Congratulations to the Class of 2009!Presentation Transcript
Congratulations to the Class of 2009! From The Financial Aid Team Nancy, Dennis, & Margaret
Educational Debt *includes undergraduate debt UVA Medical Class of 2009 Average All Schools 2008 National Average DEBT Statistics $137,508 $155,000 Median $120,980 $154,607 Mean
Your Class Debt *Class of 2009. Projected graduates: 142. Graduates with debt: 113. Debt range: $1,957 ~ $245,000 38% 27% 21% 14%
Know what types of loans you have
Federally Guaranteed / School / Private
Know who you borrowed from
Loan Holder / Guarantor / Servicer
Know who services your loans
Where to send Payments / Deferments, etc.
1. Get Organized
Keep Good Records of Your Loans
Keep all your loan papers:
exit interview information
Make a file for each lender
Bookmark your loan servicers’ websites
BE PROACTIVE – AVOID PROBLEMS
Open your mail!
Notify lenders when you change your address, name, or phone number.
Respond promptly to lender requests for payment or information – even if you think they contacted you in error – but avoid scams!
Balance your checkbook regularly.
Document every conversation with your lender on your lender log and keep good notes.
Save copies of all correspondence including deferment/forbearance forms you mail to the lender.
Put reminders for deferment/forbearance requests on your calendar.
Finding Your Federal Student Loans
National Student Loan Data System
*If you have consolidated, the cumulative loan totals will be inaccurate – don’t panic!
National Student Loan Clearinghouse
TYPES OF LOANS
Federally Guaranteed Loans
Unsubsidized (including Grad PLUS)
Non-Subsidized Private Educational Loans
Private Residency Training / Relocation Loans
Loans with no interest cost to the borrower during grace and deferment periods.
Examples of subsidized loans include:
Federal Subsidized Stafford
Federal Direct Subsidized Stafford
Subsidized Portion of both Stafford and Direct Consolidation Loans
Federal Subsidized Loans
Loans which accrue interest from time of disbursement, including during grace and deferment periods.
Borrower is responsible for all accrued and capitalized interest.
Examples of federal unsubsidized loans include:
- Federal Unsubsidized Stafford
Federal Direct Unsubsidized Stafford
Unsubsidized Portion of Federal Consolidation
Graduate PLUS loan
Federal Unsubsidized Loans
Know the “relative cost” of your loans
Know grace periods, deferment and forbearance options
Know your loan terms and conditions
Know how to avoid delinquency and default
2. Be Informed
“ Relative Cost”
Refers to a) the interest rate and b) the capitalization policy on your student loans.
The interest rate is what the lender charges you to use their money.
The capitalization policy refers to how often the lender adds any accrued and unpaid interest on unsubsidized loans back to your principal.
Interest Rates on Federal Loans *Variable, changes every July 1 based on the 91-day treasury bill, capped at 8.25% 8.5% fixed 8.5% fixed Graduate PLUS Loans 4.21% variable 3.61% variable Stafford Loans* (disbursed 7/1/98 - 6/30/06) 5.0% fixed 5.0% fixed Perkins 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%) Consolidation Loan 6.8% fixed 6.8% fixed Stafford Loans (disbursed on or after 7/1/06) Forbearance/ Repayment In school, Grace and Deferment
Addition of unpaid interest to the principal balance of your loan
The less frequent the better
File deferment forms on time
“ Once at repayment” may not mean what you think it means
Period of time following graduation when you’re not required to make payments on your loans.
Automatic, you don’t have to apply
Subsidized loans are interest-free during grace
Unsubsidized loans continue to accrue interest
Loan specific – length depends on type of loan
Your Stafford Grace Period begins on May 10, 2009 and will end on November 9, 2009
Once used or waived, you don’t get it back: Your ACS consolidation loan has no grace period and your first payment will be due in mid-June.
Good for one year at a time
Must apply each year
Period of time when a borrower may suspend payments if certain conditions are met. NOT AUTOMATIC – YOU MUST APPLY IN WRITING.
FEDERAL STAFFORD / DIRECT LOAN DEFERMENT
If you are eligible for deferment – Use it!
Interest Paid on Federal Subsidized Loans.
Interest on Unsubsidized Loans is not capitalized until the end of an uninterrupted period of deferment.
Borrowers must request deferment in writing and receive written approval from their lender.
Economic Hardship Deferment
The method most residents use to get this deferment will no longer exist after July 2009.
Used to be based on a ratio of your federal loans in repayment to your income
You may qualify for this deferment on your consolidation if you have “0” income (after graduation, before residency begins)
Your lender may allow you to add your other federal loans into the deferment when they come up for repayment, if you already have your consolidation in deferment– even though it will be after July 2009
Graduate Fellowship Deferment
Based on borrower’s participation in an eligible fellowship program.
