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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
Agenda
1) Know Your Loan Portfolio
2) Know How to Postpone Payments
3) Forgiveness Options
4) Run the Numbers
5) Other Considerations
©2008 Association of American Medical Colleges. All rights reserved.
“An investment in knowledge always pays
the best interest”
- Benjamin Franklin
©2008 Association of American Medical Colleges. All rights reserved.
Master Promissory Note
A contract with the lender
Details borrower’s Rights and Responsibilities
Defines Terms and Conditions of the loans
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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)
©2008 Association of American Medical Colleges. All rights reserved.
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.
©2008 Association of American Medical Colleges. All rights reserved.
Repayment Strategy
Prioritize repayment efforts - prepay the most expensive
debt FIRST!
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
Repayment Strategy
Pay the interest on unsubsidized loans PRIOR to
capitalization
©2008 Association of American Medical Colleges. All rights reserved.
Postponement Options
Deferment
Economic Hardship
Graduate Fellowship – unlimited
Military
For a complete list and details on types of deferment: www.aamc.org/students/financing
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
Economic Hardship Deferment
Economic Hardship Deferment Calculator:
www.aamc.org/students/financing
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
Postponement Options
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
Income Based Repayment (IBR)
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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)
©2008 Association of American Medical Colleges. All rights reserved.
Repayment Strategy
To reduce the cost of student loans, make additional
principal payments.
©2008 Association of American Medical Colleges. All rights reserved.
Standard (Level) Repayment
Extended Repayment
Income Based Repayment (IBR)
Graduated Repayment
Income Sensitive Repayment (FFELP)
Income Contingent (Direct)
Repayment Plans
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
Repayment Plans
Effects of each Repayment Plan on Cost Repayment Timeline – Side 2
©2008 Association of American Medical Colleges. All rights reserved.
Repayment Plans
Estimated Monthly Payment Amounts Debt Manager Booklet: Page 18-19
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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)
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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
©2008 Association of American Medical Colleges. All rights reserved.
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…
©2008 Association of American Medical Colleges. All rights reserved.
Check your Credit Report
www.annualcreditreport.com
©2008 Association of American Medical Colleges. All rights reserved.
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