Know Your Loan Portfolio

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1 Free Online Resource (PDF via a Quick Download Link) Student & Strategies Education Debt Manager (EDM) Prepared for the MD Class of 2019 UAB School of Medicine Nicole Knight, MBA Sr. Education Debt Management Specialist & Trainer Spring 2019 aamc.org/first/edm Disclaimer: All information and estimates are based on AAMC interpretation of federal regulations as of January 2018 and are subject to change. These are estimates only. Students should contact their servicer(s) to discuss exact loan balances and repayment options. Class of 2018 Indebtedness Median MD School Debt: $200,000 Know Your Loan Portfolio PUBLIC $190,000 PRIVATE $210,000 Source: AAMC 2018 Graduate Questionnaire (GQ) 75% of class report having education debt 51% report debt of $200,000 or higher Class of 2018 Indebtedness Finding Your Federal UAB SOM Education Debt Education Debt** (median) $180,000 To access, provide your FSA ID, including : Username & Password Credit Card Debt** (national average) $6,250 Refer to pg. 64 (EDM) For questions, visit Source: * 2018 Graduate Questionnaire LCME I-B data: 64% w/ med debt, Avg MS debt per grad: $169,479. **16% of the Class of 2018 report ed credit card debt. nslds.ed.gov 1

2 Do You Have Other Debt? annualcreditreport.com Subsidized vs. Unsubsidized Sub si dy [suhb-si-dee] noun - Financial assistance granted by the government to cover accruing interest while in-school, in grace, or in a qualifying deferment. Source: Subsidized vs. Unsubsidized Fixed Interest Rates for the Class of 2019 Subsidized Unsubsidized M M M M Direct Subsidized Perkins * Primary Care for Disadvantaged Students (LDS)* Institutional (some) Consolidation (underlying subsidized loans) Direct Unsubsidized Direct PLUS Private Institutional (some) Consolidation (underlying unsubsidized loans) PERKINS* 5.0% DIRECT UNSUBSIDIZED 5.84% DIRECT PLUS 6.84% PERKINS* 5.0% DIRECT UNSUBSIDIZED 5.31% DIRECT PLUS 6.31% PERKINS* 5.0% DIRECT UNSUBSIDIZED 6.0% DIRECT PLUS 7.0% PERKINS* 5.0% DIRECT UNSUBSIDIZED 6.6% DIRECT PLUS 7.6% * Subsidy and deferment rights are lost in a consolidation loan * Perkins, PCL and LDS are disbursed at a fixed rate of 5%. All loans shown have a fixed interest rate. 2

3 Capitalization Capitalization cap i tal i za tion verb Unpaid interest that gets added to your student loan balance after periods when you don't make payments such as [while you are in school]. Capitalized interest on student loans increases the total amount you have to pay back. Source: Borrowed (principal balance) + Interest = What You Owe (larger principal balance) Capitalization for the Class of $180,000 $27,800 $207,800 = Tip Exercise Your Right to Prepay When Sending a Voluntary 1) Send as a Separate - Instruct servicer to APPLY NOW - Specify WHERE to apply it (high interest rate loans are the priority) 2) Verify was Applied Accurately Pay the interest before it capitalizes (if/when possible). *Based on total education debt (median) self-reported by 2018 graduates from this medical school GQ survey ($180k). Capitalization for the Class of 2019 Know Your Numbers Principal Borrowed Interest Owed after Grace Interest/mo during Res. Med Organizer and Calculator A free tool for MD students and graduates $140K $22K $162K ~$800/mo $190K $30K $220K ~$1,100/mo $200K $31K $231K ~$1,200/mo $250K $40K $290K ~$1,500/mo $300K $50K $350K ~$1,800/mo aamc.org/medloans 3

4 Loan Timeline The path for many federal student loans After Graduation (Period of time when NO payments are required) When are the First s Due? Decision Time: Graduation Graduation: Decision Time Make s Postpone s aamc.org/first/timeline Postponement Options Postponement Options Medical Forbearance Interest accrues on all loans Interest will capitalize Contact each loan servicer to apply Request 30-days before needed Postpones payments in annual increments Capitalization may occur at end of residency (if increments occur back-to-back throughout residency) An option for medical residents/interns NOTE: For more details, or to request a deferment or forbearance, contact each loan servicer NOTE: Request increments in a timely manner to avoid unnecessary and additional capitalization. 4

