MANAGING YOUR LOAN DEBT: BEST PRACTICES FOR 2018 SGU VETERINARY GRADUATES. Presented by Jason DiLorenzo Founder & Executive Director

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1 MANAGING YOUR LOAN DEBT: BEST PRACTICES FOR 2018 SGU VETERINARY GRADUATES Presented by Jason DiLorenzo Founder & Executive Director

2 Agenda Veterinary Graduate Economics Overview of Repayment options Maximizing Federal Loan Forgiveness Repayment and Forgiveness Case studies Refinancing: When and Why Developing an Action Plan Q&A and Available Resources

3 Average Debt Levels 2000 ~$63k 2007 ~$107k 2016 ~$168k ~$275k (2017 SGU)

4 Veterinarian Incomes

5 Types of Available Loans Federal Loans: (Stafford, Grad PLUS) Federal Stafford: Fixed Rate 6% (since July 1st 2017) Unsubsidized: all interest accrues Direct Graduate PLUS: Fixed Rate 7% (all interest accrues) 6 Month Grace Period from Graduation Perkins Loans 5% rates, unique benefits Private Loans: Generally not as competitive as federal loans for students Interest rates vary, can be fixed or variable

6 Repayment Timeline Winter / Spring: Graduation, File Taxes IDR Renewal every 12 Months / Review Profile and Legislative Changes Fall: End of Grace Period on Stafford/Grad PLUS. Fork in Road: Forgiveness / Standard / Refinance

7 Repayment Options and Your Grace Period Standard, Graduated or Extended Term Forbearance / Deferment Refinancing IBR / ICR PAYE / New IBR REPAYE Most recent graduates need payment relief MOST COSTLY! (The F Word) Available with attractive underwriting profile More applicable at practice transition 15% / 20% of discretionary income, 25 year taxable forgiveness 10% of discretionary income, 20 year taxable forgiveness Only available if no loans outstanding on Oct 1, % of discretionary income, 25 year taxable forgiveness (graduate level) 50% of accruing interest not charged, no borrowing restriction

8 Repayment Scenarios $275,000 of 6.5% Starting salary $70k Year: 1 st Year 2 nd Year 3 rd Year Previous Year AGI: $0 $35,000 $70,000 Standard Payment: Extended Payment: $3,123 $3,123 $3,123 $1,857 $1,857 $1,857 IBR Payment: $0 $210 $641 PAYE and REPAYE: $0 $140 $427

9 Taxes in final year and post-graduation: File in your graduation year for the option of as low as a $0 payment Married: Filing Jointly OR Filing Separately Identification of other AGI deductions (e.g. moving expenses) Qualified retirement plan contribution considerations File a tax return in the year you graduate!

10 A Tail of Four Veterinarians: $275k Debt Veterinarian A Veterinarian B Veterinarian C Graduation 6.5% 6.5% 6.5% Year 1 $70,000 $70,000 $70,000 Year 10 $85,046 $85,046 $85,046 Year 20 $114,295 $114,295 $115,000 Payment Plan 10 Year Standard 25 Year Extended Pay As You Earn (PAYE) Monthly Payment $3.123 $1,857 $0 to $517 to $694 Sum of Payments $375,000 $557,000 $120,600 Forgiveness $0 $0 $513,000 Tax Liability $0 $0 $154,000 Total Out of Pocket Cost $375,000 $557,000 $274,600

11 REPAYE Example Veterinarian B Graduation 6.5% Year 1 Year 10 Year 25 $70,000 $91,334 $134,000 Subsidy Benefit $122,700 Max Monthly Payment $811 Sum of Payments $166,500 Forgiveness $415,550 Tax Liability $124,700 Total Out of Pocket Cost $291,200 REPAYE is not always best for DVM s

12 Other Loan Repayment Programs Public Service Loan Forgiveness Program Borrower must work for a public service entity as defined by program to be federal or state, defense or non-profit organization (University, CDC, USDA, FDA, etc) Borrower must make 120 qualifying payments on a Federal Direct Loan After 10 years in IBR/PAYE/REPAYE, entire balance would be forgiveness TAX- FREE Graduates with higher than average debt may seek PSLF to increase effective salary Veterinary Medicine Loan Repayment Program (VMLRP): Borrower receives up to $25,000 per year for 3 years of service in a NIFA designated veterinarian shortage situation Forgiveness is taxable Understand Your Options!

13 Legislative Considerations Reauthorization of HEA bill proposes elimination of federal forgiveness plans PSLF participants expected to be grandfathered Promissory notes contain language regarding PSLF availability Changes only by act of Congress, but IDRs subject to Executive Orders Detrimental Reliance I never would have gone to graduate school forgiveness wasn t available Stay Abreast of Program Changes!

14 An Evolving Marketplace Update Your Strategy Annually! The only constant is change Don t Expect Servicers to Understand Your Strategy: Lack of advocacy, analysis and support exists across all federal servicers. Errors are rampant. Don t Believe the Hype : With PSLF now 10 years old, media reports are creating unnecessary alarm. Update Your Strategy Anually!

15 A Veterinarian s Fork In The Road FORGIVENESS PSLF Taxable Loan Forgiveness Payment Relief in Training ACCELERATED PAYMENT/ REFINANCING Private Sector High Household Income Federal Benefits not Needed

16 Case Study Dr. D has been working for a private practice since graduation, and utilizing an IDR plan. After 7 years at average private starting salary, her income rises substantially after buying a practice. She no longer needs reduced payments or can achieve forgiveness: Loan balance at graduation: $275,000 Balance after 7 years in PAYE: $371,500 Balance after 7 years in REPAYE : $323,250 Dr. D must now begin to pay back the entire balance. What is her best option to reduce her cost? Refinance: Dropping her interest rate by 2% on a 15- year term can save over $52k in interest costs.

17 Private Refinancing: Determining Suitability Opportunity: Lending marketplace increasingly crowded and highly competitive Transaction-focused, not consultative Rates can be competitive, fixed as low as 3.5% Available in training for some Housestaff, appropriate for non-pslf tracks For graduates with $75k or less in federal debt, PSLF likely holds little value, refinancing may make sense Considerations: Loss of subsidy/forgiveness benefits on Federal education loans Liquidity, as forbearance and deferment typically not allowed after refinancing Origination and other fees may erode savings Fixed vs. variable rate loan types have significant impact on long-term vs. short-term savings Your time horizon for paying off the particular debt

18 Recommended Refinancing Process 1. Identify if refinancing is suitable! 2. Review existing financial and credit profile to determine if refinancing is available Debt-to-income ratio considered No negative credit history, min 680 score Adding co-signer can improve results 3. Approach marketplace 4. Once terms and rates are quoted, select option in the context of your liquidity needs Work with an Advisor Deferment/Low payments in residency available Better rates available for shorter terms, but can you afford higher payment right after training?

19 Sample Budget: Fail to Plan, Plan to Fail!

20 Timeline Review and Consolidation Winter / Spring: Graduation, File Taxes IDR Renewal every 12 Months / Review Profile and Legislative Changes Fall: End of Grace Period on Stafford/Grad PLUS Fork in Road: Forgiveness / Standard / Refinance

21 DWOQ Consultations Individual Loan Consultations with Annual Support $295 then $60 quarterly Complete review of federal and private loan portfolio Annual repayment options overview, including Income-Driven options and loan forgiveness opportunities Overview or completion of consolidation and repayment application Review loans for refinancing opportunities Develop strategy to allocate income towards savings, retirement, home purchase and income protection Develop a timeline of action items Annual access to your DWOQ advisor

22 Sample Consultation Summary

23 THANK YOU! www. DWOQ.com