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- Confidential Document, Property of Graduate Leverage, LLC - Dental Students’ Finances: A Strategic Approach to Debt Management ASDA Western Regional.

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Presentation on theme: "- Confidential Document, Property of Graduate Leverage, LLC - Dental Students’ Finances: A Strategic Approach to Debt Management ASDA Western Regional."— Presentation transcript:

1 - Confidential Document, Property of Graduate Leverage, LLC - Dental Students’ Finances: A Strategic Approach to Debt Management ASDA Western Regional Meeting 2010 *Detailed assumptions are available upon request

2 - Confidential Document, Property of Graduate Leverage, LLC - Changes in Student Debt Levels Debt levels have more than tripled in the last 17 years ~$50k ~$115k ~$190K 2010 * Based on data collected by ADEA and GL internal student database

3 - Confidential Document, Property of Graduate Leverage, LLC - Agenda 1. Federal Loan Basics 2. Regulatory Update 3. Opportunities and Strategies 4. Summary and Action Plan TWO PRIMARY OBJECTIVES: Maximize your Liquidity Lower the Cost of your Debt TWO PRIMARY OBJECTIVES: Maximize your Liquidity Lower the Cost of your Debt

4 - Confidential Document, Property of Graduate Leverage, LLC - 3 Most Common Federal Loan Types Subsidized Stafford Loan 6.8% fixed rate (variable rate if disbursed prior to 7/2006) 6 month Grace period after graduation Government pays interest during in-school, grace, and deferment periods Unsubsidized Stafford Loan 6.8% fixed rate (variable rate if disbursed prior to 7/2006) 6 month grace period after graduation Interest accrues during all periods and is the borrower’s responsibility Grad Plus 7.9% fixed fate under Direct Loan Program 8.5% fixed rate under Federal Family Education Loan Program (FFELP) Interest accrues during all periods and is borrower’s responsibility 6 month grace period after graduation for those loans disbursed after 7/2008

5 - Confidential Document, Property of Graduate Leverage, LLC - Regulatory Update All new federal student loans originated through Direct Loan Program (July 1, 2010) In-school borrowers with qualified loan portfolio allowed to consolidate loans (July 1, 2010 to July 1, 2011) New Income-Based Repayment (IBR) plan provides low payment and interest subsidies (July 1, 2009) It is Critical To Know Your Options

6 - Confidential Document, Property of Graduate Leverage, LLC - Federal Loan Consolidation All Students Must Evaluate This Option In-school consolidation window: July 1 st 2010 to July 1 st 2011 Benefits Lock in historically low rates on variable rate loans 1.875% No interest rate rounding & Grad PLUS loophole. 30 year term: Lower payment & Debt to Income Ratio Administrative Simplicity: A single lender Costs Loans will capitalize Forgo grace period Lose any remaining lender benefits

7 - Confidential Document, Property of Graduate Leverage, LLC - Significantly Reduce Payments: Income-Based Repayment Plan (IBR): PARTIAL SUBSIDY Limits payment to 15% of discretionary income (changes to 10% in 2014*) Subsidized interest not covered by reduced payment is paid by government Subsidy limited to 3 years Extended Repayment Plans: NO SUBSIDY Consolidation 30 year Term Extended 25 year Term Payment Reduction Options Postpone Payments: In-School Deferment: FULL SUBSIDY Economic Hardship Deferment (EHD): FULL SUBSIDY Forbearance: NO SUBSIDY

8 - Confidential Document, Property of Graduate Leverage, LLC - Total Savings : 3 Scenarios, 3 Strategies Graduate A Graduate B Graduate C Best Approach: Payment: Salary: Tax Savings : $190,000 of debt. (weighted interest rate 7.05%) Liquidity, Tax Savings, & Subsidy Savings Based on current IBR Regulations as of July 1 st 2009 IBR EHD IBR $40,000 $90,000 $90,000 Subsidy Savings: $47 $0 $322 $2,296 $2,312 $1,706 $73 $0 $398 $2,369 $2,312 $2,104

9 - Confidential Document, Property of Graduate Leverage, LLC - Obtaining Additional Credit Top Ratio: Bottom Ratio: Total Mortgage Payment (PITI) + All Other Loan Payments Total Gross Income Total Mortgage Payment (PITI) Total Gross Income < 28% < 36% How much house can you afford? Dental school debt can significantly impact the bottom ratio

10 - Confidential Document, Property of Graduate Leverage, LLC - Applying for a Mortgage Top Ratio (<28%): $1,500 $7,500 20% $7,500 Bottom Ratio (<36%): $1,500 + $1,951 46% $322 24% Benefits of an Increased Down Payment Must Also Be Considered *Assumes IBR payment from previous slide.

11 - Confidential Document, Property of Graduate Leverage, LLC - Other Benefits of a Reduced Payment Consolidation – 4.75% Fixed Stafford Loan – 6.8% LoansLoans Repayment Period Standard Repayment Private Loan % Grad PLUS – 8.5% 8 yrs10 yrs Effective Rate (APR) = 5.69% 10 yrs 4.75% Targeted Repayment Non-payment 9.25% 6.8% Non-payment 8.5% Non-pay 1/2 yrs1 yrs7 yrs Effective Rate (APR) = 6.29% $11,675 Structured Payment Strategy *Assumes $168,000 in federal debt and $8,000 in private loans

12 - Confidential Document, Property of Graduate Leverage, LLC - What every dental student with student loans should do: 1.Get to Know Your Loans a)What kind of loans do I have? (Federal Stafford, GRAD Plus, Perkins, etc.) b)Who is my lender? (Federal Direct, Federal through Private Lender, Non-Federal Private Lender) c)What are the interest rates on my loans? (fixed, variable, 6.8%, 7.9%, 8.5%, etc.) 2.Evaluate the In-school Consolidation Option a)Cost / Benefit analysis based on individual situation b)Take action by April, Prepare & File Taxes Advantageously a)Preparation in fall of final year to understand tax implications for loan subsidy programs b)Understand the trade-off of filing jointly with spouse c)File taxes in final year as appropriate 4.Position Loans for Maximum Interest Subsidy a)Income, tax status, family size, career path, loan portfolio, and application timing impact which program will provide greatest benefit b)Initiate evaluation and preparation prior to graduation 5.Allocate additional funds appropriately a)Only invest when returns exceed cost of debt and liquidity issues met b)Understand implications of retirement accounts on subsidy programs Dental Student Action Plan

13 - Confidential Document, Property of Graduate Leverage, LLC - Thank You If you have any questions or would like a personalized assessment, please feel free to call or visit our website. *The information in this presentation is for informational purposes only. Free Assessments Available to All ASDA Members $75 Discount for ASDA Members on Fee Based Service Andrew Franger Direct:


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