Congratulations to the Class of 2012! From The Financial Aid Team Nancy, Dennis, & Margaret.

Congratulationsto the Class of 2012!

From

The Financial Aid Team

Nancy, Dennis, & Margaret

Educational Debt

DEBT

StatisticsNational:

All Schools2011

UVA SOMClass of

2012

Mean $161,290 $122,672

Median $162,000 $134,904

includes undergraduate debt

Your Class Debt

<$50,000

$50,000-$100,000

$100,000-$150,000

$150,000-$200,000

$200,000+

*Includes undergraduate debt. Projected graduates: 150. Graduates with debt: 122. Debt range: $2,000 ~ $275,000

34%14%

26%

20%6%

• Get organized and keep good records

• Know what types of loans you have Federal / School / Private

• Know who you borrowed from Loan Holder / Guarantor / Servicer

• Know your loan terms and conditions

• Know your rights and responsibilities

Getting Organized

Keep good records and be proactive• Open your mail!

“P.S. I wasn't sure I believed you last year at the exit interview when you said residents don't open their mail, but my hours have been so awful that I haven't had time to eat, much less manage the financial intricacies of my life. You were so right… haha.” – Class of 2010 graduate• Bookmark your servicers’ websites and notify

them when you change any contact information.• Respond promptly to lender requests for payment or information – even if you think they contacted you in error – but avoid scams!

• Keep your UVA email address.• Balance your checkbook regularly.• Document every conversation with your lender on your

lender log and keep good notes. • Make a file (paper and/or electronic) for each lender, and

save copies of all correspondence – including forms you mail in.

• Put reminders on your calendar.

TYPES OF LOANS

Federally Guaranteed Loans Subsidized

Unsubsidized

Grad PLUS

Institutional Loans

Non-Subsidized Private Educational Loans

Private Residency Training / Relocation Loans

Finding Your Federal

Student LoansWe’re going to give you all of your lender contact information today.

To find your loans:

National Student Loan Data System

www.nslds.ed.gov

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

Your Guarantor will always know where your loans are.

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%• Undergrad loans may be at a different interest rate• 6-month grace period (ends November 18)

• Direct Loans (Med 3-4): .25% interest rate reduction with auto-debit

• Bank of America loans (for some of you, Med 1): 1% fees for 08/09, 1.5% fees for 09/10 Loans before October 2008 (Med 1): 2.5% interest rate

reduction when you SIGN UP for auto-debit NOTE: the interest rate reduction will NOT lower your

payment• Other lenders: Check with servicer for your incentives

SIGN UP FOR AUTO-DEBIT!On the ACS website, sign up for auto-debit online, or fill out the “Checkmate II” form, under Payment Options > ACH. Do this after your grace period ends but before filing for forbearance. While in forbearance, your interest rate will stay reduced.

For all other loans, see your servicer’s website for the auto-debit form. With Direct Loans, the interest rate reduction only applies during periods when you are making payments through auto-debit.Loan Balance: $40,000.00

Interest Rate: 6.80%Loan Term: 10 yearsMonthly Payment: $460Number of Payments: 120Cumulative Payments: $55,239 Total Interest Paid: $15,239

Loan Balance: $40,000.00 Interest Rate: 4.30%Loan Term: 8.8 yearsMonthly Payment: $460 Number of Payments: 105Cumulative Payments: $48,010 Total Interest Paid: $8,010 SAVINGS: $7,229

Federal Graduate PLUS• FFELP (2009/10 and earlier): fixed at 8.5% interest• Direct Loans (2010/11 and after): fixed at 7.9% interest• No grace period on FFELP, can call and ask for a 6-month

forbearance to get PLUS in line with other loans• 6-month “grace” on Direct Loans (ends November 18)• No interest subsidies• 2.5-4% origination fee was deducted from the loan

proceeds• Direct Loans: .25% interest rate reduction when you pay

using auto-debit• Bank of America loans:

Loans before October 2008: 1% principal reduction at repayment, 2.5% interest rate reduction when you sign up for auto-debit

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 – use the form we give you, or get the form from the Financial Aid website.

• Interest during forbearance must be paid monthly.

CANNOT FORBEAR INTEREST.

