entrance education debt manager

Association ofAmerican Medical Colleges

Education Debt ManagerA common-sense approach for borrowing wisely

www.aamc.org/FIRSTii

Introduction ivEducation Debt 1Loan Basics for Entering Medical Students 3

Medloans® Organizer and Calculator 3

Know Who You Borrowed From and Who to Pay Back 4

Tracking Your Loans 4

Lenders 5

Servicers 5

Master Promissory Note (MPN) 6

Federal Student Aid (FSA) Ombudsman 7

Delinquency and Default 8

Less than Full-Time, LOA and Withdrawing 8

Know the Type of Loans Borrowed 9

Important Loan Details 9

Understand the Total Cost 10

Interest 10

Capitalization 11

Strategic Borrowing 13Alternatives to Borrowing 13

Borrow in the Right Order 14

Borrow Only What You Need 15

Loan Timeline 19During the Transition: The Residency Years 19

Grace 19

Loan Repayment Timeline (chart) 19

Using Up Your Grace 20

Postponing Payments 21Deferment 21

Deferment Eligibility Chart 21

Post-Enrollment Deferment – Direct PLUS Loans 22

Forbearance 22

Mandatory Forbearance for Medical Interns & Residents 22

Table of Contents

www.aamc.org/FIRST iii

Loan Repayment 23When Do You Start Paying and How Much? 23

Rights During Repayment 23

The Repayment Plans 24

Standard 24

Extended 24

Graduated 25

Income-Contingent 25

Income-Based 25

Monthly Payment Amounts 26

AAMC Monthly Payment Estimator – Stafford Loans 27

AAMC Monthly Payment Estimator – PLUS Loans 28

Credit 29Your Credit Score: What It Is and Why It Matters 29

How Your Credit Score is Determined 29

The Benefits of Good Credit 31

Really? 31

Budgeting 33Benefits of Budgeting 33

Creating a Budget 33

The Basics of Budgeting 34

Finding Alternatives 34

Budget Worksheet 36

Financial Literacy 37Identity Theft 37Credit Cards 37Signs You Could be Heading for Trouble 38Fixing the Problem 38Take Positive Steps to Get Out of Debt 38

Other Considerations 39Private Loans 39Federal Direct Loan Consolidation 39

www.aamc.org/FIRSTiv

A Note from FIRST for Medical Education

First and foremost, we want to congratulate you on making the decision to

become a doctor. You have worked hard to get where you are today, but

the next years will also be challenging – both academically and financially.

Facing student loans may seem daunting, confusing and even downright

frustrating. Despite this, it is vital to your financial future that you avoid

the temptation to ignore your loans and instead choose to face your debt

situation armed with the knowledge to make educated borrowing decisions.

This resource, the Education Debt Manager for Entering Medical Students,

was designed to help students, residents, financial aid staff and others

navigate the complexities of medical student debt. There are details included

within that will not only show you how to borrow and repay wisely, but will

also help to develop your debt management skills.

Benjamin Franklin said it best when he said, “An investment in knowledge

always pays the best interest.” So be encouraged, you are about to make a

major investment in yourself, your future, and the future of healthcare; and

rest assured, this investment will reap great dividends.

The best advice that I received when I was contemplating a career in medicine was to concentrate my initial efforts on getting into medical school and leave the issue of how to pay for it until another day. They assured me that there would be enough money available in the form of scholarships, grants, and low interest loans to pay for my medical education.

What they did not educate me about was the debt management, the principle of compound interest, and that it could take me the bulk of my professional career to pay off my student loans.

It has been over twenty years since I heard those words of wisdom, and I would continue to provide students with similar advice, but I would qualify my comment with the fact that the trend line for medical student indebtedness has become increasingly steep with each academic year.

Students must arrive at the door of the house of medicine with an enhanced awareness of how they will navigate the rising tide of medical education debt that they will encounter prior to their graduation.

Gary LeRoy, M.D.Associate Dean, Wright State University

www.aamc.org/FIRST

Education Debt

Paying for a medical education is challenging. In fact, the majority of medical school graduates complete their education with the assistance of student loan financing. In the graduating class of 2010, nearly 86% of medical students reported leaving medical school with student loans.

So, you are not alone. As you borrow to finance your education, know that you are in good company!

Across the country, the median level of debt for the class of 2010 was $160,000 (based on public and private MD granting medical schools, and including undergraduate debt).

Additionally, the median amount of non-education debt for these graduates was $11,000. This included car loans, credit card debt, residency and relocation loans, etc.

Data like this is collected each year by the Association of American Medical Colleges (AAMC), and we share it with you as a point of reference. Prior to leaving medical school, you will also be asked to share your feedback regarding your medical school experience via a survey called the Graduate Questionnaire.

1

Medical Student Education:Costs, Debt, and Loan Repayment Facts

October 2010

Indebted Graduates, Class of 2010*

Public Private All

Mean $148,222 (↑0.1%) $172,422 (↑1%) $157,944 (↑1%)

Median $150,000 ( 0%) $180,000 (↑1%) $160,000 ( 0%)

Education Debt of: Public Private All

$100,000 or more 78% 79% 78%

$150,000 or more 54% 65% 59%

$200,000 or more 22% 42% 30%

$250,000 or more 7% 20% 13%

Graduates with Education Debt 88% 85% 86%

Graduates with Premedical Education Debt: 37%

Median Premedical Education Debt: $20,000

Graduates with Non-education Debt: 26%Median Non-education Debt: $11,000

* Source: FIRST analysis of AAMC 2010 Graduation Questionnaire (GQ) data. Education debt figures include premedical/college education debt. Non-education debt includes car, credit card, residency relocation loans, etc.

Cost of Medical School, M1 In-State, 2010-11

Public Private

Median Tuition & Fees $28,685 (↑7%) $46,899 (↑4%)Median Cost of Attendance $49,298 (↑3%) $66,984 (↑3%)Source: AAMC Tuition and Student Fees Survey. Based on the 74 public schools and 52 private schools for which data are available.

Resident/Fellow Stipends

Median StipendApproximate Monthly

Income-Based Repayment Amount1st Post-MD Year $47,716 $393

2nd Post-MD Year $49,431 $415

3rd Post-MD Year $51,376 $4394th Post-MD Year $53,444 $465Source: Preliminary data from 2010 AAMC Survey of Resident/Fellow Stipends and Benefits and AAMC analysis.

www.aamc.org/first

Current Interest RatesFederal Graduate/Professional Stafford Loan:For loans disbursed on or after July 1, 2006: 6.8% fixedFor loans disbursed prior to July 1, 2006: see aamc.org/first for interest rate historyGrad PLUS Loan: Direct Loan Program 7.9% fixed

Contact InformationJulie Fresne, [email protected] Matthew Shick, [email protected] Youngclaus, [email protected] Jason Cantow, [email protected]

www.aamc.org/first

Sample Repayment – $160,000 in Federal Stafford Loans ($34,000 subsidized)

DescriptionRepayment

YearsMonthly Payment

Interest Cost

Total Repayment

IBR for full repayment with $170,000 starting salary after residency

Residency: 3

Post-Res.: 12

$390 to $470

$2,100$135,000 $295,000

Forbearance during residency, then Extended repayment

Residency: 3

Post-Res.: 25

$0

$1,500$287,000 $447,000

Forbearanceduring residency, then Extended repayment with 2 yr NHSC ($50K)

Residency: 3

Post-Res.: 15

$0

$1,500$97,000 $262,000

Public Service Loan Forgiveness with $100,000 starting salary after residency

Residency: 3

Post-Res.: 7

$390 to $470

$1,200 to $1,500$100,000

$134,000 then

$164,000 forgiven

Notes: IBR is Income-Based Repayment. NHSC is National Health Service Corps Loan Repayment Program. All figures are approximate and rounded for clarity. Full assumptions for each repayment scenario available on request. Salaries in 2009 dollars.

The AAMC is the leading source of education debt management information for medical students. See www.aamc.org/first for more details on Income-Based Repayment, Public Service Loan Forgiveness, and National Health Service Corps Loan Repayment. To calculate repayment with a longer residency see the site’s Medloans® Organizer and Calculator, the only on-line tool that calculates detailed repayment scenarios for personalized medical student loan portfolios while accurately accounting for the residency/fellowship training period.

www.aamc.org/FIRST 3

Loan Basics for Entering Medical Students

The first step to managing your education debt is to get organized. In the coming years, if you track and keep all of your student loan documents in a single place, you will find that not only are you a more educated borrower (because you understand the current state of your debt portfolio) but after medical school you will be more prepared to manage this debt.

Medloans® Organizer and Calculator

When putting your essential documents in order, you may rely on a folder system, a filing cabinet, a scanning-and-saving process or even… a shoebox. The specific method you use is not as important as the actual process of opening, reading – yes, reading – and saving your student loan paperwork!

To assist you in staying organized through medical school and residency, the AAMC has created an online location where you are able to not only safely and securely organize and save your loan portfolio information but also calculate the various repayment options - for after graduation. This tool will help you to be organized, while also helping you to be conscious of the impact of your borrowing decisions (total repayment cost) before you accept and borrow a loan.