5 Medical Forbearance Situation after a 4-year residency Balance After Grace Interest Balance Know Your Numbers Med Organizer and Calculator A free tool for MD students and graduates TOTAL $208k + $49k = $257k aamc.org/medloans Medical /Internship Forbearance BEST for You, IF Seeking to REDUCE stress and financial obligations Is it a Good Option? NOT for You, IF Seeking Public Service Loan Forgiveness (PSLF) s Desiring to INCREASE disposable income Have PRIVATE loans with higher interest rates Seeking an Income-Driven (IDR) plan forgiveness Want to begin repayment immediately s Traditional Monthly payments for the entire repayment term are calculated up-front and disclosed to you. s are based on s household income (AGI) and family size - recalculated annually. Income-Driven Standard Extended Graduated 10 Years 25 Years 10 Years * Based on the median debt borrowed by the Class of 2018 at this medical school. $ 2,300/mo $1,300/mo $1,000/mo $740/mo $480/mo $320/mo $320/mo 20% Income-Contingent (ICR) 15% Income-Based (IBR)* 10% Pay As You Earn (PAYE) 10% Revised Pay As You Earn (REPAYE) Based on the self-reported median debt from the Class of 2018 at this medical school, a PGY1 stipend of $56,800 and a family size of one. * New Borrowers on or after July 1, 2014 that select IBR will receive payment amounts equal to that of PAYE. 5

6 s - Terms IDR s Eligibility: $740/mo $480/mo $320/mo 25 years 25 years 20 years Income-Driven Income-Contingent (ICR) Income-Based (IBR)* Pay As You Earn (PAYE) ICR IBR PAYE Perkins and LDS loans are not eligible unless included in a Direct Consolidation Loan $320/mo 25 years Revised Pay As You Earn (REPAYE) REPAYE Based on the self-reported median total ed debt from 2018 grads at this medical school, a PGY1 stipend of $56,800, & a family size of one. * New Borrowers on or after July 1, 2014 that select IBR will receive payment amounts equal to that of PAYE. IDR s Eligibility: Financial Need The Test for a PFH ICR IBR Must have a Partial Financial Hardship (PFH) Show Need Partial Financial Hardship (PFH) Standard $2,300 / mo > $480 PAYE (IBR) or or IBR $320 (PAYE) PAYE REPAYE Show Need Must have PFH to enter into IBR or PAYE Can remain in IBR or PAYE in subsequent years, even without a PFH Must submit annual documentation Max payment in IBR or PAYE is the Standard amount (determined when entering the plan) Based on total ed indebtedness (median) reported by 2018 grads at this medical school (180K )with a PGY1 stipend of $56,800 & a family of 1 IDR Eligibility: New Borrowers Only New Borrower Defined ICR IBR PAYE REPAYE Show Need Show Need NEW Borrower Must be a new borrower Two Requirements 1) No outstanding loans on October 1, 2007 or paid-off all outstanding loans before receiving a new loan on or after 10/1/07 AND 2) Received a Direct Loan disbursement on/after October 1,

7 Revised Pay As You Earn (REPAYE) vs PAYE Revised Pay As You Earn (REPAYE) All Borrowers = 10% of Discretionary Income, Changes Yearly 50% Based of On interest Income and Family not covered Size by payment Interest will Forgiveness 25 Capitalizes be Years subsidized When You Leave No Cap on Interest Subsidy 50% of interest not covered by payment will be subsidized Income-Driven (IDR) Based on Previous Year s Household AGI IBR - PAYE - REPAYE $0 s Maximize Forgiveness in PSLF Tax Return of Zero is Accepted of $0 for 12 Months More Likely to Receive if You Consolidate Immediately After Graduation Self Certify Zero Taxable Income Self Certify No Significant Change Are payments even possible during residency? aamc.org/ressalary Budgeting During Rent/Mortgage Debt: $183,000 $1,700 Transportation/Car Grocery/Dining $2,600 $420 $400 $470 Student Discretionary Utilities Smartphone Insurance/Health Savings $320 $195 $150 $100 $100 $100 Yes IF you budget! aamc.org/ressalary $310 $310 $0 $500 $1,000 $1,500 $2,000 Assumptions:. ~$3,485 per month after taxes, Social Security, Medicare, etc. 7

8 Eligibility Partial Financial Hardship Standard PAYE REPAYE IBR All borrowers New borrowers All borrowers No Yes No Yes 10 year plan consistent 10% of discretionary income 10% of discretionary income All borrowers 15% of discretionary income s Compared (pgs 32-33) Debt: $183,000 $470 $2,600 Term 10 years 20 years 25 years 25 years Forgiveness No Yes Yes Yes Cap n/a Yes No Yes Spouses Income No Yes-if filing jointly Yes Yes-if filing jointly Capitalization n/a No more PFH or if you leave PAYE If you leave REPAYE Subsidy none Yes on sub Yes 50% of loans 3 yrs unpaid interest No more PFH or if you leave IBR Yes on sub loans 3 yrs aamc.org/repayplans $310 $310 Married Borrowers & Income-Driven The Impact of a Spouses Income and Debt The Best Strategy CASE STUDIES aamc.org/first/edm aamc.org/first/marriedphysicians aamc.org/videowebinars (page 31 in the EDM) How to Know Your Best Strategy It s not about the best one It s about what fits with your life and financial goals Fundamental Forces of Choices in one area will impact the others MONTHLY COST Each WILL go or depending on the repayment plan TOTAL COST FORCES TIME 8

