Managing Your Finances as a Nursing Student Today

Transcription

1 Managing Your Finances as a Nursing Student Today Presentation to Emory Student Nursing Association 12/6/2007 Todd Balsley Graduate Leverage Harvard Business School 05

2 Changes Student Debt Levels Average Student Debt - Undergraduate Average Debt level* $22k $27k $29k $8k Source: The National Center for Education Statistics and growth assumptions

3 Regulatory Changes That was then... Stafford loans changed from variable to a fixed rate of 6.8% Borrower benefits were the key to getting a lower rate In-school consolidation no longer allowed and consolidation decision more complex This is now... Student loan scandals exposed by NY AG investigation Congress passed regulations to cut lender subsidies Value of borrower benefits for students significantly diminished Subsidized Stafford Loan rates will be reduced for Undergrads Focus must be be on on proven debt management strategies

4 On the Brightside % of Nursing positions in the U.S are not filled* Expected to triple by 2020 due to the retirement of 80 million baby boomers* Nursing wages increased 1.34% from * Source: * * The The United States is is Facing a Critical Nursing Shortage

5 Debt Management Strategies In-School Period Graduation Repayment Period FAFSA Budgeting Supplemental Loan Selection: PLUS vs. Private Loans Credit Score Understanding Regulatory Updates Personalized Analysis: Consolidation Decision Repayment Relief Personalized Analysis: Private Loan Consolidation Structure Repayment Plan Comprehensive Debt Management Focus must be be on on proven debt management strategies

6 In-School Period Graduation Repayment Period Financing Your Degree

7 Cost of Budgetary Decisions Careful management now can lower burden in future Example, weekly allowance for discretionary items (Coffee, dining-out, truly discretionary items) Student A Student B Per week allowance $ $ Per month $ $ Total 4 Years of College $ 19, $ 3, Student A spends approximately $15,000 more than B $15,000 more in in debt = $30,000 in in total payments with interest

8 Options For Financing Your Degree PLUS/Private Personal Funds (i.e. Credit Cards) High Cost To Borrower Federal Student Loan Characteristics: All federal loans now fixed rates L Rates are superior to private market O A Do not require credit checks N S Stafford Max amount is $10,500* (UG) and $20,500 (Grad) per year FNLP & Perkins Loans are need-based (5.0%) But what if I need more? *Depends on year and status as a dependent **For Undergrad rate will reduce to 3.4% over next 4 years (phased) Unsubsidized Stafford 6.8% Subsidized Stafford 6.8%** Perkins & FNLP 5.0% Grants/Scholarships Low Cost To Borrower

9 Private vs. PLUS Loans Private Loans Rate Type: Variable Current Best Rate*: 6.5% Rate decreases in low rate environment: Yes FICO may affect rate: Yes Grad / Parent Plus Loans Rate Type: Fixed Current Rate: 8.5% Rate decreases in low rate environment: No FICO may affect rate: No (Must be a credit worthy borrower) Interest Rate Changes and Credit Score Drive Decision *Current best rate as of 11/1/07 Borrower maintains a top credit score.

10 PLUS Loans vs. Private Loans -- Historical 15% Average Average * * Borrower Borrower Rate Rate Borrow PLUS 10% PLUS PLUS Rate Rate 5% Borrow Private Prime Prime Rate Rate 0% *Assumes average of prime + 1% * Based on historical data from the federal reserve PLUS PLUS vs. vs. Private Decision Depends on on Interest Rate Rate Changes

11 PLUS Loans vs. Private Loans -- Today Borrower A: FICO: 660 Rate: Prime + 1.5% Private Rate PLUS Rate Interest Rate 10% 8.5% X Credit Credit Curve Curve (best (best rates) rates) X Borrower B: FICO: 750 Rate: Prime - 1% *Current Prime Rate is 7.5% as of 11/1/ Credit Score Obtaining the the Best Best Possible Rate Rate Requires a Personal Assessment

12 Aggressive Marketing Beware of promotions and commercials (often on MTV/VH1) that offer large amounts of private funding for college students High Origination Fees Excessive Interest Rates Up to $40,000 Defer Payments Only takes 15 minutes Receive Your Check in 1 Week

13 In-School Period Graduation Repayment Period Improving Credit Scores and Effectively Managing Credit Card Debt

14 Credit Score Determinants Standardized credit scores provide lenders of all types with valuable criteria used to determine how appropriate you are for a certain loan. Credit Inquiries (10%): Checks on a borrowers credit Other (7%): Payment History (35%): Late Payments Credit History and Credit Mix (15%): Length of credit and types of credit Amount Owed (33%): Ratio of debt to total credit

15 Improving Your Credit Score Create stable monthly payment history: Consistently make all payments on time Increase total available credit: Keep debt utilization under 50% of total credit availability Pay down balances on loans and/or credit Clear up any bad debt or misinformation: Review credit history and report any inconsistencies Keep hard inquiries at minimum: If you need credit, apply to only a few lenders No more than 6 inquires in 6 months Diversify credit mix: Utilize multiple forms of credit

16 Credit Cards Are there balance transfer fees? How long will the low rate last? How do I keep the low rate? What's the interest rate for new purchases?