The earlier that you begin utilizing the Medloans® Organizer and Calculator, the more prepared you will be to make wise borrowing and repayment decisions.

• Organize and keep track of your student loan information

• Develop repayment strategies using the calculator

• Use the only calculator designed specifically for medical students

“…the Medloans Calculator is pretty darned useful. Job well done!”

Frank Bauer, med student, URochester SOM

Use your AAMC username and passwordto log in to the Medloans® Organizer and Calculator

www.aamc.org/FIRSTFor help with your username and password, contact Denine Hales ([email protected]).

www.aamc.org/FIRST4

Know Who You Borrowed From and Who to Pay Back

Tracking Your Loans

Where are your loans coming from – who is your lender? Where will your payments go – who services your loans? The next step to managing your education debt is to know who you are borrowing from and who to pay back. If you keep good records, you will know the answers to these questions. Do not despair, though, if you lose track of your loan information. There are two resources you can rely on to find the details of your loans:

• The financial aid office (pre-med and medical) are able to assist you in identifying the lender and servicer of your loans.

• www.nslds.ed.gov – The National Student Loan Data System (NSLDS) is the U.S. Department of Education’s central database for federal student aid.

NSLDS is a repository of all of your federal loans and it will list the current lender, servicer and the outstanding principal balance (OPB) of the loan. Realize, though, that the information displayed on NSLDS is not real-time data, and due to processing times and only periodic updates, your current loan situation may be different than what is reflected. Contact your current servicer with any questions about the state of your student loans.

Non-federal loans (including private, alternative, and institutional loans) are not listed on the NSLDS website. For this, you will need to consult with the financial aid office or review your credit report (www.annualcreditreport.com) to determine the lender of those loans.

www.nslds.ed.gov To log-in, provide the following information:

• social security number• date of birth• first two letters of your last name • FAFSA pin number

If you don’t know your pin #, request it by going to:www.pin.ed.gov

Additional information on record keeping is available on the FIRST website at: www.aamc.org/first/factsheets


Lenders

During medical school, you will borrow your federally guaranteed student loans from Direct Loans (DL), also known as the William D. Ford Federal Direct Loan Program (www.dl.ed.gov). The DL program is a federal program that lends to borrowers directly from the U.S. Department of Education.

The loans you may receive from DL include Direct Stafford loans (subsidized and unsubsidized), Direct PLUS loans and Direct Consolidation loans.

Other common loans received during medical school include Perkins loans, Primary Care Loans (PCL) and Loans for Disadvantaged Students (LDS), and though these are federally mandated loan programs, the loans are actually issued to you through your school on behalf of the federal government.

Loan Type LenderDirect Stafford & Direct PLUS Direct Loans (Dept of Education)

Institutional Loans Your School

Perkins, PCL, and LDS Your School

Private Bank or Other Lending Institution

Direct Consolidation Direct Loans (Dept of Education)

After understanding who your lenders are, the next step is to find out who services your loans. The loan servicer is very important because until your loans are repaid in full the ser-vicer is the point-of-contact for all things concerning these loans.

Servicers

After a lender lends the loan, a servicer will be the entity that oversees the administration of the loan during repayment – like the manager of the paperwork. Be advised that the lender may act as the servicer of their loan or they may contract with a third party to do the servicing on their behalf. In any case, the servicer will be your point-of-contact for most activities that occur during repayment, like making payments, updating contact information, processing forms for deferment and forbearance, and providing tax forms with information for deducting student loan interest.

For successful loan repayment, it’s crucial that you know the servicers of your loans. The NSLDS website lists the lender and servicer for each of your federal loans.

www.aamc.org/FIRST6

Loan Type Lender ServicerDirect Stafford Direct Loans (Dept of Education)

Direct PLUS Direct Loans (Dept of Education)

Institutional Your School

Perkins, PCL, and LDS Your School

Private Bank or Other Lending Institution

Direct Consolidation Direct Loans (Dept of Education)

NOTE - Direct Loans may service their loans through Direct Loan Servicing Center (DLSC), www.dlsc.gov, or Direct Loans may contract another company to service your DL loans. For this reason, it’s important to read and organize the notifications sent to inform you of these changes… or at least be familiar with your information in NSLDS.

Master Promissory Note (MPN)

The Master Promissory Note (MPN) is a legally binding contract, between you and your lender. One MPN covers all Stafford loans and a separate MPN is required for PLUS loans. Simply stated, an MPN is your documented promise to repay the debt under the specified terms, and for this reason it is important to carefully read and understand the MPN before signing it. If you have already signed an MPN, a copy can be obtained from your lender or servicer.

Inside of the MPN, you will find that the obligation to repay your student loan debt is a serious responsibility that cannot be excused, even if:

• your course of study is not completed (or not completed in the regular amount of time),

• you do not receive the education program or service that you purchased,

• you are unable to obtain employment or

• you are dissatisfied with your education experience.

The benefits of an MPN to you as a borrower include a reduction of paperwork and a simplification of the borrowing process because an MPN can have a multi-loan feature allowing a single promissory note to cover multiple loans disbursed by the same lender over a 10 year period (while at the same school). This means that as a student loan borrower you may only sign one or two MPN’s while attending medical school – enabling monies to be received more efficiently when new loans are obtained.


Review the Statement of Rights and Responsibilities for a complete list

For questions about the rights and responsibilities, or terms and conditions, of your student loans, contact the lender, servicer or your medical school’s financial aid office.

Federal Student Aid (FSA) Ombudsman

If at any time you experience a situation with your lender that cannot be resolved after repeated attempts, the Federal Student Aid (FSA) Ombudsman may be able to help you. The FSA Ombudsman conducts impartial fact-finding research about your complaint and works with you and the lender to reach a resolution. Note that the Ombudsman can recommend solutions, but doesn’t have the authority to reverse decisions or dictate specific actions. They can be reached at www.ombudsman.ed.gov or 877-557-2575.

Rights

•Prepayanyfederalloanwithoutpenalty

•Requestacopyofyourpromissorynote

•Changeselectedrepaymentplan

•Experiencegraceandsubsidiesoncertainloans

•Seekdefermentorforbearanceofpayments

Responsibilities

•Useloanfundsonlyforauthorizedexpenses

•Makeloanpaymentsontime

•Makepaymentsdespitereceiptofbill

•Notifytheservicerofchangesinyourcontactinfo

•Notifytheservicerofchangesinyourname

•Notifytheservicerofchangesinyourenrollmentstatus

Resources for Borrowers

Borrowers who experience problems or disputes with their federal student loan lenders or repayment services have several resources available to assist them, including:

•TheU.S.DepartmentofEducation’sFederalStudentAidOmbudsman (1-877-557-2575, [email protected]) www.ombudsman.ed.gov/

•TheStudentLoanBorrowerAssistanceProjectrunbytheNationalConsumerLawCenter www.studentloanborrowerassistance.org

A recently enacted financial reform law created an ombudsman for private student loans to mediate disputes between private loan borrowers and their lenders. This service has not been set up yet, but it will be a resource for borrowers in the future.

www.aamc.org/FIRST8

Delinquency and Default

On a positive note, medical school borrowers have a very low default rate. This means that borrowers like you repay their loans, repay them on-time, and many even pay these loans off earlier than required. The key to duplicating this positive repayment behavior with your own debt portfolio is to stay organized and know when your payments are due.

When it comes time to repay your student loans, in the case that something does “slip thru the cracks,” you should know that the loan will be considered delinquent on the first day that the payment is late, and after being late for 270 days, the loan is considered to be in default.

There are negative consequences for both of these (see list), as each will hurt you well into the future, especially if you need credit for a house, a car, a practice, or other consumer loans.

The record of a late or defaulted student loan remains on a credit report for seven years – but nobody wants you to be there. If you are experiencing financial difficulties, do not wait until it’s too late -- call your servicer and see what arrangements can be made.

On a related note, maintaining good credit will also require that you stay current on all required payments (like credit cards, utilities, etc.) during medical school. A resource to consider tapping into during medical school, and beyond, is automatic withdrawal or scheduling payments (online) to be automatically sent from your checking account to those that you owe (before the due date). This automation of payment removes the element of a student’s fatigue and/or forgetfulness… and can be used as a strategy to ensure that all required payments during medical school are paid in a timely manner.

Less than Full-Time, LOA and Withdrawing

If your course load or enrollment status drops below half-time or you withdraw altogether, it is critical that you remember to immediately contact the financial aid office. They will need to:

1) guide you through your required exit counseling for your loans, and

2) update you on which loans are going into repayment right away and which loans have a grace period

The problem with not being a full-time student or taking any type of leave of absence (LOA) is that if you drop below half-time, loan repayment begins. So, stay in touch with the financial aid office to best understand your situation.

