BORROWING STRATEGIES. Make Smart Decisions When Borrowing Money for Law School. September Boston University School of Law

Transcription

1 BORROWING STRATEGIES Make Smart Decisions When Borrowing Money for Law School September 2015 Jeffrey Hanson Education Services Boston University School of Law

2 Majority of law students 2 now graduate with an EDUCATIONAL MORTGAGE Copyright 2013 by Law School Admission Council, Inc.

3 What do you think? 3 Should you borrow private student loans rather than federal student loans if you could get a lower interest rate? Should you pay the interest on your loans as it accrues while in school? Should you borrow minimum amount you need to achieve your goals?

4 Federal Student Loans 3 Important Features 4 Choice Flexibility Safety Copyright 2013 by Law School Admission Council, Inc.

5 Federal student loans are unique Payments can be based on your income Payments can be less than 10% of your gross income Payment relief options are available Forgiveness may be available on a portion of your debt if not fully repaid within years or if doing qualifying public service for 10 years You would lose these unique features if you borrow private student loans federal student loans offer FLEXIBILITY and CHOICE in ways that no other form of credit is allowed under current credit laws.

6 Interest on federal loans is SIMPLE interest! Interest accrues on unsubsidized student loans as soon as funds are disbursed, but it is NOT compounding! Accrued interest capitalizes when loans enter/re-enter repayment Better to reduce amount you are borrowing if you have funds to pay the accruing interest while in school

7 Did you know? You can return unused loan funds! 7 If you return loan funds within 120 days of disbursement: Principal loan balance is reduced Interest and fees charged on loan amount returned are reversed Contact the financial aid staff for more information

8 Why borrow the minimum? 8 because when you borrow loans you are spending your FUTURE INCOME!

9 9 Be Strategic! Plan your borrowing wisely; don t leave it to chance!

10 10 How did you decide how much to borrow? Did you?: Borrow amount indicated on your Financial Aid Award notice? Borrow maximum amount possible? Estimate your budget and borrow only what you needed?

11 11 BYOB Build Your Own Budget

12 What is your budget? 12 Is it: q Cost of Attendance (COA)? q Your resources vs. your expenses? q A spending plan?

13 Cost of Attendance (COA) Student Expense Budget 13 Calculated by Financial Aid Staff Includes both fixed educational costs and living expenses for academic year Total financial aid cannot exceed COA Not prescriptive and NOT your budget COA Elements Tuition Fees Books and Supplies Housing Food Transportation Clothing Misc. Personal Expenses

14 Building Your Own Budget Expenses (9 months) COA Your Expenses Tuition $48,170 $ Fees $1,160 $ Books and supplies $1,462 $ Housing (rent, mortgage) $ Utilities (electricity, phone, etc.) $12,620 $ ($1,402/month) Food (groceries, eating out, etc.) $ Transportation Miscellaneous personal [clothing, entertainment, personal care (haircuts, cosmetics, etc.) and other miscellaneous personal expenses] $1,120 ($124/month) $3,050 ($339/month) $ $ TOTAL (includes $220 in loan fees) $67,802 (L/E= $1,865/month) $ 14

15 The 39-month Budget Other costs to consider 15 Bar results typically are known about 39 months after you begin law school Financial aid is only available for 27 of those 39 months (9 months of each academic year) How will you pay for the other 12 months of expenses (living expenses, bar prep costs, relocation, etc.)? Try not to use credit cards or private bar study loans Plan your 39-month budget strategically Copyright 2014 by Law School Admission Council, Inc. 15

16 Reducing Your Borrowing 16 Reduce your spending Apply for private scholarships Ask for monetary gifts from family Avoid credit card debt Have free fun

17 Reducing your spending requires smart choices! 17 Think about your spending, are you: q Sharing the cost of housing with one or more roommates OR living alone? q Making your own food and bringing food/ beverages from home OR buying them at school? q Shopping for new clothes, eating out, taking weekend trips to get away, going to sporting events, etc.? -- YES! q BUT, be mindful how much you spend on these things that money could be saved for future uses such as bar exam costs consider the opportunity costs. Taking advantage of student discounts!