Unlimited for Stafford and Direct Loans if eligibility requirements met
NOT eligible if you are still in residency but are called a “fellow” by your residency program
Check promissory note for provisions on other loans
Other – see your lender’s website. http://www.acs-education.com/ http://www.dlssonline.com/
Adjustments when you’re having financial difficulty.
You must apply for forbearance
Forbearance usually runs for 6 to 12 months
Forbearance provisions vary by loan type
Key differences between deferment and forbearance:
Interest accrues and may be capitalized on all loans (including previously subsidized loans)
Interest rate goes up .6% on variable rate Staffords
Does not adversely impact your credit
FEDERAL STAFFORD / DIRECT LOAN FORBEARANCE
Borrower cannot be eligible for a deferment.
Accrued interest is capitalized at the end of each forbearance period (6 – 12 months).
General or “Administrative” Forbearance – Granted at the discretion of the lender.
Internship/Residency Forbearance -- Mandatory – Lender may not refuse. (Unlimited)
Filing for Deferment / Forbearance
Apply at the expiration of your grace period
May be able to request forbearance by phone
Probably not the “internship/service” forbearance – that form must be signed by your housestaff office
Provide documentation to your loan servicer when necessary (for example, evidence of your residency)
Remember to file each year – mark your calendar
Keep a copy of all deferment or forbearance forms
Log in to your account and verify your deferment/forbearance status once approved
Loan Terms & Conditions Med 2, 3 & 4 Federal Subsidized and Unsubsidized loans
Subsidized loans accrue no interest during in-school, grace, and deferment periods
Unsubsidized loans always accrue interest
Fixed at 6.8%
6-month grace period (ends in November)
Eligible for economic hardship deferment, graduate fellowship deferment, and internship/residency forbearance
Bank of America benefits: 0% fees before 08/09, 1% fees for 08/09, 2.5% interest rate reduction when you sign up for auto-debit
Exception: Loans requested after October 2008
NOTE: the interest rate reduction will NOT lower your payment
Federal Graduate PLUS
Fixed at 8.5% interest
No grace period
No interest subsidies
Eligible for economic hardship deferment and internship/residency forbearance
3% origination fee was deducted from the loan proceeds
Bank of America benefits: 1% principal reduction at repayment, 2.5% interest rate reduction when you sign up for auto-debit
Exception: Loans requested after October 2008
Federal Perkins Loans
Federal funds allocated to schools to loan to students
Nine month Grace Period
Federally guaranteed loans eligible for consolidation.
No interest accrues during the in-school, grace and deferment period.
Not eligible for Internship / Residency Forbearance. May qualify for Economic Hardship Deferment.
5% fixed interest rate
No lender repayment incentives
Federal Consolidation Loans
You may have consolidated your Med 1 loans.
Fixed at the weighted average interest rate
No grace period – first payment due in June.
Eligible for economic hardship deferment, fellowship deferment, and internship/residency forbearance
Cannot “reconsolidate” unless you add in new loans
Bank of America benefits:
Principal reduction of 1.5% of the total amount consolidated at the time of consolidation. When you go into active repayment, you must make your first 12 payments on time to keep this benefit.
.25% interest reduction for auto-debit repayment.
1% interest reduction for the life of the loan upon completing 36 on-time monthly payments.
Can be very expensive – no cap on variable interest. Very cheap right now: LIBOR + 2.60%. Should be the first loan you pay.
Grace Period – Six Months
Deferment options are available but not advisable.
RESIDENCY / RELOCATION LOANS (such as CitiAssist)
Can be very expensive – no cap on variable interest. Rates from Prime - .5% (2.75%) to Prime + 8% (11.25%) (rates as of March, 2009) based on credit score. Should be the first loan you pay.
Deferment options are available but not advisable.