Consequences of …

delinquency

• Reported to credit bureaus• Negatively affects credit

default

• Entire balance due immediately • Additional charges, fees and

collection costs• Negatively affects credit• Garnished wages and tax returns• Withheld Social Security and

disability benefits• Lawsuits and costs are your

responsibility• Ineligible for additional student aid• Other federal debt collection

methods


Know the Type of Loans Borrowed

Important Loan Details

The terms “subsidized” and “unsubsidized” are probably familiar, but do you know what a subsidy actually is? It’s financial assistance that is granted to cover the interest accruing on a loan. The result of a subsidy is that interest does not accrue on the loan while the subsidy is active, or in other words, the loan is essentially interest-free for the borrower at certain points in time. To be clear, once you are in active repayment, interest will accrue on both your subsidized and unsubsidized loans.

A subsidy is only “active and working” for you while you are in school, in a grace period or in a qualifying deferment. Alternatively, unsubsidized loans are always accruing interest and payment of that interest is solely your responsibility.

*Underlying eligible subsidized loans

**Underlying eligible unsubsidized loans

***It’s important to know that if you put your Perkins or LDS loans into a Consolidation loan,

they will not only lose their favorable grace and deferment rights but they will also become

unsubsidized balances.

• Direct Subsidized Stafford• Perkins***• Loans for Disadvantaged

Students (LDS)***• Primary Care Loans (PCL)• Institutional (some)• Direct Consolidation*

•Direct Unsubsidized Stafford•Direct PLUS•Private/Alternative•Institutional (some)•Direct Consolidation**

This will reduce interest capitalization and the

overall interest cost. ConsidermakingpaymentstowardtheinterestaccruingonyourUNSUBSIDIZEDloanswhileyou’reinschool,in

grace,indeferment,orinforbearance.

SubsidizedThese loans receive an interest subsidy, in which the government or your medical school pays accruing interest on your

behalf, while you’re enrolled in school and during periods of grace and authorized

deferment.

Unsubsidized These loans accrue interest from the date of disbursement. If the interest is unpaid, it will be added back to the principal balance (original amount borrowed) at specific points via a process called capitalization. You are responsible for this interest.

www.aamc.org/FIRST10

Understand the Total Cost

You have heard the saying that “nothing in life is free,” and your student loans certainly are no exception. However, understanding exactly how your loans cost you money will help you make smart borrowing and repayment decisions. If borrowed and paid strategically, it’s possible to save yourself time and money.

There are two primary factors that will contribute to the cost of your loans:

1) Interest and

2) Capitalization

Interest is what the lender charges you to use their money. Understanding the way interest accrues is necessary for borrowing wisely. The most important fact to know about student loan interest is that if the loan is unsubsidized, interest accrues on the outstanding principal balance of the loan – beginning on the date of disbursement. For this reason, borrow all available subsidized loans before accepting unsubsidized monies. Also remember that you always have the right to pay the accruing interest on your unsubsidized debt – even if no payments are required.

Furthermore, different loans carry different interest rates. The chart on the next page will help you understand what the interest rates are for your loans.

Debt Management Strategies during Repayment

Here are some debt management strategies to help you pay these loans off faster:

% Prioritize your debt by arranging it from highest to lowest interest rate. The highest rate debt should be your first priority.

% Pay as much toward your highest-rate debt as possible. If able, reduce the required payment on your lower rate debt allowing for more monies to go to the higher costing debt.

% Pay with purpose, it can save you money. Don’t forget to include your credit card and private loan debt in your priorities – they’re often the highest costing debt.

Manage your debt, don’t let it

manage you!

How to Make a Voluntary Payment

1) Send it separately from any required payment that may be due.

2) Send directions telling the servicer how to apply the voluntary payment (i.e. – “Apply to interest on my Direct PLUS loan, Loan #, etc.”)

3) Follow-up and make sure your payment was applied accurately.

NOTE – All fees and interest must be paid before payments can be directed towards the principal of the loan.


Direct Stafford Loans (disbursed on or after 7/1/06)

6.8% Fixed

Direct PLUS Loans 7.9% Fixed

Perkins Loans / PCL / LDS 5.0% Fixed

Private Loans* Typically Variable – Check the Promissory Note

Institutional Loans Varies by Loan – Check the Promissory Note

Direct Consolidation Loans Fixed rate based on weighted average interest rate of underlying loans rounded up to the nearest one-eighth of a percent (capped at 8.25%)

* Private and alternative loans typically carry a variable rate that is higher than federal student loans.

Capitalization occurs when any accrued and unpaid interest is added to the original principal of the loan. (The principal of your loan is the primary balance you owe, exclusive of interest and fees.) Capitalization causes your principal balance to grow and the effect of this is that your interest begins to accrue interest. Lenders and servicers can tell you when your loans are scheduled to capitalize, but since this can be a costly process, some tips to reduce the cost of capitalization are included below.

Debt Management Strategies during Repayment

% Contact your servicer to determine their capitalization policy. This will allow you to understand when your loans are scheduled to capitalize.

% Pay accruing interest prior to capitalization. This may mean making partial or full interest-only payments while you are in school or residency. Remember, it’s always an option to make interest payments, even when no payment is required.

% Submit timely requests. Filing your forbearance, deferment, or repayment plan forms late with the servicer may result in capitalization earlier than expected.

Borrow smart, maximize your least expensive debt first. A $40,000 Direct PLUS loan can cost an additional $4,560 compared to a Direct Stafford loan, and a $40,000 private loan (at 12%) will cost an additional $23,400 compared to a Direct Stafford loan. Save yourself thousands by borrowing wisely, and realize that private loans should be a last resort.

Debt Management Tip


Strategic Borrowing

For the majority of medical school students, borrowing student loans is a necessary component of completing a medical education. Despite this, it is important to know that there is a right and a wrong way to get into debt. Understanding how to strategically borrow will enable you to borrow less, reduce your interest costs and repay your student loans earlier.

Consideration #1: Alternatives to Borrowing

Borrowing wisely may mean not borrowing at all. There are other sources of monies that can reduce or eliminate the need to borrow. These alternatives include scholarships from outside sources – such as your faith affiliation, civic organizations, state of residency, etc. There are also service based scholarships such as military and public health service programs (i.e. National Health Service Corps and National Institute of Health). Or even scholarships from your institution – check with the financial aid office for more details on scholarships available from the school.

Don’t forget your family support – both financial and emotional. Whether it is parents, grandparents or a working spouse, your family may be able to provide an alternative to borrowing. At the least, if unable to contribute large upfront gifts towards your education costs, family members may be able to help you pay the accruing interest on your student loans while you are in school – this will go a long way to help keep the cost of your student debt down and help to reduce your repayment costs.

Also, be familiar with loan forgiveness and repayment options following graduation and residency – the AAMC website lists nearly 100 possibilities. www.aamc.org/stloan

Finally, your medical school’s financial aid office is your primary point of contact for all financial aid matters – so visit them to discuss other alternatives to borrowing.

The Impact of NHSC Loan Repayment*

The financial benefits of participating in the National Health Service Corps Loan Repayment (NHSC LR) program can be substantial. For example, the minimum

two-year commitment results in a $60,000 award that must be applied to loan repayment. If the borrower applies the entire award immediately to their

outstanding balance, they would experience dramatic savings compared to someone who does not receive an NHSC LR award.

Borrowed during med school: $160,000

NHSC LR applied post-Residency: $60,000

Total Repayment Cost: $236,000

Total Savings of NHSC LR: $211,000 (and nearly 12-years of repayment)

The impact of the NHSC LR program would be greater for higher debt levels.

*Assumes a 3-year residency program, use of forbearance during residency and an Extended Repayment Plan (25-years).


Consideration #2: Borrow in the Right Order

Borrowing wisely means borrowing the least expensive debt FIRST and only moving onto a more expensive student loan after your less costly options have been maximized.

This translates into accepting all free money (grants and scholarships) prior to moving to 1) Perkins (if eligible), PCL and LDS Loans, 2) Stafford Loans, 3) Direct PLUS Loans and finally private loans and credit cards.

Your financial aid office and institution have worked carefully to create a cost of attendance budget that, in most cases, enables you to never borrow beyond PLUS loans. If you find yourself in the “red zone” during medical school, you will want to immediately see the financial aid office to discuss your situation, as your original award package was made with the intention of avoiding drastic financing options like private loans or credit cards. Additionally, if an unexpected emergency occurs, your financial aid office may be able to assist you in obtaining federal loans, instead of private loans or credit cards, to cover the situation.

Also, understand that when you borrow certain loans it may affect your eligibility for future aid. The reason for this is that you are limited in the total amount of financial aid that you are able to receive each year, including all loans and scholarships. You are prohibited from receiving more aid than your cost of attendance. This fact could mean forfeiting free or lower rate monies if you have already accepted a higher rate loan – so borrow in the right order.

FREE MONEY

PERKINS/PCL/LDS

STAFFORD

PLUS

PRIVATE

CREDITCARDS/

Additional information on stafford loans is available on the FIRST website at: www.aamc.org/first/factsheets


Based on borrowing $40,000 (unsubsidized) with interest capitalizing after 4 years of medical school; based on interest rates of 6.8% (Stafford), 7.9% (Grad Plus), 12% (Private).

