1. FIRST Financial Information, Resources, Services, and Tools for Medical Education Student Loans and Debt Management Spring 2009

2. ©2008 Association of American Medical Colleges. All rights reserved. The reality is this… Financial planning starts now, not when you get out of residency You may be able to reduce the total amount you pay back on your student loans Strategy is key to your success

3. ©2008 Association of American Medical Colleges. All rights reserved. Class of ’08 Indebtedness 87% of class report having educational debt 56% of class report debt $150,000 or higher All Schools Public Schools Private Schools Mean$154,607$143,140$173,304 Median$155,000$145,000$180,000

4. ©2008 Association of American Medical Colleges. All rights reserved. Agenda 1)Know Your Loan Portfolio 2)Know How to Postpone Payments 3)Forgiveness Options 4)Run the Numbers 5)Other Considerations

5. ©2008 Association of American Medical Colleges. All rights reserved. “An investment in knowledge always pays the best interest” - Benjamin Franklin

6. ©2008 Association of American Medical Colleges. All rights reserved. Know Your Loan Portfolio

7. ©2008 Association of American Medical Colleges. All rights reserved. Master Promissory Note A contract with the lender Details borrower’s Rights and Responsibilities Defines Terms and Conditions of the loans

8. ©2008 Association of American Medical Colleges. All rights reserved. Rights and Responsibilities Rights include the ability to: Prepay any federal loan without penalty Request a shorter repayment schedule Change repayment plans Request a deferment or forbearance Review your promissory note for all rights

9. ©2008 Association of American Medical Colleges. All rights reserved. Rights and Responsibilities Responsibilities include: Make on time loan payments Make payments despite receipt of bill Notify the lender of changes in contact info Attend an Exit Counseling session Review promissory note for all responsibilities

10. ©2008 Association of American Medical Colleges. All rights reserved. A serious obligation Student loans must be repaid whether or not: Program was completed Program completed in normal amount of time Satisfied with your experience Employment is obtained

11. ©2008 Association of American Medical Colleges. All rights reserved. Finding Your Federal Loans www.nslds.ed.gov To access you provide: - SS# - Date of Birth - First 2 letters (last name) - PIN # (www.pin.ed.gov)www.pin.ed.gov

12. ©2008 Association of American Medical Colleges. All rights reserved. Interest Rates In school, Grace and Deferment Forbearance, Repayment Stafford Loans (disbursed on or after 7/1/06) 6.8% Fixed 6.8% Fixed Stafford Loans* (disbursed between 7/1/98 and 6/30/06) 3.61% Variable 4.21% Variable Grad PLUS Loans** 8.5% Fixed 8.5% Fixed Perkins Loan / PCL / LDS 5.0% Fixed 5.0% Fixed Private Loans Typically Variable – Check the Promissory Note Institutional Loans Varies by Loan – Check the Promissory Note Consolidation Loan Fixed rate based on weighted average interest rate of underlying loans rounded up to nearest one-eighth of a percent (capped at 8.25%) * Variable rates change every July 1 based on the 91-day treasury bill ** Interest rate for Direct Grad PLUS Loans 7.9% *** Fixed interest rates will not be reduced in consolidation; they will be included in a weighted average with the other loans and rates and then rounded up 1/8th.

13. ©2008 Association of American Medical Colleges. All rights reserved. Repayment Strategy Prioritize repayment efforts - prepay the most expensive debt FIRST!

14. ©2008 Association of American Medical Colleges. All rights reserved. NOTE: Direct Loan Program capitalizes interest on unsubsidized loans at the end of grace and again at the end of uninterrupted periods of authorized deferment. Capitalization Addition of unpaid interest to the principal Increases the total amount due The less frequent the better Identify your lenders policy

15. ©2008 Association of American Medical Colleges. All rights reserved. Repayment Strategy Pay the interest on unsubsidized loans PRIOR to capitalization

16. ©2008 Association of American Medical Colleges. All rights reserved. Loan Repayment Timeline

17. ©2008 Association of American Medical Colleges. All rights reserved. Know How to Postpone Payments

18. ©2008 Association of American Medical Colleges. All rights reserved. Postponement Options Deferment Economic Hardship Graduate Fellowship – unlimited Military For a complete list and details on types of deferment: www.aamc.org/students/financing www.aamc.org/students/financing

19. ©2008 Association of American Medical Colleges. All rights reserved. Postponement Options Economic Hardship Deferment (as of July 1, 2009): No longer available to apply for Applications submitted prior will be processed Alternatives include: - Forbearance - Income-based repayment

20. ©2008 Association of American Medical Colleges. All rights reserved. Steps to Obtain Economic Hardship Deferment Only loans in repayment are considered Submit application prior to July 1, 2009 Work closely with your lender(s) Allow 30 days for processing

21. ©2008 Association of American Medical Colleges. All rights reserved. Economic Hardship Deferment Economic Hardship Deferment Calculator: www.aamc.org/students/financing

22. ©2008 Association of American Medical Colleges. All rights reserved. Postponement Options Internship/Residency Forbearance Used to postpone payments Requested annually from lender Interest accumulates on sub and unsub loans Continuous periods may avoid capitalization

23. ©2008 Association of American Medical Colleges. All rights reserved. Income-Based Repayment (IBR) Payment based on household income/family size (annual verification required) Unpaid interest paid on subsidized loans (first 3yrs) Unpaid interest on does not capitalize* Balance forgiven after 25 years * Capitalization of interest occurs when borrower moves out of IBR Postponement Options

24. ©2008 Association of American Medical Colleges. All rights reserved. Income Based Repayment (IBR) Defined: 15% of income that exceeds 150% of the poverty line for a borrower’s family size. STEP I - Determine 150% of poverty line STEP II - Subtract from Monthly gross income* STEP III - Multiply remaining income by 15% *Married filing jointly includes both incomes