NON-SUBSIDIZED PRIVATE LOANS(Not Federally Guaranteed)

RESIDENCY / RELOCATION LOANS • Can be very expensive – no cap on variable

interest. Rates usually based on prime, which is currently very low: 3.25%

• Your rate might be from Prime + 1% (4.25%) to Prime + 12% (15.25%) based on credit score

• Should be the first loan you pay. • Deferment options are available but not

advisable

Borrower Rights

• Written information on loan obligations, including loan consolidation

• An explanation of default and its consequences• A copy of your promissory note• 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• Loan forgiveness in the event of your death

or total permanent disability• 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.nslds.ed.gov

• Know deferment and forbearance options

• Know your repayment plan options

• Know how to avoid delinquency and default

Make a Plan

Forbearance

• During forbearance, no payments are due• Interest accrues on all loans (including previously

subsidized loans) and capitalizes at the end of each forbearance period

• Forbearance usually runs for 6 to 12 months• Borrower cannot be eligible for a deferment• You must apply for forbearance, provisions vary by

loan type• Does not adversely impact your credit• Two important types of forbearance:

“General” or “Discretionary” Forbearance – Granted at the discretion of the lender

Internship/Residency Forbearance – Mandatory – Lender may not refuse (unlimited in duration) for your subsidized, unsubsidized, and Grad PLUS loans

Deferment

If you are eligible for deferment – Use it! • No payments are due• Interest Paid on Federal Subsidized Loans• Interest on Unsubsidized Loans is not capitalized

until the end of an uninterrupted period of deferment.

• Must apply every 12 months in writing• Types of deferment:

Unemployment (ask your lender for conditions) In-school (if you return to school at least half-time) Economic Hardship (if your income is extremely low) Graduate Fellowship

– Unlimited in duration for your subsidized, unsubsidized, and Grad PLUS loans

– Not eligible if your residency program calls you a “fellow”

Filing for Deferment / Forbearance

• Apply at the expiration of your grace period (not earlier)

• Can request some forbearances by phone Not the “internship/service” forbearance – that

form must be signed by your Residency Program Director

• Provide documentation to your loan servicer when necessary (for example, evidence of your residency)

• Remember to file each year – mark your calendar!

• Log in to your account and verify your deferment/forbearance status once approved

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

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

• Income-Based Repayment (IBR)Payment equal to 15% (will change to 10% in 2014) of income that exceeds 150% of poverty line

Income-Based Repayment

Example• Average resident salary: $48,460• Poverty line for single person: $10,890• 150% of poverty line = $16,335

Payment equal to 15% of income that exceeds 150% of poverty line, so:

48,460 minus 16,335 = 32,12532,125 x 15% = 4,819 (year) =

$402/month When the formula changes to 10%, that would

equal a payment of $268/month

Approximate IBR Payments

AnnualIncome

Family Size

1 2 3 4 5 6 7

$10,000 $0 $0 $0 $0 $0 $0 $0$15,000 $0 $0 $0 $0 $0 $0 $0$20,000 $47 $0 $0 $0 $0 $0 $0$25,000 $109 $39 $0 $0 $0 $0 $0$30,000 $172 $102 $32 $0 $0 $0 $0$35,000 $234 $164 $94 $24 $0 $0 $0$40,000 $297 $227 $157 $87 $16 $0 $0$45,000 $359 $289 $219 $149 $79 $9 $0$50,000 $422 $352 $282 $212 $141 $71 $1$55,000 $484 $414 $344 $274 $204 $134 $64$60,000 $547 $477 $407 $337 $266 $196 $126$65,000 $609 $539 $469 $399 $329 $259 $189$70,000 $672 $602 $532 $462 $391 $321 $251

Income-Based Repayment Your IBR payment may not even cover

the accruing interest.• If you owe $34,000 subsidized and $102,000

unsubsidized, you are accruing $771 of interest each month (6.8% interest), but you’re only paying $402

• 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, 1/4 of your loans are subsidized,

so 1/4 of your payment ($100) will go to the sub loan The sub loan is accruing $193 of interest each month, so

the Department will cover $93/month = $1,116/year

• The unpaid interest on your unsubsidized loan will not capitalize.

Source: AAMC, ibrinfo.org

ConsolidationConsolidation is an option to get all federal loans in one place, but at this point the only lender you can consolidate with is Direct Loans.

You may consider consolidating with Direct Loans to take advantage of their Public Service Loan Forgiveness program.

Possible disadvantage - Loss of borrower benefits on loans:

If you consolidate your Med 1 Bank of America loans, you will lose the 2.5% interest rate reduction for auto-debit!