Consideration #3: Borrow Only What you Need

A common misconception that new medical school students have is that they have to accept and borrow the maximum amount of loans that are available to them; however this is not the case. We encourage you to know how much money you need each semester/quarter. Then, borrow only what you need and decline any loans that exceed your need. If a financial crisis occurs during the semester and more money is needed, you can contact the financial aid office to assist you in accessing those previously declined monies.

When you avoid borrowing beyond what you need, what you protect yourself from is:

1) the origination costs for the unneeded money,

2) the interest costs that would accrue on the balance of needless funds,

3) the affects of capitalization on the extra money and

4) the possibility that this extra money will actually go towards things that you want, not things that you need.

To quantify the impact of borrowing in the right order, let’s compare the cost of repaying the interest for three different types of loans when the original amount

borrowed is $40,000.

INTEREST COST TOTAL COST

Stafford Loan: $23,240 $63,240

PLUS Loan: $27,800 $67,800

Private Loan: $46,640 $86,640

Additional information on unforseen emergencies is available on the FIRST website at: www.aamc.org/first/factsheets


Live like a medical student while you are a medical student and you will reap the rewards during repayment.

COMMON MISTAKE: Hoping to be financially prepared for the coming semester/quarter, new medical school students tend to think they should borrow everything that is made available to them.

CORRECT ACTION: Borrow only what you need, decline what you do not need, and if additional money is required in the future, the financial aid office can help you obtain those previously declined monies.

Consider accepting less than what is made available to you in your award package. It is possible. If you have a budget, know what you need and only accept that amount, you will save yourself money

CHALLENGE

Make a decision to borrow $5,000 less each year* from what is offered to you in your award package. If you choose to do this, you will avoid borrowing a total of $20,000

during medical school, and this will easily result in reducing your:

Monthly Payment by $400(+) per month

Total Loan Cost by $39,000(+)

Repayment Term by 2 (+) years

So, have a plan – a budget – and stick to it. Borrow only what you need to borrow because it will save you time and money during repayment.

*Example is based on Stafford loans at 6.8% with a 3 year residency and 3 years of forbearance prior to beginning a Standard repayment.

Additional information on budgeting is available on page 33 of this booklet and on the FIRST website at: www.aamc.org/first/factsheets


Loan Timeline

During the Transition: The Residency Years

Let’s face it, your years after medical school (residency) will not be your most extravagant or lavish times. Not only will it be a good idea to continue living within a realistic budget, but this will also be the time to begin managing the repayment of your student loans.

Be encouraged. You will have a number of options that, if needed, will allow you to complete your residency making little or no student loan payments. These options include postponing payments through grace, deferment or forbearance or making reduced payments through several of the five repayment plans (IBR, ICR, Standard, Graduated or Extended).

Grace

After you leave school, your loans will either enter a grace period or payments will be required. The grace period is a time when payments aren’t required. Grace periods occur automatically so you don’t have to apply for them; and even better than that, while you are in grace, your subsidized loans remain interest-free. Alternatively, unsubsidized loans continue to accrue interest during the grace period – just as they have always done. The availability and length of a grace period depends on the loan type. The chart below lists some common grace periods, but notice that PLUS and many Consolidation loans do not offer a grace period – though, if necessary, there are other options to postpone payments on these loans, just work with the servicer.

¹ For a list of common deferments, see http://www.aamc.org/first/debtmanager.pdf² Internship/Residency Forbearance: Available on Direct Stafford, Direct PLUS and Direct Consolidation loans, this forbearance allows you to postpone or reduce the

amount of your monthly payment for a limited and specific period of time if you have been accepted into an Internship/Residency Program.³ Repayment: Consult with your servicer regarding repayment plans and postponement options that may be available.4 Upon receipt of written request and documentation, institution shall grant a temporary cessation of payments. This timeline is intended to provide general information and is subject to change based on federal regulations. Always consult your servicer for detailed information regarding deferment, forbearance and repayment options.

Loan Repayment Timeline

Stafford Loan

Consolidation Loan

Direct PLUS Loan Disbursed on or after 7/1/08

Perkins Loan

Primary Care Loan

Institutional Loans

Private Loans

Enrolled6 month grace

6 month grace

Deferment1, Internship/Residency Forbearance2, or Repayment




Deferment1, Forbearance4, or Repayment. Possible 6 month post deferment grace.

Residency Deferment (up to 4 years in an eligible primary health care residency program) Must re-apply each year

9 month grace

12 month grace

Possible “Grace,” Deferment or Forbearance Varies by servicer—Check promissory note

Possible “Grace,” Deferment or Forbearance Consult your financial aid administrator

School Deferment

School Deferment

School Deferment

Enrolled

Enrolled

Enrolled

Enrolled

Repayment3 or Forbearance






Repayment or Forbearance. Varies by lender—servicer promissory note

Repayment or forbearance. Check promissory note.

6 month defer-ment

School Residency/Graduate Fellowship Post Residency

DL In-school Consolidation Loan Consolidated prior to 7/1/06


For many loans, the initial capitalization of accrued interest will occur at the end of the in-school deferment period (when you separate from school) OR at the end of the grace period - whichever occurs later. The Loan Repayment Timeline, page 19, visually depicts this.

The actual repayment start date for loans differs depending on:

• the loan type

• the grace period

• when the loan was disbursed, and

• possibly the lender of the loan

It’s important to know what is in your loan portfolio and when repayment begins so that a repayment strategy can be determined in a timely manner.

Using Up Your Grace

Once you completely exhaust the grace period, it is gone and you will not be able to acquire another one.* During medical school, if you take time off, drop below half-time status or take a leave of absence (LOA), your grace period may be completely used. Additionally, if you have federal loans from your undergraduate program, and you took longer than six months to transition from undergrad to medical school, the grace period may also have been exhausted on those loans. In this case, those loans will go into repayment immediately upon your separation from school. Understanding the repayment timeline for each of your loans is necessary for successful loan management.

*Perkins and LDS loans have additional grace periods that are available in certain circumstances.

Enter repayment when fully disbursed

Interest begins accruing at disbursement

Interest accrues continuously

Maximum interest rate is 7.9%

An automatic in-school deferment will postpone payments

Direct PLUS Loans

Additional information on postponing payments and PLUS loans is available on the FIRST website at:www.aamc.org/first/factsheets


Postponing Payments

While you are enrolled as a student, at least half-time, payments will not be required on any of your federal student loans. The reason for the postponing of payments while you are a student is because either an in-school status or an in-school deferment is applied to your loans. Additionally, after graduating or separating from medical school, there are several other ways to continue to postpone payments, keeping in mind, that at any point in time if you cannot make a required payment, simply contact your servicer immediately and they will assist you in exercising one of the options detailed below.

Deferment

Deferment is a period of time when a borrower, who meets certain criteria, can delay making payments. This option is ideal because during a deferment, the government will pay the interest that accrues on the portion of the federal loans that is subsidized; however, during this time you are responsible for the accruing interest on the unsubsidized portion. Deferment does not occur automatically; you must apply AND qualify in order to receive a deferment period. If you have more than one servicer for your loans, you’ll need to apply with each of these servicers individually.

New Borrower1

7/1/93New Borrower1

7/1/93New Borrower1

7/1/93New Borrower1

7/1/93

Deferment Eligibility Chart*

Type Max Time Stafford and SLS Loans PLUS Loans Consolidation Loans PerkinsLoans

Full-Time Student None

Half-Time Student None

Graduate Fellowship None

Rehabilitation Training None

Unemployment 3 Years

Economic Hardship 3 Years

Military Service(1) None

Military Active Duty 13 Months(3)

Student(2)

1New Borrower: A borrower who received an FFEL loan with a first disbursement on or after July 1, 1993. The borrower has no outstanding principal or interest balance on a FFEL loan as of July 1, 1993, or on the date the borrower obtains a loan on or after July 1, 1993. This includes a borrower who obtains a Federal Consolidation loan on or after July 1, 1993, if the borrower has no other outstanding FFEL loan when the Federal Consolidation loan was made.

(1) A deferment may be granted to a borrower who is serving on active duty during a war or other military operation or national emergency (including qualifying National Guard duty) The service period must include or begin on/after 10/1/07.

(2) A deferment may be granted to a borrower called to active National or State duty who is a member of the National Guard or Reserves (including retired members) and who was enrolled at least half time at an eligible school at the time of, or within 6 months prior to, being activated. The service period must include or begin on/after 10/1/07.

(3) Max time for this deferment applies each time the borrower qualifies for the deferment.

* This chart is to be used only as a guide. Contact your servicer(s) to determine eligibility.


Currently, the most common deferment types used by medical residents are Fellowship Deferments and Military Deferments, but for more extreme financial situations an Economic Hardship Deferment may be available. To discuss eligibility for these and other deferment types, contact the servicer(s) of your loans.

Post-Enrollment Deferment – Direct PLUS Loans

Officially, Direct PLUS loans enter repayment immediately after they are fully disbursed. However, servicers will automatically apply an in-school deferment on your Direct PLUS loans to postpone payments while you are enrolled in school.