25. ©2008 Association of American Medical Colleges. All rights reserved. Income Based Repayment (IBR) Monthly Gross Income $3,805 150% of the poverty line - $1,300 = $2,505 15% of difference x.15 Monthly Loan Payment = $ 376* www.IBRinfo.org * Based on a family size of”1 and an annual salary of $47,500 and 2008 Poverty Levels

26. ©2008 Association of American Medical Colleges. All rights reserved. Forgiveness Options

27. ©2008 Association of American Medical Colleges. All rights reserved. Terms and Conditions Public Service Loan Forgiveness Must make 120 loan payments to Direct Loans Must work 10 years in Public Service Does not have to be continuous work Payments made after October 1, 2007

28. ©2008 Association of American Medical Colleges. All rights reserved. Terms and Conditions What is considered Public Service? Non-profit, tax exempt, 501(c)(3) organizations Federal, state or local government Military service Public schools and colleges

29. ©2008 Association of American Medical Colleges. All rights reserved. Terms and Conditions Loan Forgiveness Options NIH Loan Repayment Programs: www.lrp.nih.gov www.lrp.nih.gov NHSC Repayment Programs: www.nhsc.hrsa.gov Other programs listed at AAMC website: www.aamc.org/stloans www.aamc.org/stloans Loan Forgiveness Options NIH Loan Repayment Programs: www.lrp.nih.gov www.lrp.nih.gov NHSC Repayment Programs: www.nhsc.hrsa.gov Other programs listed at AAMC website: www.aamc.org/stloans www.aamc.org/stloans

30. ©2008 Association of American Medical Colleges. All rights reserved. Terms and Conditions Discharge may also be available in cases of:  Death/Disability  Closed school / False certification  Certain public school service professions  Identity Theft  Bankruptcy (rarely)

31. ©2008 Association of American Medical Colleges. All rights reserved. Run the Numbers

32. ©2008 Association of American Medical Colleges. All rights reserved. Repayment Strategy To reduce the cost of student loans, make additional principal payments.

33. ©2008 Association of American Medical Colleges. All rights reserved. Standard (Level) Repayment Extended Repayment Income Based Repayment (IBR) Graduated Repayment Income Sensitive Repayment (FFELP) Income Contingent (Direct) Repayment Plans

34. ©2008 Association of American Medical Colleges. All rights reserved. Repayment Plans Standard Equal monthly payments Higher monthly payments Lower total cost Extended Repayment term of 25 years Low monthly payment Possibly the most expensive option

35. ©2008 Association of American Medical Colleges. All rights reserved. Repayment Plans Income Sensitive / Income Contingent Lower initial payments (tied to income) Possible higher costs Graduated Payments start low, increase over time Higher overall cost Income-Based Repayment Possibly the lowest monthly payment

36. ©2008 Association of American Medical Colleges. All rights reserved. Repayment Plans Effects of each Repayment Plan on Cost Repayment Timeline – Side 2

37. ©2008 Association of American Medical Colleges. All rights reserved. Repayment Plans Estimated Monthly Payment Amounts Debt Manager Booklet: Page 18-19

38. ©2008 Association of American Medical Colleges. All rights reserved. Other Considerations

39. ©2008 Association of American Medical Colleges. All rights reserved. Private Loans Details of Private Loans Typically unsubsidized for life of loan A grace period/forbearance may be available Cannot be included in a hardship deferment Cannot be included in IBR

40. ©2008 Association of American Medical Colleges. All rights reserved. Private Loan Consolidation Private Loan Consolidation – BE CAREFUL Understand all fees and costs involved Do NOT include Federal loans Federal loans will lose all rights (i.e.- tax, forgiveness and subsidies)

41. ©2008 Association of American Medical Colleges. All rights reserved. Federal Loan Consolidation Effects of consolidating in today’s environment Longer term = Increased interest costs Possible forfeiture of borrower benefits Rounding may result in a higher rate May negatively affect grace, deferment, or forgiveness options

42. ©2008 Association of American Medical Colleges. All rights reserved. Federal Loan Consolidation When to consider Consolidation*: Variable rates are low Multiple lenders to repay To obtain Public Service Loan Forgiveness (DL) To make Perkins or LDS loans eligible for IBR *Benefits may differ between lenders

43. ©2008 Association of American Medical Colleges. All rights reserved. Full Deduction Partial Deduction NO Deduction Single $54,999 or less $55,000 to $69,999 $70,000 or more Married filing Jointly $114,999 or less $115,000 to $144,999 $145,000 or more www.irs.gov/publications/p970 The Taxpayer Relief Act of 1997 Deduction may not exceed $2,500 per year Voluntary payments may be eligible Capitalized interest may be included

44. ©2008 Association of American Medical Colleges. All rights reserved. Delinquency Reported to credit bureaus, affects your credit Default Negatively affects your credit Wages and tax returns can be garnished Lawsuit leveled against you (responsible for costs) Other federal debt collection methods Consequences of…

45. ©2008 Association of American Medical Colleges. All rights reserved. Check your Credit Report www.annualcreditreport.com

46. ©2008 Association of American Medical Colleges. All rights reserved. Support Along the Way Your residency program Your loan servicers’ and their web sites “MD2 – Monetary Decisions for Medical Doctors” www.aamc.org/FIRSTwww.aamc.org/FIRST : FIRST for Residents Mailbox Your medical school financial aid office www.ombudsman.ed.gov 1-877-557-2575

47. FIRST Financial Information, Resources, Services, and Tools for Medical Education Questions?