Debt Management Medical Students Residents by mikeholy


									Debt Management
Medical Students &
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

Student Loan Update

Options During Residency

Pay Wisely

Credit Awareness

The Value of an MD Degree
Student Loan Update
Finding Your Federal Loans

                    To access you provide:
                    - SS#
                    - Date of Birth
                    - First 2 letters (last name)
                    - PIN # (
    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. (
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 ~
                   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)

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
 PRINCIPAL           +                               =
  of grace and again at the end of uninterrupted periods of authorized deferment.
                                INTEREST                         PRINCIPAL
        Debt Fact
Pay the accrued interest
       PRIOR to
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


    Graduate Fellowship (unlimited)
    Economic Hardship (details on next slide)

 For a complete list and details on types of deferment:
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

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.

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
 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

 STEP I - Determine 150% of poverty line
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:

NHSC Repayment Program:

Other programs available at AAMC website:
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



               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


Length of
credit history
                                       Utilization rate (amount owed)
To Improve Your Score:

Pay bills on time

Pay down debt

Apply for credit sparingly

  Check your
 Credit Report

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