After you leave school, though no grace period is available, a special 6-month post-enrollment deferment will automatically be applied to the loan (if it was disbursed after July 1, 2008). This deferment postpones payments for an additional 6-months, but keep in mind that Direct PLUS loans are unsubsidized loans, so interest is always accruing. If you would prefer to start repayment immediately - to avoid the additional accrual of interest - contact the servicer to decline this deferment.

Forbearance

Forbearance is the period of time when a borrower may either

• Make voluntary payments of any amount, or

• Postpone payments.

During forbearance, interest accrues on ALL loans including subsidized loans – making this a potentially costly way to postpone payments. Though you may voluntarily pay interest during forbearance, any interest that is not paid will be capitalized – typically at the end of the forbearance period. Note that, according to regulation, capitalization is allowed to occur as often as each quarter, so check with your servicer for their capitalization policy.

All forbearance periods must be formally requested from the loan servicer, who, in most cases, will determine the type and length. For medical interns and residents, there are a number of available forbearance types, but the most often used is a mandatory forbearance (described below).

To learn about forbearance options, contact your servicer(s).

Mandatory Forbearance for Medical Interns & Residents

Medical residents are eligible for a mandatory forbearance on federal student loans. Although you are required to request and provide documentation of your eligibility, the lender/servicer must grant it on your federal loans. This mandatory forbearance is only approved in annual increments; therefore, you must reapply each year to keep the forbearance active for the entire duration of your residency.

Mandatory forbearance is a viable option to avoid making payments on federal loans during residency. It is important to note that forbearance provisions may differ on some loans, such as the Federal Perkins (which requires you to pay at least some interest while in forbearance). Be sure to find out, from your servicers, what the provisions are on your loans. Also, remember that during forbearance while interest is accruing on your entire loan balance, you can always make voluntary payments without risk of losing the forbearance.

The Cost to Postpone

For a 2010 graduate with $160,000 in Stafford loans borrowed, the capitalization of unsubsidized interest accrued during school and grace will turn the principal balance into $182,670. During residency, an estimated $1,000 in interest will then accrue on this outstanding balance… each month!


Loan Repayment

Keep in mind that as a student enrolled in medical school, at least half-time, payments are not required on your federal student loans. Additionally, if you borrow and manage your money wisely during medical school, you will find the task of repaying these loans much easier and more affordable. By making smart financial decisions early and consistently, you can significantly reduce the cost of your debt.

When Do You Start Paying and How Much?

Your Stafford, Perkins, and other loans with a grace period will enter repayment at the end of the grace period. In the case of Direct PLUS loans, payment is required after the post-enrollment deferment ends. For loans without a grace period, you will be required to begin repaying them when you graduate, withdraw, or drop below half-time status. See the Repayment Timeline on page 19 for more details.

Approximately one to two months before your first payment is due, you’ll receive a notice regarding the exact due date. Around that same time, you’ll also be asked to select a repayment plan. The plan that you opt for will determine the amount of your required monthly payment and, consequently, the amount of interest you pay over the life of the loan.

Understanding the five repayment options will allow you to choose the best plan for your financial situation.

Rights During Repayment

Take comfort in the fact that if your financial situation changes, you have the ability and right to request any of the following items:

• A deferment or forbearance to postpone payments

• Change the selected repayment plan (and thereby, change the required monthly payment amount)

• Shorten the repayment schedule

• Prepay loans without penalty

Simply contact your servicer as your circumstance requires.

Get a Jump on Your Loan Payments

It may be a relief to know that you don’t have to make payments during school, but you could still consider making some type of payment – especially towards your most expensive (a.k.a. – high interest rate) debt.

Sending in an interest-only payment each month, while in school or residency, even if it is only a small amount, can be a very smart thing to do. Every dollar you pay now helps to reduce the overall cost of your debt. The fact is, the quicker you pay off your debt the less it will cost you.

(NOTE – You can make payments towards student loans at any time, even during school, and your grace, deferment or forbearance status will remain uninterrupted when a voluntary payment is made.)

Debt Management Fact

The faster you reduce the principal of your loans, the less your debt will cost you in interest.


The Repayment Plans

There are five payment plans to choose from during the repayment of federal student loans. The purpose of the different repayment plans is to provide flexibility in your finances. These options were designed to make your payments more manageable, and in most cases, you are able to change your selected plan when your financial situation changes.

Whether your debt is large or small, the repayment plan you select will impact the overall cost of the loans. A hastily thought out decision could turn out to be a costly choice, so when the time comes, select wisely.

Standard Repayment

When you choose this plan, your monthly payment amounts will generally be an equal amount throughout the term of the loan, and typically, the term length is 10-years. In comparison to the other options, the Standard plan requires higher monthly payments, but this causes lower interest costs. Standard Repayment is the plan that allows borrowers to pay education debt in the most aggressive and cost-efficient manner.

If you fail to notify your servicer otherwise, the Standard Repayment plan is the default plan for loan repayment.

Best Option For: Borrowers whose primary goal is to minimize the repayment time period and the total interest cost of their student loan debt.

Extended Repayment

The Extended Repayment plan allows you to stretch your current repayment term to up to 25 years (lowering the required monthly payment amount). The qualifications for Extended Repayment include:

• You must have an outstanding balance of principal and interest totaling more than $30,000 in either Federal Family Education Loans or Direct Loans

• All loans must have been issued on or after October 7, 1998

Before opting to extend your repayment term, consider the degree to which this option will negatively impact the overall interest cost of your debt.

Best Option For: Borrowers seeking to lower their monthly payment (without consolidating).

Based on an original principal balance of $160,000 entering repayment after 4 years of medical school and 6 months of grace. All numbers are rounded for clarity.

Standard/Level

Extended

Graduated

Income-Contingent/Sensitive

Income-Based Repayment (IBR)

$2,100/mo

$1,300/mo

$1,000/mo

$610/mo

$390/mo


Graduated Repayment

The Graduated Repayment plan allows you to begin with smaller monthly payments that will be scheduled to increase one or more times during your repayment term. Often, the amount of the required payment in this plan is equal to the amount of interest accruing each month, making it potentially an interest-only payment.

Though Graduated Repayment offers monthly payments that are initially lower than Standard Repayment, it may lead to higher interest costs over the life of the loan because the principal of the loan is not paid off as quickly.

Best Option For: Borrowers seeking temporary relief from high loan payments but expecting an increase in their income in the next few years.

Income-Contingent Repayment (ICR)

When you select Income-Contingent as a repayment plan, you must provide documentation of your income – the monthly payment amount will be based on a percentage of the expected total gross monthly income received from all sources.

This plan must be reapplied for each year and income documentation will be required. If this plan does not meet your needs, Income-Based Repayment may offer additional flexibility with lower payment amounts.

Best Option For: Borrowers that have a lower income, or are experiencing a financial hardship, and need assistance making their monthly payment.

Income-Based Repayment (IBR)

This is the plan that many medical residents consider during residency because it offers several appealing features:

1. This plan often offers the lowest required monthly payment (comparatively)

2. There is a partial subsidy available on the subsidized loans

3. This plan is acceptable under Public Service Loan Forgiveness

The Income-Based Repayment (IBR) plan was designed specifically to help those experiencing “a partial financial hardship” (PFH), by capping the monthly payment at 15%of discretionary income (see the example). Once you no longer demonstrate a PFH, the maximum required monthly payment amount under IBR may not exceed what the standard 10-year payment amount was at the start of making IBR payments. In other words, under IBR even when your income goes up, your required payment amount cannot exceed the Standard Repayment amount.

Additional information on Public Service Loan Forgiveness is available on the FIRST website at:www.aamc.org/first/factsheets


Under IBR, the monthly payment will be adjusted each year according to changes in your income and family size. IBR also offers a partial interest subsidy during the first 3 years. During this period, any accruing interest on your subsidized loans that is not covered by your scheduled monthly payment will be paid by the federal government. You may choose to remain in IBR for the maximum 25-years, at the end of which, any remaining federal loan balance will be discharged/forgiven – though, after 25-years in IBR, it is most likely that a physician will have already repaid their student loans in full. For more information, visit www.IBRinfo.org.

Best Option For: Borrowers who need a lower monthly payment. This option works well for residents, those pursuing careers in public service or anyone that has a lower income and needs assistance in making their monthly payments.

Example of a PGY-1 Resident in IBR1

Monthly Adjusted Gross Income2 $3,976

(minus) 150% of Poverty Line3 - $1,354

Discretionary income = $2,623

(multiplied by) x .15%

Monthly IBR Payment $393

1) Based on the 2010 first post-M.D. year median stipend of $47,716.2) Based on the 2010 Federal poverty guideline for a family size of one (as determined by the US

Department of Health and Human Services in the 48 contiguous states — $10,830.).3) Based on 2010 Federal regulations.

Monthly Payment Amounts

Estimates of monthly payment amounts are provided in the following charts on pages 27 - 28. The first chart depicts payment amounts for Stafford Loans, and the second chart shows payment amounts for PLUS Loans. These estimated breakouts show the original principal balance (in the first column), the balance after the initial capitalization (in the second column) and the estimated required monthly payment for each of the five repayment plans (in the remaining columns).