Delinquency and Default
Delinquency - failure to make payment when due
adversely impacts your credit
delinquency can lead to default
Default - failure to repay your education loan
adversely impacts your credit
adversely impacts your future borrowing ability
adversely impacts your institution
Know your decision points and keep a calendar
Know your repayment options
Make informed decisions about consolidation
Keep good records
3. Have a Plan and Know Your Options
Loan Repayment Timeline Forbearance (pay INTEREST ONLY) or Repayment 10 years 6 month grace In Deferment UVA Loans 10 to 30 years Economic Hardship Deferment possible for first year, then Forbearance or Repayment In Deferment Consolidation 10 to 25 years Economic Hardship Deferment possible for first year, then Forbearance or Repayment In Deferment Grad PLUS Economic Hardship Deferment – if eligible, to 6/2010 Possible “Grace,” Forbearance or Repayment Varies – check prom note In Deferment Private Loans 10 to 25 years Forbearance or Repayment 6 month grace In Deferment Stafford Loan Repayment Residency School
Federal Title IV Loan Repayment Options
Standard (Level) Repayment
10 years of level payments
Plans vary by lender, have lower payments in the beginning which increase at designated intervals
Income Sensitive Repayment
Hopefully not an option for Medical Students
Up to 25-30 years for loans of $60,000 or more
After July 2009: Income-based Repayment
Payment equal to 15% of income that exceeds 150% of poverty line
Average resident salary: $45,659
2009 Poverty line for single person: $10,830
150% of poverty line = $16,245
Payment equal to 15% of income that exceeds 150% of poverty line, so:
45,659 minus 16,245 = 29,414
29,414 x 15% = 4,412 = $368/month
Your IBR payment may not even cover the accruing interest.
If you owe $34,000 subsidized and $68,000 unsubsidized, you are accruing $578 of interest each month (assuming 6.8% interest)
Any amount of interest accrued on subsidized loans that is not paid by the IBR payment will be covered by the Department of Education for up to 3 years
In the above example, 1/3 of your loans are subsidized, so 1/3 of your payment ($123) will go to the sub loan
The sub loan is accruing $193 of interest each month, so the Department will cover $70
The unpaid interest on your unsubsidized loan will not capitalize.
Sample Repayment of Stafford Loans
$121,000 total borrowing, including
$34,000 Subsidized Stafford Loans ($8,500/year)
$87,000 Unsubsidized Stafford Loans
Consolidated after first year (4.75%), interest capitalized
Interest on consolidation capitalized at graduation
Interest on Med 2-4 6.8% loans capitalized at end of grace
Total interest accrued on Unsubsidized Loans at graduation/end of grace = $12,819
Residency: 1 year of hardship deferment, 2 years of forbearance
Interest accrued on Unsubsidized Loans year 1 = $3,727
Interest accrued on all loans year 2 = $8,650
Interest accrued on all loans year 3 = $9,204
All interest capitalized at the beginning of repayment
Borrower makes no voluntary or early payments
TOTAL LOAN AT REPAYMENT: $155,400
So, just how bad could it be? $1,750 $54,576 $209,976 $964 $191,648 $347,048 *Plus accrued interest from previous page. Extended 25/30 Years $121,000* Standard 10 Years $121,000* Total Repayment Cost Additional Interest Cost Monthly Payment
The Good News (yes, there’s some good news!)
You have made a sound investment in your future. You’re doing what you love – AND:
Salaries for MDs surpass other professions
The rewards are incomparable
Repayment provisions, including deferment and forbearance options, coupled with high earning potential after residency is sufficient for both debt service and a full life.
What is Federal Loan Consolidation?
Loans included in the Federal consolidation are paid in full by the consolidation lender and you sign a promissory note for a new loan.
There are no fees or other charges associated with Federal Loan consolidation.
Interest rate is fixed and is determined by the weighted average interest rate of the loans included in the consolidation.
To determine the weighted average interest when consolidating loans with different interest rates go to the federal loan consolidation calculator at:
Only federally insured loans are eligible for Federal Loan Consolidation.
You may include Stafford, Stafford Direct, Graduate PLUS, and Federal Consolidation Loans. Graduating students may also include Perkins.
You may NOT include UVA Institutional Loans, GATE or other private educational loans.
WHY CONSOLIDATE? If you have already consolidated, then all of your loans are already at a fixed rate. However, you are eligible to consolidate if you have any unconsolidated loans, and you may consider it if it appears that rates will be going up. Check the new rates every May. At this point, the only lender you can consolidate with is Direct Loans.
Possible Disadvantages to Consolidation
Loss of borrower benefits on loans
If you consolidate your Med 2-4 loans, you will lose the 2.5% interest rate reduction for auto-debit!
Cannot take advantage of any future interest rate decreases on variable rate loans
Accrued interest will capitalize when you consolidate
May adversely impact grace and deferment options
Depending on the loan, you may lose the interest subsidy
Written information on loan obligations, including loan consolidation
An explanation of default and its consequences
A copy of your promissory note and return of the original note when the loan is paid in full
Prior to repayment, balance information and a repayment schedule
Notification if your loan is sold
Federal subsidy, if eligible
Grace and deferment periods, if eligible
Forbearance during financial difficulty
Prepay your loan early without penalty
Repay the loan according to the schedule you select
Notify your loan servicer of anything that affects your ability to repay the loan
Notify your loan servicer of any changes in your status, including when you graduate
Notify your loan servicer and school of any changes to name, address, and phone numbers
Attend a loan exit interview before you graduate
Borrower Responsibilities, Cont’d
Complete the online exit counseling at www.mappingyourfuture.org
Support during residency
4. Get Help if You Need It!
Mean PGY-1 stipend $ 45,659
less taxes (State/Federal, FICA) $ 11,279
Annual take home pay $ 34,380
Monthly take home pay $ 2,865*
*From your monthly take-home pay, also deduct things like: health insurance, parking, retirement savings, and other items that might come out of your paycheck.