Public Service Loan Forgiveness

New program:• Make 120 monthly payments under qualifying

payment plan (IBR) on Direct Loans SOLD loans do NOT count as “Direct” and so

will not qualify for PSLF – must consolidate these to count

• Work in “public service” during those 10 years Complete Employment Certification form

annually After you do this form, your servicer may

change• Remaining debt at the end of 10 years will be

forgiven• There is no “program” to join – just submit the

annual employment certification and apply after 10 years

FAQ: Will this still be an option in 10 years?

Loan Repayment and Forgiveness Programs

Service commitment programs following graduation or residency. AKA: Getting someone else to repay your loans.

• 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.hrsa.gov/loanrepayment/

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://www.goarmy.com/amedd/

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

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

Delinquency and Default

Delinquency - failure to make payment when due• adversely impacts your credit

30/60/90 days late• 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

Sample Repayment: Standard vs Extended Repayment

• $136,000 total borrowing, including $34,000 Subsidized Stafford Loans ($8,500/year) $102,000 Unsubsidized Stafford Loans Interest capitalizes at end of grace Total interest accrued on Unsubsidized Loans end of grace

= $17,514• Residency: 3 years of forbearance

Interest capitalizes annually Interest accrued on Unsubsidized Loans year 1 = $10,439 Interest accrued on all loans year 2 = $11,149 Interest accrued on all loans year 3 = $11,907 All interest capitalized at the beginning of repayment

• Borrower makes no voluntary or early payments

• TOTAL LOAN AT REPAYMENT: $187,009

Assumptions

So, just how bad could it be?

Monthly Payment

Additional Interest

Cost

Total Repayment

Cost

Standard

10 Years

$136,000*

Extended

25 Years

$136,000*

$2,152 $71,243

$258,252

$1,298

$202,383

$389,392

*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 most 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.

Budgeting

Support during residency

Resources

Financial Planning

What Residency Looks Like

Mean PGY-1 stipend (annual) $ 48,460 Monthly stipend $ 4,038

less taxes (state/federal, FICA) $ 986 Monthly take home pay $ 3,052*

*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.

Calculate using your salary and state at:

http://www.paycheckcity.com/NetPayCalc/netpaycalculator.asp

Budgeting in Residency

• 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 (3-6 months of living expenses) and contribute to your 401(k) or 403(b) to the extent possible, especially if you get matching funds.

• Establish a “life happens” fund, for unexpected expenses, large purchases, and the occasional vacation.

• Pay down consumer debt and other financial obligations that have the highest interest first.

Budgeting in Residency

How should you budget your take-home pay?

If you bring home $3000/month, that’s $300 to savings, $600 towards debt reduction, and $2100 to live on.

Budgeting after Residency

Let’s say you get a $90,000 raise after residency. How do you add that in to your budget?• Set aside 1/3 for taxes (federal/state/FICA)• Allocate 1/3 towards debt and vital savings – this

means you’re now paying up to $37,200 towards your debt every year. This will pay off the average debt in about 4

years post-residency.• Keep 1/3 for living expenses – this equals a 120%

increase in your living allowance!• Once you’re debt-free, put your “debt reduction”

money into savings.

Should You Use a Financial Professional?

• You can do some financial planning yourself. There are resources on your flash drive, and there are websites to help – the AAMC has a good one:

FIRST for Residents: www.aamc.org/programs/first/residents

• Once you have an emergency fund and a savings account, and have made some progress on your debt, you may want to see a planner.

• A professional should be able to provide advice on budgeting, short and long term financial goals, different types of insurance, investments, and tax planning

• Ask if your hospital sponsors seminars with financial professionals

• Ask fellow residents, doctors, family and friends for a referral

• 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.fpsc.ca/directory-cfp-professionals-good-standing

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

Resources

Tax Benefits for Higher Education

Check out IRS Publication 970 Lifetime Learning Credit

or Tuition & Fees Deduction– SAVE YOUR 2011 1098T!

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 Deduction

No Deduction

Single $60,000 or less

$60,000 to $75,000

$75,000 or more

Married

filing jointly

$120,000 or less

$120,000 to

$150,000

$150,000 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 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. Update your contact information with your loan

servicer(s).Get your loan records in order before PGY-1

orientation.Commit to keeping good records and opening

your mail.Mark your calendars with dates to complete

forbearance forms, payments, etc…for example: November: Sign up for auto-debit, and either send in

the internship/service forbearance form or choose a repayment plan!

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!