DEBT MANAGEMENT. Steven Swan, CPA Manager, HinrichsZenk + Pesavento LLC

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1 DEBT MANAGEMENT Steven Swan, CPA Manager, HinrichsZenk + Pesavento LLC

2 Our Three Focus Points 1) Budget: A budget will help you stick to your debt repayment schedules; Live by the Rule 2) Debt Repayment Options 3) Retirement vs Debt Repayment

3 PERSONAL BUDGET FIXED Housing Mortgage Payment or Rent Utilities Housing Maintenance Property Insurance R/E Taxes or Condo Assessmts Per Month Annual Food & Household Groceries Household Supplies DISCRETIONARY Entertainment & Recreation Vacation & Travel Meals Out & Other Entertm't Clubs & Other Recreation Charitable Contributions PESAVENTO & PESAVENTO LTD CPAs

4 Considerations for Student Loans: Know what you owe: List each financial institution the interest rate is it fixed or variable the total amount of the debt the terms to repay Compare current total monthly payments and the amount of interest you ll pay versus the monthly payment and total interest if you consolidate your loans. A good website: In negotiating a possible loan consolidation, try to keep the monthly payments to be no more than 15% of your monthly gross income

5 Student Loan Rates Current Interest Rates (subject to adjustments) Stafford (graduate) fixed 5.84% Direct (unsubsidized) fixed 5.84% Direct PLUS fixed 6.84% Private Loans wide range of variable and fixed

6 Considerations for Student Loans: Negotiate for no prepayment penalties When personal cash flow allows (and retirement is fully funded), double up on the payments during the year. This could save hundreds to thousands of dollars of interest. Don t wait to the end of the grace period to consider consolidation.interest rates are low now so start the process when you start repayment. Ask for rate reductions if you pay a certain number of payments (say 36) on-time and more rate reduction if you use auto-debit or ask for any potential cash rebates for timely payments Careful to consider lost benefits, especially of potential loan-forgiveness program

7 STUDENT DEBT & SAVING FOR RETIREMENT

8 Assumptions: $300,000 total student loan 7% apr financing 10 year term LATE STARTER monthly payment = $3, RETIREMENT RETURN RETIREMENT no pre-payment penalty FUNDS ON FUNDS BEGINNING ANNUAL INVESTMENT ENDING Interest Payment Balance YEAR BALANCE CONTRIB.@ 7% BALANCE 300,000 Year 1 18,524 41, , Year 2 18,650 41, , Year 3 17,000 41, , Year 4 15,215 41, , Year 5 13,320 41, , Year 6 11,275 41, , Year 7 9,085 41, , Year 8 6,740 41,556 77, Year 9 4,228 41,556 40, Year 10 1,523 41, ,500 2,905 44, ,405 41,500 6,013 91, ,918 41,500 9, , ,757 43,000 13, , ,760 43,000 16, , ,683 43,000 21, , ,801 44,500 25, , ,012 44,500 30, , ,138 44,500 35, , ,523 44,500 41, , ,535 45,500 47, , ,637 45,500 54, , ,257 45,500 61, , ,850 45,500 68,555 1,047, ,047,905 46,000 76,573 1,170, ,170,478 46,000 85,153 1,301, ,301,631 46,000 94,334 1,441, ,441,965 46, ,158 1,592, ,592,123 47, ,739 1,753, ,753,862 47, ,060 1,926, ,926,922 47, ,175 2,112, ,112,097 49, ,277 2,312, ,312,374 49, ,296 2,526, ,526,670 49, ,297 2,755, ,755,967 50, ,418 3,002,385 1,135,500 1,866,885 3,002,385 YOUR out of pocket

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10 Options for Managing Student Loans *Standard Repayment (usually 10 year term) *Income Based Repayment *Loan Forgiveness (w/ 10 years of service) *Refinancing

11 Income Based Repayment (IBR) Payment calculated based on income and family size Payment capped on % (10 or 15) of borrower s discretionary income Length of loan is limited to years Any remaining end of payment period is forgiven

12 IBR Continued *only available for federal student loans *discretionary income uses income tax return to calculate (it s your AGI 150% of the poverty line)

13 Student Loan Interest Deduction *What is it? up to $2,500 above the line deduction on personal tax return (as reported on 1098-E) *Who can use it? single or married filing jointly *Limits On it? income limits: single (>$65k phase out; >$80k total phase-out) MFJ (>$130k phase out; >160k total phase-out) cannot be claimed as dependent on another s return

14 Student Loan Refinancing Benefits of Refinancing Student Loans SAVINGS Variable rates and fixed rates start lower than traditional loans; some require AutoPay CONVENIENT Consolidate all loans both federal and private into one loan with one bill. NO FEES. Many offer no origination fees or pre-payment penalties. UNEMPLOYMENT PROTECTION If you lose your job, some lenders will pause your loan payments and help you find a new job.

15 Student Loan Refinancing Options * 5, 10, 15 and 20 year terms possible * Many have no origination fees or pre-payment penalties * Many have Fixed and Variable options However, typically lose IBR protection forever once refinance begins

16 When It Makes Sense To Refinance Your Student Loans Some federal loans offer certain benefits and protections that do not transfer to private lenders. Examples include - Public Service Loan Forgiveness Program (PSLFP) Teacher Loan Forgiveness Program Income-Based Repayment (IBR) Unemployment protection adjusted monthly payments and/or forbearance for a specific period of time during times of hardship For more information on student loan repayment options for federal loans visit

17 HELPFUL RESOURCES Your dental school financial aid office Budgt App