BORROWING STRATEGIES. Make Smart Decisions When Borrowing Money for Law School. August 17, Vanderbilt Law School

Transcription

1 BORROWING STRATEGIES Make Smart Decisions When Borrowing Money for Law School August 17, 2015 Jeffrey Hanson Education Services Vanderbilt Law School

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

4 Federal student loans are unique q Payments can be based on your income Payments can be less than 10% of your gross income q q 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.

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

6 Why borrow the minimum? 6 because when you borrow loans you are spending your FUTURE INCOME!

7 7 Make the most of your investment! q Study hard q Plan your budget/spending wisely q Borrow the minimum amount you need to achieve your educational/professional goals If you do, this educational mortgage should not prevent you from: q Pursuing your desired career q Achieving your personal and financial goals

8 8 Be Strategic! Plan your borrowing wisely; don t leave it to chance!

9 9 How did you decide how much to borrow? Did you?: q Borrow amount indicated on your Financial Aid Award notice? q Borrow maximum amount possible? q Estimate your budget and borrow only what you needed? q Borrow less than you think you need in hopes of living more cheaply?

10 How much could you owe? A Law School Example 10 Vanderbilt Law School Class of 2015 Average student loan borrowing Direct Unsubsidized Student Loan (DUSL) = $61,500 Direct Grad PLUS Loan (PLUS) = $52,947 Estimated capitalized interest at repayment Direct Unsubsidized Student Loan (DUSL) = $8,100 Direct Grad PLUS Loan (PLUS) = $8,200 $114,447 $16,300 Estimated total debt at repayment $130,747 Interest Rates: DUSL PLUS % 7.90% % 6.41% % 7.21%

11 11 Borrowing the Minimum

12 To borrow the minimum 12 q BYOB q SOS q Consider opportunity costs q Manage your finances wisely q Manage your loans responsibly

13 13 BYOB Build Your Own Budget

14 What is your budget? 14 Is it: q Cost of Attendance (COA)? q Your resources vs. your expenses? q A spending plan?

15 Cost of Attendance (COA) Student Expense Budget 15 q q q q 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

16 Building Your Own Budget 16 Expense (9 months) Cost of Attendance Tuition $50,900 $ Books and supplies $1,842 $ Housing (rent, mortgage) $10,254 $ Utilities (electricity, phone, etc.) ($1,139/month) $ Food (groceries, eating out, etc.) Transportation $4,122 ($458/month) $1,994 ($221/month) Your Expenses $ $ Miscellaneous personal [includes health insurance, activity fee, clothing, entertainment, personal care (haircuts, cosmetics, etc.) and other miscellaneous personal expenses] $5,642 $ TOTAL (includes $1,112 in loan fees) $75,866 $ 16

17 The 39-month Budget Other costs to consider q Bar results typically are known about 39 months after you begin law school q Financial aid is only available for 27 of those 39 months (9 months of each academic year) q 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. 17

18 Prestige as a student 18 Comes from academic success! NOT from: q What you wear q Where you live q What you drive q Where you eat q Etc.

19 Saving on Spending means making good choices! 19 Think about your spending, are you: q q q Sharing the cost of housing with one or more roommates OR living alone? Bringing food/beverages from home OR buying them at school? Shopping for new clothes, eating out in restaurants, taking vacations or making weekend trips to get away, going to sporting events, etc.? YES! 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.

20 Consider Opportunity Cost 20 q It s about trade-offs q You have scarce resources q Time q Money q Ask yourself: q 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? q Make sure you are using your scarce resources to their highest and best use

21 Reducing Your Borrowing 21 q Reduce your spending q Apply for private grants/ scholarships q Use cash, not credit or debit cards q Other ideas?

22 Do the little things count? 22 Can you spend $5 less per day?

23 Think FREE 23 q Ask for monetary gifts from family q Apply for private scholarships q Have free fun

24 24 Managing Your Finances Get your financial ducks in a row!

25 25 Managing Your Finances in Law School q Follow your budget plan q Manage your loans responsibly q Keep accurate financial records q Develop and maintain good credit

26 Don t run out of funds! 26 q Financial aid funds are disbursed once each term budget accordingly q Consider opening a savings account to hold them until needed each month q Contact the financial aid staff immediately if you are having financial challenges

27 Did you know? You can return unused loan funds! 27 If you return loan funds within 120 days of disbursement: q Total amount owed is reduced q Interest and fees charged on loan amount returned are reversed Contact the financial aid staff for more information

28 28 Managing Your Loans Start now! Be strategic! Plan ahead!

29 Managing Your Loans 29 q q q q q q q 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

30 What do you need to know? 30 For each loan in your portfolio: q Type of loan q Interest rate (and when accrued interest capitalizes) q Amount owed q Who to repay (and how to contact them) q When repayment begins/resumes q Current status of each loan q Repayment options

31 NSLDS.ed.gov Financial Aid Review A Useful Resource 31 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.

32 Who is your loan servicer? 32 q 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) q ED may transfer your Direct Loans to another servicer in the future you will be notified! q Check loan detail screen on NSLDS.ed.gov to verify contact information for your loan servicer(s)

33 Loan Repayment Plans Payments Based on DEBT 33 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

34 Loan Repayment Plans Payment Based on INCOME 34 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

35 Estimate Your Monthly Payment Repayment Estimator at: StudentLoans.gov 35 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

36 36 Sample Monthly Payments Assumed Amount Owed = $130,000 Assumed Interest Rate = 6.6% Plans AGI $50,000 AGI $120,000 AGI $160,000 Standard (10 yrs) ALL = $1,485 Graduated (10 yrs) 1 st = $ th = $2,565 Extended Fixed (25 yrs) ALL = $889 Extended Graduated (25 yrs) 1 st = $719 (interest only) 300 th = $1,283 PAYE (10%)/ IBR for NEW Borrowers (10%) 1 st = $ th = $824 1 st = $ th = $1,485 1 st = $1, nd = $1,485 IBR (15%) 1 st = $ th = $1,485 1 st = $1, th = $1,485 Not eligible (no PFH) ICR (20%) 1 st = $ th = $1,514 1 st = $1, rd = $1,875 1 st = $1, th = $2,108

37 37 Final Comments

38 A SMART Strategy 38 Keys to Success q Study hard q Borrow the minimum q Manage your finances carefully

39 For more information 39 q Contact the financial aid office q Contact your loan servicer(s) q Online resources: Federal student loans: StudentAid.gov Federal student loan repayment: StudentLoans.gov Repayment Estimator : StudentLoans.gov Federal Direct Consolidation Loans: StudentLoans.gov National Student Loan Data System: NSLDS.ed.gov Public Service Loan Forgiveness Program (PSLF): n Online at: StudentAid.ed.gov/PublicService n Call Fedloan Servicing at:

40 YOU CAN BE SMART! Being smart about your borrowing will bring you greater success! Jeffrey Hanson Education Services Vanderbilt Law School