A Strategic Approach to Managing Your Medical School Debt. November 17 th, 2014 Presented by Jason DiLorenzo, Director of Education

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1 A Strategic Approach to Managing Your Medical School Debt November 17 th, 2014 Presented by Jason DiLorenzo, Director of Education

2 Agenda Changes in student debt levels Recent legislation and its impact on physicians How to utilize programs to maximize benefits Case studies and savings scenarios Other considerations (consolidation, taxes, etc) Action plan and Q&A Free Assessments and Consultations at

3 Changes in Student Debt Levels ~$220k ~$300k+ ~$50k ~$89k Debt levels have quadrupled in the last 20 years * Based on data collected by AAMC, AMA and GL internal student database

4 Regulatory Changes 2007: Public Service Loan Forgiveness enacted 2009: (July 1st): Income-Based Repayment (IBR) effective 2012: Pay As You Earn (PAYE) Available to new borrowers on or after Oct. 1, : New Direct Consolidation Process Choose your own servicer and apply for IBR/PAYE with new application 2015: Obama Executive Order PAYE available to all borrowers by July 2015 Public Service Loan Forgiveness and IBR/PAYE provide greatest savings opportunity to medical graduates

5 Repayment Options Postpone Payments: In-School Deferment: FULL SUBSIDY Economic Hardship Deferment (EHD): FULL SUBSIDY Forbearance: NO SUBSIDY Significantly Reduce Payments: Extended Repayment Plans: NO SUBSIDY Consolidation 30 year Term Extended 25 year Term Income-Based Repayment: PARTIAL SUBSIDY Pay As You Earn: PARTIAL SUBSIDY - Confidential Document, Property of Graduate Leverage, LLC -

6 Forbearance: No Payment, No Problem? Salary: 10-Year Standard Payment: Extended Term Payment: $ 48,000 $48,410 $49,862 $51,358 $2,525 $2,662 $2,808 $2,965 $1,519 $1,603 $1,693 $1,789 Payment unmanageable during residency Deferment regulation changes necessitate forbearance Cost of Forbearance $14,819 $15,652 $16,545 $17,502 Total Forbearance Cost = $64,518 Year 1 Year 2 Year 3 Year 4

7 Pay As You Earn 1 st Year 2 nd Year 3 rd Year 4 th Year Salary: 10-Year Standard Payment: Extended Term Payment: PAYE Payment: $ 48,000 $48,410 $49,862 $51,358 $2,525 $2,662 $2,808 $2,965 $1,519 $1,603 $1,693 $1,789 $ 0 $ 57 $256 $259 $14,819 PAYE Subsidy Interest Paid $6,871 $1,156 $1,104 $918 $677 $3,077 $3,118 $3,178 $13,663 $13,038 $10,824 $11,701 Subsidy Earned Interest Paid 1st Year 2nd Year 3rd Year 4th Year Greater Subsidy and Lower Interest Payments

8 Public Service Loan Forgiveness Eligible Loans: Direct Stafford & Grad PLUS (FFEL, Perkins, HPSL and LDS can be consolidated for eligibility) Specific requirements: Borrower must make 120 qualifying payments on a Federal Direct Loan Borrower must work for a public service entity as defined by the program, such as a Federal, State, Local, or non-profit organization Employment Certification Form is available Will trigger transition to FedLoans as servicer Approximately 80% of hospitals are non-profit

9 Considerations for Loan Consolidation Do I need to consolidate? PSLF and PAYE are available for Direct Loans only IBR available for FFEL loans but not PSLF eligible Perkins, HPSL, LDS (some don t appear on NSLDS!) Option to choose servicer FedLoans is PSLF servicer Varying turnaround times for processing applications Varied standards for income verification (best to file tax return) Service considerations Servicer Errors Eligible loans not included in consolidation Wrong repayment plan implemented Incorrect advice regarding consolidation for forbearance, IBR/PAYE/PSLF You have 10 business days to make changes once Loan Summary Sheet is issued

10 Loan Forgiveness True Cost of Debt 4-Year Residency $395,160 Standard $164,590 IBR $109,726 PAYE Residency 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th Standard Repayment IBR Payment PAYE Payment

11 Maximizing Loan Forgiveness 4-Year Residency $175,185 $240,605 IBR Forgiven PAYE Forgiven Salary IBR Outstanding Balance PAYE Outstanding Balance

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14 Pay As You Earn Scenarios Savings: $28,441 (Present Value)

15 Obama 2015 Budget Proposal Repayment Under Obama's Proposal Income Driven Repayment Calculation Loan Forgiveness Limited to 10% of discretionary income Cap on payments removed 10 Years if working in the Public Sector AND loan balance less than $57, years for borrowers with total loan balance less than $57, years for borrowers with total loan balance greater than $57,500 Expansion of PAYE to all federal loan borrowers Helps reduce cost for borrowers, simplify process for servicers Removal of the cap on payments New cap on amount forgiven through PSLF $57,500 limit, based on max borrowing amount for independent undergrads Balances above $57,500 will not be forgiven until 25 years of participation 20 and 25 year forgiveness options to be tax-free

16 Impact and Staying Informed Current Residents and 2014 Graduates Master Promissory Note obligations Detrimental Reliance Stay in contact with your Financial Aid Officers or GME leaders Search for news updates through major networks Engage GL Advisor (Facebook & Twitter)

