Debt Management Medical Students & Residents Class of ’09 Indebtedness Public Private All Schools Schools Schools Mean $156,456 $148,101 $170,012 Median $160,000 $150,000 $177,500 • 87% of class report having educational debt • 58% of class report debt $150,000 or higher • Average Debt at UTHSCSA 2010 - $132,007 The reality is … Financial planning starts now, not after residency You may be able to reduce the total amount you pay back on your student loans Strategy is key to your success Agenda Student Loan Update Options During Residency Pay Wisely Credit Awareness The Value of an MD Degree Student Loan Update 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) Interest Rates In school, Grace Forbearance, and Deferment Repayment Stafford Loans 6.8% 6.8% (disbursed on or after 7/1/06) Fixed Fixed Stafford Loans* 1.88% 2.48% (disbursed between 7/1/98 and 6/30/06) Variable Variable Direct Grad PLUS Loans** 8.5% 8.5% Fixed Fixed Perkins Loan / PCL / LDS 5.0% 5.0% Fixed 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% 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 *Currently, Direct Loans is the only lender offering federal consolidation. (www.loanconsolidation.ed.gov) 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 Sign up at www.aamc.org/FIRST ~ FIRST for Residents Mailbox Private Loans Details of Private Loans Typically unsubsidized and variable A grace period/forbearance may be available Cannot be included in a federal forbearance Cannot be included in IBR or PSLF 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 deduction, forgiveness and subsidies) Capitalization Addition of unpaid interest to the principal Increases the total amount due The less frequent the better Identify your lenders policy NOTE: Direct Loan Program capitalizes interest on unsubsidized loans at the end LARGER PRINCIPAL + = of grace and again at the end of uninterrupted periods of authorized deferment. INTEREST PRINCIPAL Debt Fact Pay the accrued interest PRIOR to capitalization Introducing Dr. Median Dr. Median’s student loan portfolio: • Undergraduate debt: $10K** • Median Medical School debt: $150K* • Graduates in ‘09 with $160k total education debt *Subsidized and Unsubsidized Stafford **Unsubsidized Stafford Dr. Median’s Loan Portfolio Loan Type* Interest Rate Balance Consolidation (Undergrad + M1): 4.375% $56k Stafford (M2 thru M4): 6.8% $125k TOTAL $181,000 *Both loan types include subsidized and unsubsidized portions. Options During Residency Postponement Options Deferment Graduate Fellowship (unlimited) Military Economic Hardship (details on next slide) For a complete list and details on types of deferment: www.aamc.org/students/financing Postponement Options Economic Hardship Deferment (as of July 1, 2009): No longer available in the same form 20/220 pathway was eliminated There are alternative options during residency Student Loan Update The most feasible options during residency : Pay Later (using Forbearance) Pay Now (using Income-Based Repayment) Postpone Payments Forbearance Medical Residency/Internship Forbearance Requested annually from lender(s) Continuous periods may avoid capitalization Interest accumulates on sub and unsub loans *Other forbearance and deferment options may be available. Borrowers should contact their lender/servicer(s) for more details. Forbearance Dr. Median’s situation after a 4-year residency Balance Post- after Residency Residency Grace Interest Balance Consolidation $56K + $10K = $66K (Undergrad. + M1): Stafford $125K + $34K = $159K (M2 to M4): TOTAL $181K + $44K = $225K *Both loan types include subsidized and unsubsidized portions. Payments in Residency Repayment Plans Determines payment amount and interest cost Standard (Level) = $2,000/mo Extended = $1,200/mo Graduated = $900/mo Income Sensitive (FFELP) = $900/mo or Income Contingent (Direct) = $600/mo Income Based Repayment (IBR) = $380/mo Income-Based Repayment New plan made available July 1, 2009 Payment based primarily on household income Family size also taken into consideration Partial subsidy available for the first 3 years Must demonstrate a Partial Financial Hardship (PFH) Income-Based Repayment Formula for a Partial Financial Hardship (PFH): $2,000 / mo* Standard payment* > IBR payment $381 / mo More likely to occur when income is lower and debt is higher Max payment in IBR is the Standard amount* 1st post-M.D. year median stipend is $46,700 * As originally determined when calculating Partial Financial Hardship Income-Based Repayment www.IBRinfo.org STEP I - Determine 150% of poverty line Forgiveness Loan Forgiveness Public Service Loan Forgiveness (PSLF) Requires 120 loan payments to Direct Loans Requires simultaneous work in Public Service Does not have to be continuous work Payments must be required (versus voluntary) Loan Forgiveness What is considered Public Service? Non-profit, tax exempt, 501(c)(3) organizations Federal, state or local government Military service Public not for profit schools and colleges Other Programs NIH Loan Repayment Programs: www.lrp.nih.gov NHSC Repayment Program: www.nhsc.hrsa.gov/loanrepayment Other programs available at AAMC website: www.aamc.org/stloan Pay Wisely Pay Loans Off Early You can prepay your federal loans without penalty If sending additional payments, SEND A check separate from regular payments A letter clarifying where the money should go The loan # The loan type TIP: Pay your most expensive debt off first! Pay Debt Wisely Consol Perkins Stafford Loans Grad PLUS Loans Private Loans & Credit Cards Credit Awareness Credit Score FICO Score Poor 300 - 640 What is the Average Fair 640 - 700 American’s FICO Score? Good 700 - 770 Excellent 770 - 850 Warren Buffet 300 850 Freddie Mac 2008 640 700 770 What is a FICO Score Based On? Type of credit used Payment history New credit 10% 10% 35% 15% 30% Length of credit history Utilization rate (amount owed) To Improve Your Score: Pay bills on time Pay down debt Apply for credit sparingly Oh, and PROTECT YOUR IDENTITY… Check your Credit Report www.annualcreditreport.com mappingyourfuture.org/money/checkbook. htm mappingyourfuture.org/money/ savingscalculator.htm mappingyourfuture.org/paying/ debtwizard/ mappingyourfuture.org/paying/ standardcalculator.htm mappingyourfuture.org/paying/ ibrcalculator.cfm mappingyourfuture.org/paying/ consolidation/calculator.cfm Questions?
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