STUDENT LOAN AND FINANCIAL BEST PRACTICES FOR 2018 SGU MEDICAL SCHOOL GRADUATES Presented by Jason DiLorenzo Founder & Executive Director
Agenda SGU Graduate Profile Repayment Marketplace Overview Loan Forgiveness and Legislation Update Payment & Savings Case Studies Refinancing vs. Consolidation Training Exit Interview Budgeting and other Financial Considerations Available Resources, Q&A
Changes in Student Debt Levels Debt levels have quadrupled in the last 20 years ~$344k $361k ~$50k ~$100k 1993 2000 2016 SGU 2017
Physician Salaries by Specialty Anesthesia: $250k Emergency: : $280k Family Medicine: $183k IM, General: $185k OBGYN: $219k Pediatrics: $167k Psychiatry: $208k Surgery, General: $328k Surgery, Neuro: $680k Your future salary and sector of employment should inform your action plan NOW
Your Loan Portfolio 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) Private Loans: Generally not as competitive as federal loans for students Sometimes necessary for residency search (relocation) or other expenses not related to education Interest rates vary, can be fixed or variable
Repayment Options Standard, Graduated or Extended Term Most Housestaff need payment relief during training Forbearance / Deferment Refinancing IBR / ICR PAYE / New IBR REPAYE MOST COSTLY! (The F Word) MPH/other students CAN waive deferment if in residency 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, 2007 / 2014 10% of discretionary income, 25 year taxable forgiveness (graduate level) 50% of accruing interest not charged, no borrowing restriction
Summary of Options: Four-Year Training Salary (each year): 10-Year Standard Payment: Interest in Forbearance $ 50,000 $51,500 $53,045 $54,636 $4100 = $48k annual = $190k+ over 4 years $ 2350 / month = $28k / year = $113,000 during training PAYE / REPAYE Payment: $ 0 $ 57 $261 $262 $40k+ in interest savings from REPAYE, no capitalization Liquidity during training Payments count toward PSLF
Tax Filing Considerations File a tax return for 2017 for the option to have a payment as low as $0 If married, consider MFS versus MFJ (REPAYE will use Household always!) Consider reducing AGI with retirement contributions Adjustments such as moving expenses can reduce AGI
What is Public Service Loan Forgiveness? Eligible Loans: Direct Stafford, Direct Grad PLUS, Direct Consolidation Non-Direct, Perkins, Health Professions (HPSL) and Loans for Disadvantages Students (LDS) can be consolidated for eligibility Eligible Payments: Borrower must use an IDR or standard 10 year payment plan Make 120 on-time payments (10 year minimum) Eligible Employment: Borrower must be directly employed by a federal, state, or local government entity, or 501(c)3 non-profit Employment must be full-time and 30hrs+ per week Use ECF form, Servicer becomes FedLoans, look for errors
Impact of Stark Law and Specialty Stark Law bans the practice of physician self-referral, there are loopholes Some states have more restrictive interpretation than others Specialties with higher likelihood of for-profit employment after training: Emergency Medicine Anesthesia Radiology Paths with higher non-profit opportunity: Family Medicine Psychiatry Pediatrics Academic
Sample 10-year Case Study Profile: Debt - ~ $361,000 PSLF eligible in training, unsure of employer after training Future expected income - $155,000 Marries in 2019, spouse earns $125k