17 Other Physician Loan Repayment Programs National Health Service Corps (NHSC) Up to $60,000 for full-time service at a designated site for a minimum of 2 years, continued service available for greater repayment Half-time program available State-Based Repayment Programs Often must be employed in Health Professional Shortage Area (HPSA) Free of other contractual service obligations $100k or more available based on commitment PSLF and IBR/PAYE Forgiveness Still Available

18 Other Objectives and Tactics

19 Taxes Taxes in final year and post-graduation: File Tax Return in Final Year! Lifetime Learning Tax Credit OR Tuition and fees tax deduction Married: Filing Jointly OR Filing Separately Identification of other AGI deductions (e.g. moving expenses) Qualified retirement plan contribution considerations Most Students and Residents Do Not Consider Impact to Student Loans

20 Tying the Knot A PGY2 resident with $207k in federal student loan debt on academic career track gets married. How does the loan repayment strategy change if the spouse has no student loan debt and makes $90K salary? $3, $2, Forgiveness Potential $232,039 $2, $1, $1, $ $ Year Forgiveness potential $150,305 Monthly Payment, Filing Separate Monthly Payment, Filing Joint

21 EXIT INTERVIEW 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: $250,000 Debt after training: $308,000 Non-profit salary offer: $155,000 For-profit salary offer: $205,000

22 EXIT INTERVIEW 1,000, Costs and Benefits of Career Opportunities 853, , , , , , (200,000.00) PV of Earnings in Years 5-10 (77,175.54) PV Total Spent (400,000.00) (435,303.98) (600,000.00) PSLF For-Profit (Standard 10 Year Payoff Amount)

23 Salary Equivalent Public VS Private $300, $250, Additional from Public Service derived from forgiveness Actual For-Profit Practice Salary $200, $94, $150, $100, $155, $205, $50, $- Actual Public Service Salary Public/Non-Profit Base Salary Added Salary Equivalent for PSLF For-Profit Assumptions: $250k federal debt. PAYE eligible. The taxable equivalent amount assumes a marginal federal tax rate of 20% and a marginal state tax rate of 5%.

24 Refinancing Considerations Refinancing may reduce interest costs for Federal, private or credit card debt Considerations: Loss of subsidy and forgiveness benefits on Fed loans Forbearance and deferment typically not allowed after refinancing, so payments start immediately Origination and other fees may erode savings Fixed vs. variable rate loan types have significant impact on long-term vs. short-term savings GL Advisor Physician Credit Facility Program Be sure any refinancing activities are consistent with your loan repayment strategy

25 Tax Filing: Incorporate impact of taxes on federal loan subsidy programs when filing Consolidation: Evaluate and complete a consolidation with the Direct Loan Program. Income-Based Repayment: Action Plan Apply for and enter IBR or PAYE (during residency). Re-apply annually with income documentation and family-size verification. Public Service Loan Forgiveness: Track eligible payments, maintain documentation, utilize employment certification form if applicable. Manage Liquidity: Ensure you have sufficient cash flow to make all loan payments. Manage Discretionary Income: Determine how to allocate extra cash to achieve highest returns.

26 Your Process Fill out Card Review Personalized Assessment Execute Debt Management Objectives Personal Info Card Complete Process Yourself Retain GL Advisor to Carry Out Process

27 GL Advisor Services and Costs GLA Sign-up Fee: $395 covers all residency and fellowship years + 1 year, CMA $50 discount. Will be $495 as of Dec 1 st. Sign-up fee for Spouse: $100 one-time fee Create a Financial Plan Complete loan consolidation if applicable Complete annually-required servicer applications Direct communication with servicers Remedy application and servicer errors Provide updates and support on legislation activity Advisory team support available Monday-Saturday GL Investment Services included during training No renewal fee for medical residents!

28 Jason DiLorenzo Cell: Main: Visit us at or All government sponsored programs are subject to their continued existence, availability and participation requirements. GL Advisor is a division of Graduate Leverage, LLC. GL Advisor currently does not offer all services to residents of North Dakota.

29 Increase Subsidy Apply for IBR or PAYE Minimize Payment Burden Maximize Forgiveness Submit Consolidation Application

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31 How is IBR/PAYE calculated? (AGI 150% Poverty Level) x 15 (or 10)% Salary: $48, months Family Size 150% of Poverty level* Monthly IBR payment Monthly PAYE payment Lower 48 Full salary 6 Months Full salary 6 months 1 $17,505 $393 $87 $262 $58 2 $23,595 $317 $11 $211 $7 3 $29,685 $241 $0 $161 $0 4 $35,775 $165 $0 $110 $0

32 Income-Based Repayment 1 st Year 2 nd Year 3 rd Year 4 th Year Salary: 10-Year Standard Payment: Extended Term Payment: IBR Payment: $ 48,000 $48,410 $49,862 $51,358 $2,525 $2,662 $2,808 $2,965 $1,519 $1,603 $1,693 $1,789 $ 0 $84 $384 $389 $14,819 IBR Subsidy $1,156 $1,075 $782 $10,306 Interest Paid $1,015 $4,615 $4,676 $13,663 $12,729 $9,422 $10,143 $3,013 Subsidy Earned Interest Paid 1st Year 2nd Year 3rd Year 4th Year Greater Subsidy and Lower Interest Payments