18 Consider Opportunity Cost 18 It s about trade-offs You have scarce resources Time Money Ask yourself: If I did not spend my time/money on this now, what else could I use it for and would that be a better use? Make sure you are using your scarce resources to their highest and best use

19 Do the little things count? 19 Can you spend $5 less per day?

20 How much will you save? 20 A. $33 B. $51 C. $71

21 What is $300/month worth? Opportunity cost of living alone 21 Monthly savings in your share of housing costs 2-Yrs 3-Yrs 4-Yrs $300 $300 $300 Number of months per year Total yearly savings $3,600 $3,600 $3,600 Number of years in school Total cost while in school $7,200 $10,800 $14,400 Annual interest rate 6.8% 6.8% 6.8% Repayment period (months) Possible savings in monthly loan payment (10 yrs) $92 $142 $195 TOTAL PAID $11,042 $17,070 $23,435 TOTAL INTEREST PAID $3,842 $6,270 $9,035

22 22 Managing Your Finances Get your financial ducks in a row!

23 Managing Your Finances 23 Follow your budget plan Manage your loans responsibly Keep accurate financial records Develop and maintain good credit

24 Sticking with your budget 24 Track your spending Buy with cash Pay yourself monthly Test yourself; try the Big Chill Use online tools, e.g., mint.com

25 Don t run out of funds! 25 Financial aid funds are disbursed once each term budget accordingly Consider opening a savings account to hold them until needed each month Contact the financial aid staff immediately if you are having financial challenges

26 26 Managing Your Loans Start now! Be strategic! Plan ahead!

27 Managing Your Loans 27 Understand loan terms Don t ignore mail from loan servicer(s) Promptly report changes in address, etc., to loan servicer(s) Establish online access to your account with your loan servicer(s) Meet all other borrower responsibilities Request deferments/forbearance if needed to postpone repayment Repay all you borrow

28 What do you need to know? 28 For each loan in your portfolio: Type of loan Interest rate (and when accrued interest capitalizes) Amount owed Who to repay (and how to contact them) When repayment begins/resumes Current status of each loan Repayment options

29 NSLDS.ed.gov Financial Aid Review A Useful Resource 29 To access, enter: FSA ID* Password *ED has switched from using a PIN to the FSA ID and password you can create your new FSA ID and password when you log-in to NSLDS.

30 Who is your loan servicer? 30 Direct Loans typically are first assigned to one of the following four ED servicers when first originated: Servicer Website Phone Number FedLoan Servicing myfedloan.org (800) Great Lakes mygreatlakes.org (800) Navient (Sallie Mae) navient.com (800) Nelnet nelnet.com (888) ED may transfer your Direct Loans to another servicer in the future you will be notified! Check loan detail screen on NSLDS.ed.gov to verify contact information for your loan servicer(s)

31 Loan Repayment Plans Payments Based on DEBT 31 Plans Payment Structure Maximum Payment Period Standard (default plan) Fixed payments (do not change) 10 years Graduated Payments increase in graduated steps every 2 years 10 years Extended (fixed) Fixed payments (do not change) 25 years Extended (graduated) Payments increase in graduated steps every 2 years 25 years Monthly payment must at least equal the accrued interest each month Must have more than $30,000 in Direct Loans to use EXTENDED repayment options

32 Loan Repayment Plans Payments Based on INCOME 32 Plans Income Based Repayment (IBR) for NEW Borrowers Pay As You Earn (PAYE) Income Based Repayment (IBR) Income Contingent Repayment (ICR) Payment based on: Balance forgiven after: 10% of Discretionary Income 20 years 10% of Discretionary Income 20 years 15% of Discretionary Income 25 years 20% of Discretionary Income 25 years Monthly payments can be less than accrued interest each month Payments can be adjusted up or down based on how your income increases or decreases

33 Estimate Your Monthly Payment Repayment Estimator at: StudentLoans.gov 33 To log in, enter: FSA ID* Password *ED has switched from using a PIN to the new FSA ID and password you can create your FSA ID and password when you sign in to StudentLoans.gov

34 34 Final Comments

35 Getting on Target Financially Keys to Success Develop a manageable budget plan 2. Spend/borrow wisely in school 3. Build a strong credit history 4. Repay your student loans strategically 5. Plan for the future financially

36 For more information 36 Personal finance: Bankrate.com Kiplinger.com Money.cnn.com Budgeting: Mint.com Federal student loan repayment: StudentAid.gov StudentLoans.gov Credit Reports/Scores Consumer.ftc.gov CreditKarma.com

37 GET ON TARGET! Take charge of your finances and your borrowing! Jeffrey Hanson Education Services Boston University School of Law