9 Dr. Primary Care Dr. Primary Care (3 Year, Post Res Net Monthly Income $11,500) Career: Family Medicine Length: 3 years Starting Stipend: $56,800 Post Starting Salary: $195,000 Net Monthly Income: $3,600 (during residency) $11,500 (post residency) Debt: $183,000Student Loan Debt: $180,000 Forbearance then Standard Pay As You Earn (PAYE) Revised PAYE (REPAYE) During 3yrs $0 $320 - $370 $320 - $370 $2,700 $1,600 - $2,300 (16yrs) $1,600 $2,500 (15 yrs) $325K $381K $355K Forgiven $0K $0K $0K Years including Note: Based on PGY-1 median stipend and MGMA starting salaries 2019 Graduate. All figures approximate Dr. Primary Care (3 Year, Post Res Net Monthly Income $11,500) Debt: $183,000Student Loan Debt: $350,000 Forbearance then Standard Pay As You Earn (PAYE) Revised PAYE (REPAYE) During 3yrs Forgiven $0 $5,500 $661K $0K $320 - $370 $320 - $370 $1,600 - $2,300 (17yrs) $1,600 $2,700 (22 yrs) $407K $581K $559K $706K $526K $444K Years including Dr. Cardiology Career: Cardiology Length: 6 years Starting Stipend: $56,800 Post Starting Salary: $325,000 Net Monthly Income: residency $3,600 (2019$) post residency $18,000 Note: Based on PGY-1 median stipend and MGMA starting salaries 2019 Graduate. All figures approximate Dr. Cardiology (6 Yr, Post Res Net Monthly Income $18,000) Debt: $183,000Student Loan Debt: $180,000 Forbearance then Standard Pay As You Earn (PAYE) Revised PAYE (REPAYE) During Forgiven $0 $2,700 $325K $0K $320 - $460 $2,300 (13 yrs) $320 - $460 $2,900 $3,500 (8 yrs) $394K $316K $0K $0K Years including Dr. Cardiology 6 year residency Student Debt: $183,000 Loan Debt: $350,000 Net Monthly Income: $18,000 Forbearance then Standard Pay As You Earn (PAYE) Revised PAYE (REPAYE) During Forgiven $0 $6,400 $768K $0K $320 - $460 $320 - $460 $3,200-4,400 (14 yrs) $3,200 $4,800 (17 yrs) $654K $738K $821K $255K $0K Years including Note: Based on PGY-1 median stipend and MGMA starting salaries 2019 Graduate. All figures approximate Note: Based on PGY-1 median stipend and MGMA starting salaries 2019 Graduate. All figures approximate 9

10 The FIRST Stop A tool for graduates!! Med Organizer and Calculator Other Considerations aamc.org/medloans Public Service Loan Forgiveness Standard PAYE REPAYE Public Service Loan Forgiveness Pediatrics Dr. Peds: Borrowed $180,000, Starting salary $165,000 Direct Only s myfedloan.org Employment aamc.org/pslfebook aamcaction.org/pslfstories 501(c)3, any level of the government, or a for-profit providing a public service Years Including Pay As You Earn (PAYE) 10 Revised PAYE (REPAYE) 10 (range) $1,300 1,500 $1,300 1,500 Forgiven $131K $200K $131K $185K Public Service Loan Forgiveness Pediatrics Loan Forgiveness Taxable? Dr. Peds: Borrowed $300,000, starting salary $165,000 Years Including Pay As You Earn (PAYE) 10 Revised PAYE (REPAYE)4 10 (range) $1,300 1,500 $1,300 1,500 This amount paid does NOT change with HIGHER debt Forgiven $131K $440K $131K $395K But this one does higher the debt, higher the forgiveness Yes Income- Driven s No Public Service Loan Forgiveness 10

11 Loan Forgiveness and Assist. Consolidation Vs. Refinancing federal private Should I consolidate or refinance? aamc.org/repayasst aamc.org/stloan aamc.org/stloan Reasons to Consolidate Should You Consolidate? Reduce # of Servicers Eligibility for PAYE or REPAYE Eligibility for IBR Eligibility for PSLF aamc.org/first/consolidatequiz Should I Refinance? Taxpayer Relief Act of 1997 aamc.org/first/shouldirefinance Full Deduction Single $65,000 or less Married filing Jointly $130,000 or less Partial Deduction $65,001 to $79,999 $130,001 to $159,999 NO Deduction $80,000 or more $160,000 or more Max student loan interest deduction: $2,500/year May be eligible: Voluntary payments & capitalization * Student Loan Interest Deduction for 1/

12 Additional FIRST Resources aamc.org/financialwellness Med Organizer and Calculator Fact Sheets: Student Loan & Upcoming Webinar and Posted Videos aamc.org/first/financialplanning (time-stamped agenda) aamc.org/first/financialplanning2 (time-stamped agenda) aamc.org/first/homefinancing (time-stamped agenda) aamc.org/videowebinars aamc.org/nextsteps videowebinars An investment in knowledge always pays the best interest Presentation Feedback: aamc.org/alabama Questions? More Information: Other Resources: aamc.org/videowebinars 12