PLAN . Set up a budget. Your paycheck won’t go as far as you imagine. Face the cold hard facts on paper.
Allow for short-term savings off the top. Pay yourself first and budget what’s left.
Establish an emergency fund with short-term savings and max out your 401(k) or 403(b) to the extent possible for long term savings.
Consider paying down consumer debt and other financial obligations that have the highest interest first.
Consider speaking with a financial professional.
Complete the “Get Out Of Debt” Financial Planner on the UVA Medical School Financial Aid Website.
http:// med.virginia.edu /financial-aid/
Should You Use a Financial Professional?
You can do some financial planning yourself. There are great websites to help – the AAMC has two good ones:
MD 2 – Planning for Residency and early practice
FIRST for Residents: www.aamc.org/first
A professional should be able to provide advice on:
short and long term financial goals
Ask if your hospital sponsors seminars with financial professionals
Attend our financial planning session on May 7th.
Have loan records handy and be prepared to educate them on your education loan repayment options.
Ask about their fee structure
Find more information on finding the right financial planner at http://www.cfp-ca.org/public/public_findaplanner.asp
U.S. Department of Education’s Office of Ombudsman
Designed to provide help when other reasonable efforts (including contacting the financial aid office) to resolve a student loan dispute have failed
Be sure you have good records before you call the Ombudsman
Reach the Ombudsman at:
Loan Repayment and Forgiveness Programs
Service commitment programs following graduation or residency
Pays down loans in exchange for service
Some offer tax incentives
Programs currently available through:
Public Health Service
The Armed Forces
AAMC’s website lists many programs:
National Health Service Corps:
Indian Health Service:
U.S. Armed Forces: Army, Navy, Air Force
Tax Benefits for Higher Education
Check out IRS Publication 970
Lifetime Learning Credit or Tuition & Fees Deduction
Student Loan Interest Deduction
And other higher education tax benefits
Check out IRS Publication 521
Did you know you could get credit for relocating to your residency program if you are moving at least 50 miles from your current home? Save your receipts…keep records.
Student Loan Interest Deduction
Maximum of $2500/year, depending on income
Your lender will provide you with a statement of interest paid every year
$145,000 or more $115,000 to $145,000 $115,000 or less Married filing jointly $70,000 or more $55,000 to $70,000 $55,000 or less Single No Deduction Partial Deduction Full Deduction
Bibliography of Financial Resources
Suze Orman: The Money Book for the Young, Fabulous & Broke (March 2005)
Jason Anthony and Karl Cluck: Debt Free by 30: Practical Advice for Young, Broke, & Upwardly Mobile
Suze Orman: The 9 Steps to Financial Freedom: Practical and Spiritual Steps so You Can Stop Worrying (Random House, 2000)
Suze Orman’s Financial Guidebook: Put the 9 steps to Work (February 2002)
David Gardner: The Motley Fool Personal Finance Workbook: A Foolproof Guide to Organizing Your Cash and Building Wealth
Beth Kobliner: Get a Financial Life: Personal Finance in Your 20s and 30s (Simon & Schuster, 2000)
Thomas J Stanley and William Danko: The Millionaire Next Door: The Surprising Secrets of America’s Wealthy (Pocket Books, 1998)
Barbara O’Neill: Saving on a Shoestring: How to Cut Expenses, Reduce Debt and Stash More Cash
Other Financial Management Tips
Opt out of unsolicited credit card offers:
Call 1-888-5-OPTOUT / (1-888-567-8688)
Get on the Do Not Call list: www.donotcall.gov
Prevent Identity Theft: Check your credit report annually!
Okay, Where Do I Start?
Write your lender/servicer and let them know you are graduating and the date of graduation.
Get set up with a password to access your student loan account on line and then bookmark the site.
Get your loan records in order before PGY-1 orientation.
Commit to keeping good records and open your mail.
Update your contact information with your loan servicer(s) and with your medical school.
Mark your calendars with dates to complete deferment/forbearance/consolidation, etc.
SUPPORT DURING RESIDENCY Contact your UVA Medical School Financial Aid Counselor. We remain committed to helping you navigate the murky waters of student loan repayment throughout residency… Good Luck in Your Medical Career!