Find the row with the debt level that most closely correlates with your loan balance to see your estimated monthly payment amount. If you have Direct Stafford and Direct PLUS loans, you will need to add the two correlating payment amounts together – with the exception of ICR and IBR plans– to get the total payment amount.

For more accurate numbers, consult your servicers’ websites, or use the AAMC Medloans Organizer and Calculator at www.aamc.org/FIRST.

Additional information on Public Service Loan Forgiveness is available on the FIRST website at:www.aamc.org/first/factsheets


AAMC Monthly Payment Estimator for Medical School Borrowers

www.aamc.org/FIRST

MedicalSchoolStaffordLoanAmount

Balance atrepayment

10-yearrepaymentterm

Years 1-4(InterestOnly)

Years5-10


Years1-4

Balance(after a4 yearresidency)

Payment and yearsbased on balanceat start of IBR

Years1-4(InterestOnly)

Years5-10

Years1-4


Payment andremaining years

Standard Extended

$75,000 $82,377 $948 $467 $1,397 $572 $82,688 $948 for 10.1 yrs. $467 $1,397 $70,205 $1,257 for 5.7 years$80,000 $88,276 $1,016 $500 $1,497 $613 $89,767 $1,016 for 10.3 yrs. $500 $1,497 $77,942 $1,347 for 5.9 years$90,000 $100,075 $1,152 $567 $1,697 $695 $104,075 $1,152 for 10.6 yrs. $567 $1,697 $93,417 $1,529 for 6.3 years$100,000 $111,875 $1,287 $634 $1,897 $776 $118,530 $1,287 for 10.9 yrs. $634 $1,897 $108,894 $1,709 for 6.7 years$110,000 $123,674 $1,423 $701 $2,097 $858 $390 to $133,091 $1,423 for 11.2 yrs. $701 $2,097 $610 to $124,369 $1,889 for 6.9 years$120,000 $135,473 $1,559 $768 $2,297 $940 $500 $147,730 $1,559 for 11.4 yrs. $768 $2,297 $760 $139,845 $2,069 for 7.2 years$130,000 $147,272 $1,695 $835 $2,497 $1,022 per $162,429 $1,695 for 11.6 yrs. $835 $2,497 per $155,320 $2,249 for 7.3 years$140,000 $159,071 $1,831 $901 $2,697 $1,104 month $177,173 $1,831 for 11.8 yrs. $901 $2,697 month $170,796 $

$2,789 for 7.8 years$2,825 for 7.8 years

$2,964 to $2,969 for 7.9 yrs.$2,964 to $3,149 for 8.2 yrs.$2,964 to $3,305 for 8.5 yrs.

2,429 for 7.5 years$150,000 $170,870 $1,966 $968 $2,897 $1,186 $191,954 $1,966 for 11.9 yrs. $968 $2,897 $186,271 $2,609 for 7.7 years$160,000 $182,670 $2,102 $1,035 $3,097 $1,268 $206,764 $2,102 for 12.1 yrs. $1,035 $3,097 $201,747$162,000 $185,029 $2,129 $1,048 $3,137 $1,284 $209,729 $2,129 for 12.1 yrs. $1,048 $3,137 $204,842$170,000 $194,469 $2,238 $1,102 $3,297 $1,350 $221,598 $2,238 for 12.2 yrs. $1,102 $3,297 $217,222$180,000 $206,268 $2,374 $1,169 $3,497 $1,432 $236,452 $2,374 for 12.3 yrs. $1,169 $3,497 $232,698$188,668 $216,495 $2,491 $1,227 $3,670 $1,503 $249,342 $2,491 for 12.4 yrs. $1,227 $3,670 $246,112

Income-Contingent Repayment (ICR)Graduated Income-Based Repayment (IBR) Income-SensitiveFederal Stafford Loans with 6.8% annual interest

These figures provide a borrower with estimates of balances and monthly payment amounts. They are estimates only, based on federal regulations, and are subject to change. (Values are rounded to the nearest dollar.) Please contact your servicer(s) to discuss your exact balance and payment amounts. Bolded row of $150,000 is the median medical school debt for the class of 2010. Last row shows maximum Stafford loan limits for a borrower in a 4-year M.D. program comprised of four 12-month academic years. The amount borrowed is spread out over 4 years in 8 equal disbursements.

All values above are based on the following assumptions:•Staffordloans(FederalorDirect)with

a fixed interest rate of 6.8% and no fees. For all loan amounts, $34,000 is subsidized with the remainder unsubsidized.

• Fouryearsofmedicalschoolthena 6-month grace period with the capitalization of all accrued interest occurring at the end of the grace period.

Per IBR guidelines, IBR repayment amounts are based on federal poverty guidelines, family size, and stipend/salary.

The IBR values above are based on the following assumptions:• Familysizeof1inthe48contiguous

states.• Monthlypaymentamountsincrease

gradually each year starting at an estimated $390/month in year one up to an estimated $500/month in year four (based on median stipend amounts from the AAMC Survey of Resident/Fellow Stipends and Benefits). Actual monthly IBR amounts will vary depending on borrower salary/stipend.

• Aftera4-yearresidencytheborrowerearns a starting salary that causes the accrued interest to capitalize (a partial financial hardship no longer exists).

For Income-Sensitive repayment, if warranted, lenders can offer more than 4 years of interest-only payments which would extend repayment term beyond 10 years.

The ICR values are based on the following assumptions:•Monthlypaymentamountsincrease

gradually each year starting at an estimated $610/month in year one up to an estimated $780/month in year four (based on median stipend amounts from the AAMC Survey of Resident/Fellow Stipends and Benefits). Actual monthly ICR amounts will vary depending on borrower salary/stipend.

•Aftera4-yr.residency,borrower’sstarting salary is $170,000 in 2010 dollars.


AAMC Monthly Payment Estimator for Medical School Borrowers

www.aamc.org/FIRST

MedicalSchoolGrad PLUSLoanAmount

Balance atrepayment


Years 1-4(InterestOnly)

Years5-10

25 years Years1-4


Payment and yearsbased on balanceat start of IBR

Years1-4(InterestOnly)

Years5-10

Years1-4


Payment andremaining years

Standard Extended Income-Contingent Repayment (ICR)Federal Grad PLUS Loans with 8.5% annual interest

Graduated Income-Based Repayment (IBR) Income-Sensitive

1 1

$5,000 $6,045 $73 $40 $106 $46 $7,419 $75 for 12.2 yrs. $40 $106 $7,060 $92 for 8 years$10,000 $12,090 $146 $80 $211 $93 Pct. of $14,880 $150 for 12.3 yrs. $80 $211 Pct. of $14,195 $182 to $185 for 8.1 yrs.$15,000 $18,135 $219 $119 $317 $139 $390 to $22,380 $225 for 12.3 yrs. $119 $317 $610 to $21,398 $265 to $278 for 8.2 yrs.$20,000 $24,180 $292 $159 $423 $185 $500 $29,914 $301 for 12.4 yrs. $159 $423 $780 $28,664 $343 to $372 for 8.3 yrs.$25,000 $30,226 $365 $199 $528 $231 per $37,479 $376 for 12.5 yrs. $199 $528 per $35,987 $416 to $465 for 8.6 yrs.$30,000 $36,271 $438 $239 $634 $278 month1 $45,074 $451 for 12.6 yrs. $239 $634 month1 $43,362 $486 to $559 for 8.8 yrs.$38,000 $45,943 $555 $302 $803 $352 $57,281 $571 for 12.7 yrs. $302 $803 $55,262 $590 to $709 for 9.2 yrs.$50,000 $60,451 $730 $398 $1,057 $463 $75,703 $751 for 12.8 yrs. $398 $1,057 $73,311 $730 to $936 for 10 yrs.

Federal Grad PLUS Loans with 7.9% annual interest

These figures provide borrowers with estimates of balances and monthly payment amounts. They are estimates only, based on federal regulations, and are subject to change. The amount borrowed is spread out over 4 years in 8 equal disbursements.(Values are rounded to the nearest dollar.)

Grad PLUS loans in the former FFEL Program have an annual interest rate of 8.5% which will slightly increase all balance and monthly payment figures listed above. For example, the monthly payment amount for a $10,000 loan with 8.5% annual interest and a standard 10-year repayment would be $152 compared to the $146 listed above. Please contact your servicer(s) to discuss your exact balance and payment amounts.

NOTE: Because Grad PLUS loans are unsubsidized, the rows above may be used as “building blocks.” For example, the values for a loan amount of $40,000 would be equal to the values in the $20,000 row multiplied by two; note the values in the $20,000 row are twice the values shown in the $10,000 row. This is only applicable for the Standard, Graduated, and Extended repayment plans.