Sample PSLF Case Study FEDERAL LOAN OVERVIEW Current Federal Loan Amount $ 361,000.00 Federal Loan Blended Average Interest Rate 6.5000% Standard 10 year total payment $ 491,889.84 Extended 25 year total payment $ 731,249.36 PUBLIC SERVICE LOAN FORGIVENESS PROJECTION YEAR 1 2 3 4 5 6 7 8 Monthly Repayment Options Standard 10 Year Repayment 4,099.08 4,099.08 4,099.08 4,099.08 4,099.08 4,099.08 4,099.08 4,099.08 Extended 25 Year Repayment 2,437.50 2,437.50 2,437.50 2,437.50 2,437.50 2,437.50 2,437.50 2,437.50 Income Driven Repayment - 53.06 256.74 258.19 663.66 1,116.91 1,150.41 1,184.93 Income Driven Repayment Type REPAYE REPAYE REPAYE REPAYE REPAYE REPAYE REPAYE REPAYE Demographics Information Est. Adjusted Gross Income - 25,000.00 50,000.00 50,750.00 100,000.00 155,000.00 159,650.00 164,439.50 Household Size 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Partial Financial Hardship? Yes Yes Yes Yes Yes Yes Yes Yes PSLF Eligible Employment? Yes Yes Yes Yes Yes Yes Yes Yes ESTIMATED OUT OF POCKET COST: USD 85,937.45 ESTIMATED LOAN BALANCE FORGIVEN: USD 435,356.28 EFFECTIVE INTEREST RATE DURING TRAINING: 3.50370%
Other Loan Repayment Programs for MDs FEDERAL: National Health Service Corps (NHSC): http://nhsc.hrsa.gov/loanrepayment/loanrepaymentprogram.html Indian Health Service (IHS): https://www.ihs.gov/loanrepayment/ Dept of Defense (DOD) Medicine + the Military: http://medicineandthemilitary.com/about-us DoD Financial Assistance Program (FAP): http://medicineandthemilitary.com/joining-andeligibility/medical-resident-program STATE: State-specific programs vary and are often designed with similar terms as the federal ones
Switching Programs During Training Borrowers are permitted to switch programs as appropriate Conversion requires reduced payment forbearance, 1 month Capitalization will occur when exiting (impact minimal if PSLF achieved) If borrower has high income household in future, can move from REPAYE to IBR/PAYE to keep payments low and still on PSLF track
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 become a doctor if PSLF wasn t available
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.
A Physician s Fork In The Road FORGIVENESS PSLF Taxable Loan Forgiveness Payment Relief in Training Average Savings over $150k ACCELERATED PAYMENT/ REFINANCING Private Sector High Household Income Federal Benefits not Needed Doctors can save over $60k out-ofpocket today
Private Refinancing Opportunity Lending marketplace increasingly crowded and highly competitive Rates typically lower than Federal rates, fixed as low as 3.5% Payment terms from 5 to 20 years For graduates with $75k or less in federal debt, IDR s and PSLF holds little value Rarely available for residents without a cosigner Considerations Loss of Federal benefits Liquidity, can you afford the payments? Fees may erode savings Fixed vs. variable rate loan types You CAN refinance an already refinanced loan in the future
EXIT STRATEGY CASE STUDY
The PSLF Salary Boost : A Case Study After 4 years of training, a graduating resident contemplates the next step in her career. How does loan forgiveness impact the economics of working for a non-profit? Original Debt: $361,000 Debt after training: $448k PAYE / $405k REPAYE Non-profit salary offer: $155,000 For-profit salary offer: $205,000
SALARY EQUIVALENT: PUBLIC VS. PRIVATE Present Value Difference: $427k versus $77k!
Sample Budget: Fail to Plan, Plan to Fail!
Budgeting For Success: A Case Study Salary: $ 55,000 $56,650 $58,350 $60,000 PAYE / REPAYE Payment: Savings / Forgiveness Protection / Roth IRA: Occupation-specific Income Protection (DI): $ 0 $76 $301 $303 $ 400 $400 $400 $400 $ 125 $125 $125 $125 Total Monthly Allocation to Strategy: $525 $601 $826 $828 Savings Account / Roth IRA at Transition: $20k+
REPAYMENT TIMELINE AFTER GRADUATION Winter/Spring: Graduation, File 2017 Taxes Consolidation? By Fall 2018: End of Grace Period on Stafford/Grad PLUS Training Exit Analysis: PSLF / Standard / Refinance July 2018: Begin Residency IDR Renewal every 12 Months / Review Profile and Legislative Changes
DWOQ Consultations Individual Loan Consultations with Annual Support $295 then $60 quarterly (SGU15 Code for 15% discount) 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
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