLC -
Changes in Student Debt Levels
Debt levels have more than tripled in the last 17 yearsDebt levels have more than tripled in the last 17 years
~$50k
~$115k
1993 2003
~$190K
2010
* Based on data collected by ADEA and GL internal student database
- Confidential Document, Property of Graduate Leverage, LLC -
- Confidential Document, Property of Graduate Leverage, LLC -
Agenda
1. Regulatory & Market Update
2. Federal Loan Opportunities and Strategies
3. Private Loan Opportunities
TWO PRIMARY OBJECTIVES:
•Maximize your Liquidity
•Lower the Cost of your Debt
TWO PRIMARY OBJECTIVES:
•Maximize your Liquidity
•Lower the Cost of your Debt
- Confidential Document, Property of Graduate Leverage, LLC -
Regulatory & Market Update
• New Income-Based Repayment (IBR) plan provides low payment and interest subsidies (July 1, 2009)
• Budget Control Act of 2011 eliminates Subsidized Stafford loans for graduate students (July 1, 2012)
• Improvements in private student loan markets may present opportunities for certain borrowers
*Based on borrowing $40,500 each year for 4 years of dental school. 10 Year Repayment term.
Impact of Subsidy Removal
Debt Ceiling Legislation (Budget Act 2011) resulted in the following changes:– After 2012 Graduate Students will not receive
subsidized Stafford Loans– Eliminates on-time payment incentives (rebate)
2012 Grad
2013 Grad
2014 Grad
2015 Grad
2016+ Grad
Payment Increase (10 yr term) -
$864 $2,527 $4,988 $ 8,248
- Confidential Document, Property of Graduate Leverage, LLC -
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
Payment Reduction Options
Postpone Payments:
• In-School Deferment: FULL SUBSIDY
• Economic Hardship Deferment (EHD): FULL SUBSIDY
• Forbearance: NO SUBSIDY
- Confidential Document, Property of Graduate Leverage, LLC -
Total Savings :
3 Scenarios, 3 Strategies
Graduate A Graduate B Graduate C
Best Approach:
Payment:
Salary:
Tax Savings :
$190,000 of debt. (weighted interest rate 7.05%)
Liquidity, Tax Savings, & Subsidy SavingsLiquidity, Tax Savings, & Subsidy Savings
Based on current IBR Regulations as of July 1st 2009
IBR EHD IBR
$40,000 $90,000 $90,000
Subsidy Savings:
$47 $0 $322
$2,296 $2,312 $1,706
$73 $0 $398
$2,369 $2,312 $2,104
- Confidential Document, Property of Graduate Leverage, LLC -
Other Benefits of Reduced Payment
Consolidation – 4.75%
Fixed Stafford Loan – 6.8%Loans
Repayment Period
Standard Repayment
Private Loan - 9.25%
Grad PLUS – 8.5%
8 yrs 10 yrs
Effective Rate (APR) = 5.69%
10 yrs
4.75%
Targeted Repayment
Non-payment
9.25%
6.8%Non-payment
8.5%Non-pay
1/2 yrs 1 yrs 7 yrs
Effective Rate (APR) = 6.29% $11,675$11,675
Structured Payment Strategy
*Assumes $168,000 in federal debt and $8,000 in private loans
- Confidential Document, Property of Graduate Leverage, LLC -
Should I Be Investing?
1960 1987 2001
7.4% Average S&P Return (A/T)
7.4% Average S&P Return (A/T)
0%
8%
16%
1940
PLUS Loan
S&P 500
Returns
8.1% AveragePLUS Return
8.1% AveragePLUS Return
Sources: Yale Econ/Robert Shiller, Standard & Poor’s, Federal Reserve, Bloomberg
All Returns Here Are All Returns Here Are After Tax
- Confidential Document, Property of Graduate Leverage, LLC -
7.9%
(For Illustrative Purposes Only – assumptions based on good credit & sample lenders)
Private Loan Market Update
*Research conducted by GL
%
Historical Private Loans
Index
Margin
5.5%
LIBOR, Prime, etc.
Pre-Credit Crisis
%
Current
Private Loan Market
Has Improved
Index
Margin
4.9%
Grad PLUS
A Low Rate “Fixed” Option May Provide Significant SavingsA Low Rate “Fixed” Option May Provide Significant Savings
3%
Index
Margin
10.9%
During Credit Crisis
Interest Rates Increase?
Index
7.5%
Margin
?
- Confidential Document, Property of Graduate Leverage, LLC -
What every dental student with student loans should do:
1. Understand Your Debta) What kind of loans do I have? (Federal Stafford, GRAD Plus, Perkins, etc.)
b) Who is my lender? (Federal Direct, Federal through Private Lender, Non-Federal Private Lender)
c) What are the interest rates on my loans? (fixed, variable, 6.8%, 7.9%, 8.5%, etc.)
2. Prepare & File Taxes Advantageouslya) Preparation in fall of final year to understand tax implications for loan subsidy programs
b) Understand the trade-off of filing jointly with spouse
c) File taxes in final year as appropriate
3. Position Loans for Maximum Savingsa) Subsidy: Income, tax status, family size, career path, loan portfolio, and application timing impact which
program will provide greatest benefit
b) Evaluate Refinancing opportunities
c) Initiate evaluation and preparation prior to graduation
4. Allocate additional funds appropriately a) Only invest when returns exceed cost of debt and liquidity issues met
b) Understand implications of retirement accounts on subsidy programs
Dental Student Action Plan
- Confidential Document, Property of Graduate Leverage, LLC -
within 1 week
Support Process
Personal Info Card
Fill out Card
Review Personalized Assessment
Retain GL Advisor to Carry Out Process
Complete Process Yourself
Execute Debt Management Objectives
GL Advisor Can Help GL Advisor Can Help
Contact Info:[email protected]
Cell: 847-894-2050Main: 877-552-9907
Overview• We have compiled and analyzed your personal debt portfolio in order to determine
the optimal debt management strategy. The tasks outlined below include each step required to minimize your cost of debt.
• Below your task list you will also find a detailing of the savings as well as your loan portfolio for your records.
Required Tasks To Achieve Plan Objective:1. November 15, 2010: Consolidate all low rate loans as initial in-school application
2. February 15, 2011: Complete Add-on Consolidation application form to include all low rate loans occurred in spring disbursement
3. March 1, 2011: Verify in-school deferment status on all consolidated loans to prevent payment and ensure subsidy
4. March 20, 2010: Complete tax filing process according to specific filing status: i)Non-Exempt: File using deductions for AGI to maximize subsidy and minimize