Congratulations to the Class of 2009!

Congratulations

to the Class of 2009!

From

The Financial Aid Team

Nancy, Dennis, & Margaret

Educational Debt

DEBT

Statistics

All Schools

2008

National Average

UVA

Medical

Class of 2009

Average

Mean $154,607 $120,980

Median $155,000 $137,508

*includes undergraduate debt

Your Class Debt

<$90,000

$90,000-$120,000

$120,000-$150,000

>$150,000

*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:• promissory notes• disclosure statements• award letters• 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

www.nslds.ed.gov

*If you have consolidated, the cumulative loan totals will be inaccurate – don’t panic!

National Student Loan Clearinghouse

http://www.nslc.org/

Your Guarantor

TYPES OF LOANS

Federally Guaranteed Loans

Subsidized

Unsubsidized (including Grad PLUS)

Institutional Loans

Non-Subsidized Private Educational Loans

Private Residency Training / Relocation Loans

Federal Subsidized 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• Federal Perkins• Subsidized Portion of both Stafford and Direct

Consolidation Loans

Federal Unsubsidized 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

• 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 LoansIn school, Grace and Deferment

Forbearance/Repayment

Stafford Loans(disbursed on or after 7/1/06)

6.8% fixed

6.8%fixed

Stafford Loans*(disbursed 7/1/98 - 6/30/06)

3.61%variable

4.21%variable

Graduate PLUS Loans

8.5%fixed

8.5%fixed

Perkins Loan 5.0% fixed

5.0% fixed

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, changes every July 1 based on the 91-day treasury bill, capped at 8.25%

Capitalization

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

Grace Period

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.

Deferment

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 / DIRECTLOAN 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/

Forbearance

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 & ConditionsMed 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.

UVA INSTITUTIONAL LOANS (Not Federally Guaranteed)

• No interest while you are in school and through six month grace period. 5% fixed rate during repayment unless otherwise noted.

• Borrowers may request Forbearance of loan principal while in residency training or fellowship.

• Interest during forbearance must be paid monthly.

• CANNOT FORBEAR INTEREST.

http://med.virginia.edu/financialaid

NON-SUBSIDIZED PRIVATE LOANS(Not Federally Guaranteed)

GATE LOANS (Bank of America)• 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

School Residency Repayment

Stafford Loan

In Deferment

6 month grace

Economic Hardship

Deferment – if

eligible, to 6/2010

Forbearance or Repayment

10 to 25 years

Grad PLUS In Deferment

Economic Hardship Deferment possible for first year, then Forbearance or

Repayment

10 to 25 years

Consolidation

In Deferment

Economic Hardship Deferment possible for first year, then Forbearance or

Repayment

10 to 30 years

UVA Loans In Deferment

6 month grace

Forbearance (pay INTEREST ONLY) or Repayment 10 years

Private Loans

In Deferment

Possible “Grace,” Forbearance or Repayment

Varies – check prom

note

Federal Title IV Loan Repayment Options

• Standard (Level) Repayment10 years of level payments

• Graduated RepaymentPlans vary by lender, have lower payments in the beginning which increase at designated intervals

• Income Sensitive RepaymentHopefully not an option for Medical Students

• Extended RepaymentUp to 25-30 years for loans of $60,000 or more

• After July 2009: Income-based RepaymentPayment equal to 15% of income that exceeds 150% of poverty line

Income-Based Repayment

Example• 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 = 29,41429,414 x 15% = 4,412 =

$368/month

Income-Based Repayment

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. Source: AAMC

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

Assumptions

So, just how bad could it be?

Monthly Payment

Additional Interest

Cost

Total Repayment

Cost

Standard

10 Years

$121,000*Extended

25/30 Years

$121,000*

$1,750 $54,576

$209,976

$964$191,648

$347,048

*Plus accrued interest from previous page.

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:

http://www.finaid.org/calculators/loanconsolidation.phtml

WHAT LOANS CAN BE INCLUDED?

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

Borrower Rights

• 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

Borrower Responsibilities

• 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

Budgeting

Support during residency

Resources

4. Get Help if You Need It!

What Residency Looks Like

Mean PGY-1 stipend $ 45,659 less taxes (State/Federal, FICA) $ 11,279

Annual take home pay $ 34,380Monthly 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.

Check it yourself using your salary at:http://www.paycheckcity.com/NetPayCalc/netpaycalculator.asp

Budgeting and Living on Your Stipend

• 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:

MD2 – Planning for Residency and early practice

www.aamc.org/md2

FIRST for Residents: www.aamc.org/first• A professional should be able to provide advice on:

budgeting 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: 877.557.2575 www.ombudsman.ed.gov

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:

Various states Public Health Service NHSC The Armed Forces NIH

• AAMC’s website lists many programs:

www.aamc.org/stloan

National Health Service Corps:

1-800-435-6464

http://nhsc.bhpr.hrsa.gov/join_us/lrp.asp

Indian Health Service:

http://www.ihs.gov/JobsCareerDevelop/DHPS/LRP/

NIH:

http://www.lrp.nih.gov

U.S. Armed Forces: Army, Navy, Air Force

http://healthcare.goarmy.com

http://www.navy.com/healthcare/physicians

http://www.afit.edu/adhplrp/

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 benefitshttp://www.irs.gov/publications/p970

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.

http://www.irs.gov/publications/p521

Student Loan Interest Deduction

Maximum of $2500/year, depending on income

Your lender will provide you with a statement of interest paid every year

Full Deduction

Partial Deductio

n

No Deduction

Single$55,000 or

less$55,000 to

$70,000$70,000 or

moreMarried

filing jointly

$115,000 or less

$115,000 to

$145,000

$145,000 or more

Bibliography of Financial ResourcesSuze 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!

http://www.annualcreditreport.com/

Okay, Where Do I Start?

Write your lender/servicer and let them knowyou 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!