Money Management for Medical Students Entrance Interview Ellen McGuire Director of Financial Aid...

Money Management for Medical Students

Entrance Interview

Ellen McGuireDirector of Financial Aid TCMC August 10, 2011

Disclaimer: All information and estimates are based on AAMC interpretation of federal regulations as of June 2011 and are subject to change. These are estimates only. Students should always contact their servicer(s) to discuss the terms and conditions of the loans.

“An investment in knowledge always pays

the best interest”

- Benjamin Franklin

©2011 Association of American Medical Colleges. All rights reserved.

86% of class report having educational debt

59% of class report debt $150,000 or higher

All Schools

Public Schools

Private Schools

Median $160,000 $150,000 $180,000

Class of 2010 IndebtednessRefer to page 1

Source: AAMC 2010 Graduate Questionnaire (GQ)

Agenda

Know The Details of Your Loans

The Timeline

Borrowing Strategically

Have a Spending Plan

Understand and Protect Your Credit


Know the Details of Your Loans


Refer to page iv

http://coastalresearch.org/2010/07/an-associate-deans-response-to-drowning-in-student-debt/


The FIRST Stop…

www.aamc.org/FIRST

Medloans® Organizer and Calculator

Refer to page 3


Master Promissory Note

Refer to page 6

A contract with the lender

Has a multi-loan feature

Carefully read before signing

Rights and responsibilities


Rights include the ability to:

Prepay any federal loan without penalty

Request a shorter repayment schedule

Change repayment plans

Request a deferment or forbearance

Review your promissory note for all rights

Refer to page 7

Rights and Responsibilities


Rights and Responsibilities

Responsibilities include:

Make on time loan payments

Make payments despite receipt of bill

Notify the lender of changes in contact info

Attend an Exit Counseling session

Review your promissory note for all responsibilities

Refer to page 7


A Serious Obligation

Student loans must be repaid

Manage your debt -don’t let it

manage you

Refer to page 6


Delinquency

Default

Refer to page 8

Consequences of…


Finding Your Federal Loans

To access, provide:

- SS#

- Date of Birth

- First 2 letters (last name)

- PIN # (www.pin.ed.gov)

www.nslds.ed.gov

Refer to page 4

http://www.pin.ed.gov/


Finding Other Loans

www.annualcreditreport.com

Refer to page 4

To access, provide:

- Name

- Address

- Date of Birth

- Social Security #


Refer to page 11

Interest Rates


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: www.dictionary.com

Refer to page 9


Subsidized vs. UnsubsidizedRefer to page 9

Subsidized Stafford

Perkins*

Primary Care Loans

LDS Loans*

Instiututional Loans (some)

Consolidations Loans (underlyng subsidized loans)

Unsubsidized Stafford

Direct PLUS

Private Loans

Institutional Loans (some)

Consolidation Loans (underlying unsubsidized loans)

Subsidized Unsubsidized

*subsidy and deferment rights lost during consolidation


Capitalization

Addition of unpaid interest to the principal

Principal + Interest =Larger

Principal

$160,000$182,670

$22,670

Refer to page 11

Debt Management Tip

Pay the interest on unsubsidized loans PRIOR to

capitalization


If dropping below half-time or withdrawing:

Contact the Financial Aid Office immediately

Exit Counseling is required

Payments are required or grace periods begin

For questions contact your Financial Aid Office

NOTICE: Repayment BeginsRefer to page 8


Direct PLUS loans

Enters repayment upon full disbursement

In-school deferment will post-pone payments

Interest begins accruing upon disbursement

Interest accrues continuously

Maximum interest rate is 7.9%

NOTICE: Repayment BeginsRefer to page 22


The Timeline


Grace Periods

Grace

A period when payments are not required :

Occurs automatically

Subsidized loans are interest free during grace

Unsubsidized loans continue to accrue interest

Availability and duration is based on loan type

Refer to page 19


Grace PeriodsRefer to page 19


Options During Residency

During residency, there are two choices:

Postpone Payments

Make Payments

DefermentForbearance

Select a Repayment Plan


Deferment

A period when payments are not required

Must apply and qualify

Interest does not accrue on subsidized loans

Unsubsidized loans continue to accrue interest

NOTE: For more details on deferment or to request a deferment, contact your servicer