17 In-School Period Graduation Repayment Period Consolidation Decision

18 Federal Consolidation? Should I consolidate after graduation? Lock in rate New Stafford Loans are already fixed. Lower Monthly Payments Extended Payment Plans (25 yrs) available if you have over $30,000 in total debt. Administrative Simplicity If you have multiple lenders this could still be valuable but no monetary savings. Superior Benefits Depends on the benefits of your underlying loans vs. new Consolidation loan. Must evaluate economics of programs to ensure best outcome. Consolidation No No Longer a No-brainer

19 Private Loan Consolidation Private Loan Consolidation Rationale: Students may have significant private loan balances Lack of government standardization makes lender selection critical Some Borrowers have been able to achieve: Lower Payments by: - Lengthening term of debt - Reducing loan rate Lower Rates because: - Private loans were not taken out at most competitive rate - Student s credit score has increased (almost always occurs) - Overall lending market has become more competitive Some borrowers have opportunity to to lower payment and rate

20 In-School Period Graduation Repayment Period Repayment Relief

21 Benefits of Current Nursing Market for Students Nursing Student Assistance Program (National): Offered to Nursing Students once you have graduated The Nursing Education Loan Repayment Program (NELRP) offers substantial assistance to repay educational loans in exchange for service in areas experiencing a shortage of nurses NELRP repays 60% of the qualifying loan balance in exchange for 2 years of service; 3 rd year may qualify for additional 25% of the qualifying loan balance. Must qualify and penalties may be assessed if the service agreement is not satisfied. Visit Georgia Service Loans - Cancelable Loans (State specific) Georgia Residents pursuing nursing degree may be eligible to cancel all or part of loans by working in approved locations Utilize Government Entitlement Programs

22 Subsidy Optimization There are Multiple Other Options for Payment Relief: Postpone Payments: Economic Hardship Deferment (EHD) Qualification criteria set to change* Forbearance - No subsidy savings; All interest will Accrue Significantly Reduced Payments Income Based Repayment Plan (IBR) - New program Effective 7/1/2009 Deferment and IBR can provide savings : Forbearance Economic Hardship Deferment Income Based Repayment Payment Status: No Payment No Payment Partial Average Annual Savings: None ~ $800* ~ $400* Qualification Benefit: Lender s Discretion Binary Range Limit: Full residency 3 years 3 years (for subsidy) *Clarification pending from Dept of Education; Savings vary based on debt level

23 In-School Period Graduation Repayment Period Utilizing a Targeted Repayment Plan

24 Targeted Repayment Structuring Average 2008 graduate has 5 different rates within portfolio Consol 4.75% Var Stafford 6.54% Fixed Stafford 6.8% Grad PLUS 8.5% Private Loan 9.75% R a t e Loan Type

25 Targeted Repayment Structuring Interest accrues on loans in non-payment status; savings is achieved by prepaying loans Standard Repayment Plan Targeted Repayment Plan Consolidation 4.75% Non-payment 4.75% L o a n s Variable Stafford Loan 6.54% Fixed Stafford Loan 6.8% Grad PLUS 8.5% Non-payment Non-payment Non-pay 8.5% 6.8% 6.54% Private Loan % 9.25% Repayment Period 8 yrs 10 yrs 1 yrs 3 yrs 5 yrs 7 yrs 10 yrs 8.6% 7.5% 8.6% 7.5% 6.4% 5.7% Effective Rate (APR) = 8.4%.85%.85% difference 4.8% Effective Rate (APR) = 7.55%

26 Review of Debt Management Strategies In-School Period Graduation Repayment Period FAFSA Budgeting Lender Selection Supplemental Loan Selection: PLUS vs. Private Loans Credit Score Understanding Regulatory Updates Personalized Analysis: Consolidation Decision Optimize Government Subsidies Personalized Analysis: Private Loan Consolidation Targeted Repayment Comprehensive Debt Management

27 Thank You Todd Balsley (339) If you have any questions or would like a personalized debt assessment, please feel free to call or visit our website. (888) *GL is not a certified financial planner or advisor. This information is provided for educational purposes only.