The IBR values are based on the following assumptions:• Familysizeof1inthe48contiguous

states.• Monthlypaymentamountsincrease

gradually each year starting at an estimated $390/month in year one up to an estimated $500/month in year four (based on median stipend amounts from the AAMC Survey of Resident/Fellow Stipends and Benefits). Actual monthly IBR payments will vary depending on borrower salary/stipend.

•Aftera4-yearresidencytheborrowerearns a starting salary that causes the accrued interest to capitalize (a partial financial hardship no longer exists).

The ICR values are based on the following assumptions:• Monthlypaymentamountsincrease

gradually each year starting at an estimated $610/month in year one up to an estimated $780/month in year four (based on median stipend amounts from the AAMC Survey of Resident/Fellow Stipends and Benefits). Actual monthly ICR amounts will vary depending on borrower salary/stipend.

• Aftera4-yr.residency,borrower’sstarting salary is $190,000.

All values above are based on the following assumptions:•GradPLUSloanswithafixedinterest

rate of 7.9% and no fees.• Fouryearsofmedicalschoolthena

6-month post-enrollment deferment with the capitalization of accrued interest occurring at the end of the in-school deferment or, if taken, at the end of the post-enrollment deferment.

• For IBR and ICR, Grad PLUS loans are in addition to $162,000 of Stafford loans.

1 During the 4-year residency, under IBR and ICR the payment is applied proportionately between Stafford and Grad PLUS loans (based on the percentage of total owed for each loan type). For example, if the IBR payment amount is $400 and the Grad PLUS balance is 10 percent of the total owed, 10 percent of the payment (or $40) would be applied to the Grad PLUS balance.


Credit

There are 3 items to focus on, during medical school, to improve your credit score:

1) Pay your bills on time

2) Pay down your debt

3) Don’t close accounts or open new ones

After 4 years of watching and protecting your credit, it’s very likely that you’ll leave school with a better credit score than when you started.

Your Credit Score: What it is and Why it Matters

A credit score is an indicator of the creditworthiness of an individual. Stated in other words, it is a numerical value that represents the probability of a person to repay their debt. This score is an important number because it will directly impact your ability to gain approval (for loans, insurance, housing, utilities, and more) as well as the rates and deposits that come after approval has been obtained. In most situations, the better your credit score, the less it will cost you to borrow.

Read on to find out how you can get and keep a high credit score during medical school.

How Your Credit Score is Determined

A credit score is the result of a numerical calculation that takes into account the entries on your credit report. The best known and most commonly used credit score is a FICO® score, with scores ranging from a low of 300 to a high of 850. Knowing your exact FICO score is not as important as understanding what it is based on.

A credit score, or FICO score, is based on only 5 specific factors (as determined by Fair Isaac Corporation) which give no consideration to employment status, income or profession. So, be aware of these factors, because even once you are an MD earning a nice salary, a good credit score is not guaranteed.

Nothing in Life is Free, right?

If you’re curious to find out your FICO score, it’s likely you will either pay a fee or agree to a financial obligation (like signing up for a subscription) before you’re able to see that score. Time is better spent on reviewing your credit report at

www.annualcreditreport.com (where it really is free)!

30www.aamc.org/FIRST30

35% Payment History

15% Length of credit history

10% New credit

10% Types of credit used

30% Amounts owed

Payment History (35%)

This is the largest portion of your score. Delinquent payments can have a major impact on scoring, but consistent payments made on-time will raise a credit score. TIP: As a medical student, be proactive against late payments. Set up automatic withdrawal or schedule online bill pay services with your bank, so that a recurring monthly payment is never late (like credit card payments).

Amount Owed (30%) The total amount of your credit line that you are currently utilizing will impact your credit score. The goal is to use less than 30% of your line of credit (add up the maximum credit line on all of your credit cards and compare it to the total amount owed in order to determine your utilization rate). TIP: During medical school, make a focused effort to pay down your credit card debt or at the minimum, avoid creating/increasing the balance on these cards.

Length of History (15%) The longer the history, the higher the score, and for this reason, be careful when closing accounts (like credit cards) as you may lose some of your credit history in the process. TIP: To avoid having your oldest accounts, like credit cards, closed by the companies they are with – use them periodically.

New Credit (10%) A high number of inquiries (over 3) inside of 12 months can be negative so limit the number of times you allow a company to “pull your credit” TIP: During medical school, there is no reason to be opening new credit cards. So, when you are checking out and paying at your favorite store and they ask you if you would like one of their cards, just say “NO”.

Types of Credit (10%)

Possessing a variety of credit is optimal. Note, there is a difference between secured versus unsecured debt and how it weighs into your final credit score. TIP: Too much unsecured debt is never a good thing, so be conscious of the number of credit cards in your wallet. For more information, visit www.myfico.com


The Benefits of Good Credit

Good credit means you are more likely to get a loan approval. Beyond that, though, there are additional benefits to be enjoyed:

• Better loan offers (rates, terms and conditions)

• Lower interest rates on credit cards

• Faster credit approvals

• Increased leasing and rental options

• Reduced security deposits

• Reduced premiums on auto, home and renter’s insurance

Being proactive about your credit is the way to begin making smart financial decisions that will give you a solid foundation for years to come.

Really?

Did you know that you actually have 3 credit reports? It’s true! A separate credit report is maintained for you by each of the 3 major credit-reporting agencies – Equifax, Experian, and TransUnion. These three reports accomplish the same purpose but may vary depending on the data included on each. To best protect yourself from mistakes and (more likely) identity theft, it’s important to review each of your credit reports annually.

Reality Check: Scrutinize Your Credit Report

It is a good idea to review your credit report at least once a year. In fact, there

is a website and toll-free number through which you can request a copy of your free report from each of the three major credit bureaus.

To order your free annual credit report, visit www.annualcreditreport.com or call 877-322-8228.

You are entitled to a free report once a year – take advantage of this!

Reality Check: Scrutinize Your Credit Report

Additional information on credit reports and credit scores is available on the FIRST website at: www.aamc.org/first/factsheets


Budgeting

Having a spending plan is the cornerstone of a solid financial foundation. All other efforts for borrowing wisely will be undermined if you don’t have a plan of action for managing your money during medical school. Living on a budget isn’t hard to do and your efforts will be met with a more immediate realization of financial goals.

Benefits of Budgeting

Let’s face it. Money will probably be tight during medical school; that’s why having a realistic spending plan is essential for you to most efficiently accomplish the following:

• Track and control your spending

• Identify hidden leaks in your cash flow

• Avoid credit card debt

• Reduce the total cost of your medical education

Creating a Budget

The most difficult part of developing your spending plan is taking the time to sit down and actually create it. This intimidating task can seem overwhelming at first, but it can be done in a few dedicated minutes using the right templates and guides. To get you started, the AAMC offers several options to help you create a detailed budget.

Resource Format NameFinancial Literacy 101 Online module “Budgeting for Medical School Students”

Budget Calculator Online module “Budgeting for Medical School Students”

Financial Aid Fact Sheet* PDF Budgeting Worksheet

* also available on page 36

All of these resources can be found online at www.aamc.org/FIRST. Use your AAMC login and password. If you need assistance, contact [email protected] to request your login and password. The PDF templates are free to be downloaded. Each of these resources allows you to document your spending plan (in writing), save these planned expenditures and revisit the data at a later date to compare your actual spending behavior to your plans. Once you compare your written budget to your actual spending, make the necessary adjustments to either your behavior or your budget and repeat this process continually throughout medical school.

A Spending Plan in 1-2-3

1) Put it in writing

2) Review periodically to identity leaks

3) Make necessary adjustments

Your Total Income

- Your Total Expenses

= Your Discretionary Income


The Basics of Budgeting

Income. The first step is to document all of your incoming funds. If you are married, calculate your spouse’s income as well. If you receive consistent gifts from family members, add this into your income. Any monies that are incoming, like your refund checks from financial aid, should be included in your income calculations.

Expenses. Secondly, identify all of your monthly expenses, or monies that are outgoing. There are two types of expenses, with the most obvious being the routine fixed amounts like

rent, car payments, insurance, and so forth. Then, dig a little deeper for those more sporadic variable expenses that fluctuate in amount like eating out, gas, cell phone, groceries and utilities. Total your monthly expenses, then subtract that amount from your income, and what you’re left with is your discretionary income.

Discretionary Income. Once all income and expenses have been honestly accounted for and

properly subtracted, the remaining number is your bottom line (aka – discretionary income). If you’re being completely honest in your planning, you may find that your discretionary income is a negative number. If so, simply go back and adjust accordingly until you break even on your planned spending. (By the way, if you initially end up with a negative number on your budget - good job! The point of creating a spending plan is to find these overages and make adjustments in advance.)

On the other hand, if you happen to have a positive bottom line (meaning extra money left over) consider two things: 1) have you accurately documented all of your expenses and 2) if so, ask yourself if you could possibly be paying more aggressively towards student loans or saving more monies for retirement. Typically, during medical school, there won’t be a lot of discretionary income, so when there is, handle it wisely.