Options During ResidencyRefer to page 21


Options During ResidencyRefer to page 22

Forbearance

A period when payments are not required

Must request from the servicer

Interest accrues on sub and unsub loans

Many types (administrative, discretionary, mandatory)

NOTE: For more details on forbearance or to request a forbearance, contact your servicer


Options During Residency

Determines the payment

amount &

interest cost

Refer to page 24

$2,100/mo

$1,300/mo

$1,000/mo

$ 610/mo

$ 390/mo


Estimated Monthly Payment Amounts

Repayment PlansRefer to page 27


Strategic Borrowing


Alternatives to DebtRefer to page 13

ScholarshipsSupport

Forgiveness/

Repayment

Options

• Ou

tside

• Service b

ased

• Institu

tion

al

• www.aamc.org/stloan

III II

i

• Financial Aid O

ffice

• Family


Borrow WiselyRefer to page 14


Borrow Wisely

Private Monthly Payment

Total Interest

Total Cost

10 Years $722 $46,640 $86,640

PLUS Monthly Payment

Total Interest

Total Cost

10 Years $565 $27,800 $67,800

Stafford Monthly Payment

Total Interest

Total Cost

10 Years $527 $23,240 $63,240

Based on borrowing $40,000 (unsubsidized) with interest capitalizing after 4 years of medical school;based on interest rates of 6.8% (Stafford), 7.9% (Grad Plus), 12% (Private).

Refer to page 15


How Will You Borrow?

Do NOT borrow just because you are eligible

Borrow what you need, not what you want

Decline loans that exceed your need

Accepting loans may affect eligibility for other aid

Avoid forfeiting low rate loans for higher rate debt

Refer to page 15

Financial Aid Fact

If a shortfall occurs, previously declined monies

may be obtained – see financial aid for assistance


CHALLENGE

Borrowing $5,000 less each year will REDUCE:

Monthly Payment By: $400 (+)

The Total Loan Cost By: $39,000 (+)

Repayment Term By: 2 (+) years

Borrow Wisely

Note: Assumes amount borrowed in Stafford Loans with 6.8% interest with forbearance during a 3-year residency

Source: AAMC FIRST Analysis

TIP: Have a budget and borrow less

Refer to page 17





A Spending Plan in 1-2-3

1) Put it in writing

2) Review periodically to identify leaks

3) Make necessary adjustments

“Live like a student while you are a student…”

Refer to page 33



www.aamc.org/FIRST

Refer to page 36


The Basics of BudgetingRefer to page 33

Your Total Income

Your Total Expenses

Your Discretionary Income


Spending Wants: Leaks

Small amounts add up over time

It may not look like much in the short term

$5 gourmet coffee

X 25 weekdays/mo

$125 per month





$125 in coffee per mo.

X 10 months

$1250 per year





Total Cost

of Starbucks:

$5,000

But it adds up over time


Spending Alternatives

Pay attention to the small stuff…

Commit to review your budget regularly

$8 coffee beans

X 1 bag per month

$8 per month

Refer to page 34





$8 per month

X 42 weeks a year

$336 per year

Refer to page 34





Total Cost

of coffee beans:

$1,344

Refer to page 34





Savings

$3,656

Refer to page 34

Are Credit Cards Bad?


The Minimum Payment Trap

Source: BankRate.com

Refer to page 35

$5,000 Balance with an 18% Interest Rate (Making minimum monthly payments)


The Minimum Payment Trap

$5,000 Balance with an 18% Interest Rate (Making minimum monthly payments)

Source: BankRate.com

Refer to page 35

22.75 years to repay in full

$6,923 in total interest costs alone

What could possibly be worth paying more than twice its original value?


Credit: Understand & Protect


35%

30%

15%

10%10%

Payment history

Utilization rate (amount owed)

Length ofcredit history

New credit

Type of credit used

A FICO Score is Based On…Refer to page 30


How to Improve Your Score

During medical school, be sure to:

Refer to page 29

Pay bills on time

Pay down debt on lines of credit

Apply for credit sparingly


Refer to page 31

Check your Credit Report

www.annualcreditreport.com


Your loan servicers’ and their websites

Your medical school financial aid office

Support Along the Way

FACEBOOK: FIRST for Medical Education

www.aamc.org/FIRST

www.ombudsman.ed.gov

Refer to page 7

Careers in Medicine ®

Medloans ® Organizer and Calculator

Questions?

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Money Management for Medical Students Entrance Interview Ellen McGuire Director of Financial Aid...

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