Finding Alternatives

Having a budget doesn’t mean eliminating all of the joy from your life, rather, it means keeping many of those “good” things and finding alternatives only when necessary. Once your cash flow is visible in black and white on your budget form, it will be easier to consciously reduce your cost of living. By periodically reviewing your budget for any imbalances, you’ll realize that it may only require small adjustments to make a big difference.

ExpensesFIXED VARIABLERent GroceriesAuto payment EntertainmentHealth insurance ClothingCredit cards (debt) Dining outTaxes


Common alternatives for medical students living on a budget include:

• Buying groceries instead of eating out

• Brewing your own coffee instead of stopping at the gourmet coffee shop

• Choose generic instead of name brand

• Opt for free TV instead of Netflix, or Netflix instead of the Movies, or Matinees instead of Cable TV

• Get a roommate… or two

TIP: Choose to live like a student when you are a student, so you don’t have to live like one later.

THE MINIMUM PAYMENT TRAP

$2,000 financed at 19% - paying the minimum monthly payments results in:

Over 18 years to pay off

Pay more than $5,000

WHAT COULD POSSIBLY BE WORTH PAYING MORE THAN TWICE ITS ORIGINAL VALUE?

Budget Worksheet

INCOME:

List all sources of income

Salary (after deductions) ______

Spouse salary (after deductions) ______

Investment income ______

Financial aid (in excess of tuition & fees) ______

Gifts ______

Income tax refunds ______

Other (child support/alimony) ______

Veteran’s benefits ______

Total Income ______

FIXED EXPENSES:

These are monthly or yearly expenses that are usually unavoidable and typically unchanging in their amounts. There is no clear-cut distinction between fixed and variable expenses; it is up to the individual. You may or may not have all of these expenses.

Yearly/Monthly

Tuition & fees ______/______

Books & supplies ______/______

Regular savings ______/______

Rent/mortgage ______/______

Utilities* ______/______

Telephone (base rate) ______/______

Taxes (federal, state) ______/______

Vehicle payments ______/______

Other transportation ______/______

Credit card payments ______/______

Personal loans ______/______

Educational loans ______/______

Life insurance ______/______

Health insurance ______/______

Home/renter insurance ______/______

Auto insurance ______/______

Auto registration/taxes ______/______

Professional fees/dues ______/______

Child care ______/______

Other (i.e., alimony) ______/______

Total Fixed Expenses ______/______

VARIABLE OR FLEXIBLE:

After determining your fixed expenses, list variable expenses. When trying to figure out variable expenses, you will be most successful, if you write down all of your expenditures for two weeks. Be as realistic as possible. You will be surprised to see where your money goes and how it adds up.

Monthly

Food/household supplies ______

Dining out ______

Clothes ______

Laundry/dry cleaning ______

Gas, oil, auto maintenance ______

Parking ______

Medical/dental/eye care ______

Hobbies/recreation ______

Entertainment ______

Travel/vacation ______

Pets, supplies, food ______

Sports ______

Records & books ______

Child care ______

Heath & beauty aids ______

Haircuts ______

Postage ______

Subscriptions ______

Cable TV ______

Long-distance calls ______

Cell phone ______

Gifts ______

Charity/contributions ______

Savings for interviews/relocation ______

USMLE ______

Other ______

Total Variable Expenses ______

Total Fixed Expenses + ______

Total Monthly Expenses = ______

Total Income ______

Total Expenses ______

Total Discretionary Income ______


* gas, electric, water, sewer, garbage

Association of American Medical Colleges © 2011


Financial Literacy

Identity Theft

Identity theft is the fastest growing white collar crime in America.

Source: spendingonlife.com

Protect your identity by checking your credit report, shredding your personal information, carry only necessary information with you (43% of identity theft occurs because of stolen wallets, purses and paper documents), enter your debit card pin carefully and be smart with your passwords (don’t use them on public computers).

Credit Cards

Credit cards aren’t bad; there are many positive financial aspects of a credit card. These include, among other things, the ability to use someone else’s money for free for thirty days (depending on the terms of the card). Credit cards can also be used to improve your credit score, as a tool in tracking your spending and as a source of “rewards” for the purchases that you make. Despite this, what we’re more familiar with is the negative side of credit cards. What we hear about repeatedly is American’s bad relationship with debt, which most often comes in the form of credit card debt. Credit cards that are not used responsibly will have a very negative impact on your financial well-being.

24% of 2010

medical

graduates

reported leaving

with an average

of $11,000 in

non-education

debt

Currently,

1 out of 10people are victims

10 million victims

in 2008 (a 22% increase from 2007)

Studies show that anyone earning over $70,000 experiences an increased chance of having their

identities stolen. Thus, physicians are

2 x’s

more likely to be victims of identity theft.


On average, the current college student leaves their undergraduate program with an estimated $4,138 in credit card debt (as reported by Sallie Mae, 2009). This amount grows for each additional year of education the student obtains. For medical school graduates, 24% report leaving with an average of $11,000 in non-education debt (this includes car, credit card and residency loans). To prevent this statistic from being a reflection of your situation at graduation, you’ll want to be a savvy user of credit cards throughout medical school.

Signs You Could be Heading for Trouble

These are tangible signs that you’re either headed for trouble—or you’re already there.

• Relying on credit cards to pay for the basics like food and utilities

• Responding to offers to transfer balances from one card to another

• Increasing your credit line or applying for new credit cards

• No cushion in your financial life for even a small or unplanned expenditure

• Making only minimum monthly payments

• Ignoring credit card statements

• Maxing out all of your credit cards

Fixing the Problem

First and foremost: GET HELP. You don’t have to face this alone. It’s easy to lose control of your credit and to let it run away from you, but there are ways to get it back. Depending on your situation, there may be a variety of solutions.

• Talk to the financial aid office. Often, they have dealt with similar situations and will be able to provide sound guidance.

• Go back to the basics, work on a budget; see how you can start paying down your credit card balances

• Call your credit card company(ies) and work out a repayment plan.

• If you do work out a repayment plan with your credit card company, make sure to be clear on the interest rate.

• Negotiate! Although it’s not widely known, often times you can negotiate rates.

If your situation is more complicated, seek the advice of a professional credit counselor.

Take Positive Steps to Get Out of Debt

Remember: Creditors would rather work with you to help you pay off your loans and repair your credit than have you default. You have options. You don’t have to give up, but you do have to get out of debt.


Other Considerations

Private Loans

The cost of your medical education, plus all living expenses, should be completely covered by your financial aid package (consisting of federal and institutional loans). For this reason, resist the temptation to utilize private loans of any type to supplement your financial situation during school.

Typically, private education loans are less favorable than federal debt... including possibly higher and more volatile rates (that can rise into double digits), no forgiveness programs, limited postponement options and reduced control over the actual amount of the required monthly payment.

The discrepancy exists between federal and private student loans because private education debt is not regulated by the legislation that governs federal loans, therefore, the terms and conditions of private loans are at the discretion of the lender. In fact, most of the repayment options discussed in this booklet are applicable only to your federal loans.

Therefore, the borrowing of private loans should be avoided, and if you find yourself in need of additional funds during medical school, visit your financial aid office to see what other options may exist.

Federal Direct Loan Consolidation

Federal loan consolidation allows you to combine one or more existing federal student loans into a single loan. A consolidation loan “pays-off” the old loans and gives you a single new loan with new terms, conditions and possibly even a new interest rate. The advantages and disadvantages of consolidating depend on what loans you include in the consolidation and when you consolidate.

Advantages

• Lower monthly payment • Extend the repayment period • Make a single payment to a single lender •Fixed interest rate • No prepayment penalty • Repayment plans can be changed

Disadvantages

• Longer repayment period• Possible higher interest costs• May lose current borrower benefits• Interest rate is calculated as the weighted

average of the loans in the consolidation, then rounded up to the nearest 1/8 of a percent

• May negatively impact grace, deferment or forgiveness options


As a student, consolidation will likely not be an option available to you until after you separate from school. However, for many medical students leaving school, the primary reason to consolidate is to simplify the repayment process during residency. This is especially true in the case when multiple payments are required. Alternatively, in the future, if you would prefer to avoid consolidation, scheduling automatic payments from your online checking account will also simplify repayment (and avoid the need to consolidate).

Currently, the only lender offering federal consolidation loans is Direct Loans. Visit www.loanconsolidation.ed.gov for more details.

Final Note

Don’t forget the financial aid office at your institution. They are available to help you and are keenly aware of issues affecting medical students. This can be a lot to sort through, so take it one step at a time.

www.aamc.org/FIRST

NOTES

www.aamc.org/FIRST

NOTESNOTES


The Association of American Medical Colleges has a variety

of Financial Information, Resources, Services and Tools for

students and residents concerned with debt management.

Take some time to go through the website

www.aamc.org/FIRST.

Congratulations on your entrance into medical school and

good luck.

AAMC’s FIRST for Medical Education team wishes you

great dividends on your investment in knowledge and

encourages you to use this resource in accomplishing

your financial goals.

©2011 AAMC. All rights reserved.

rev. 6/2011

entrance education debt manager

Documents

student loans

medical students

private loans

type of loans

medical school

medical educationfirst

debt situation

loan basics