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Today…. Student Loans: Avoiding Common Pitfalls How to Think About Retirement Savings During Residency What to Look for in a Financial Advisor

Avoiding Common Pitfalls Student Loans Avoiding Common Pitfalls

What’s Your Goal? Minimize your monthly payment? Pay as little as possible over the life of the loan?

Two Major Types of Loans Privately-Issued Loans Federal Loans

Federal Loans Are Complicated FFEL Perkins Subsidized Stafford Unsubsidized Stafford Grad PLUS Parent PLUS Consolidated

You Need Your Federal Loan Details Text File from https://nslds.ed.gov

Once We Know What Loans You Have, and What Your Goal Is, Consider These Strategies

Federal Loan Benefits: Income-Driven Repayment Primarily for older loans, generally not the best option for almost everyone Income-Contingent Repayment Payments amount: 15% of (joint or separate) discretionary income All Federal Loans qualify (Old) Income-Based Repayment Payment amount: 10% of (joint or separate) discretionary income Older loans don’t qualify, can’t have had a loan balance on 7/1/2014 (New) Income-Based Repayment Can’t have had a loan balance on 10/1/2007, need to have had a loan disbursed on or after 10/1/2011. Some older loans don’t qualify Pay As You Earn (PAYE) Payment amount: 10% of JOINT discretionary income. No hardship requirement Revised Pay as You Earn (REPAYE)

Federal Loan Benefits: Income-Driven Repayment Primarily for older loans, generally not the best option for almost everyone Income-Contingent Repayment Payments amount: 15% of (joint or separate) income All Federal Loans qualify (Old) Income-Based Repayment Payment amount: 10% of (joint or separate) income Older loans don’t qualify, can’t have had a loan balance on 7/1/2014 (New) Income-Based Repayment Can’t have had a loan balance on 10/1/2007, need to have had a loan disbursed on or after 10/1/2011. Some older loans don’t qualify Pay As You Earn (PAYE) Payment amount: 10% of JOINT income. No financial hardship requirement Revised Pay as You Earn (REPAYE)

{ { Those who qualify for PAYE should choose between: PAYE REPAYE Those who DON’T qualify for PAYE should choose between: Old IBR REPAYE

Student Loan Strategies Make sure your Federal Loans are on the right repayment plan (Standard, PAYE/REPAYE or Old IBR/REPAYE)

Consolidation vs. Refinance Consolidation: Government loan program replaces your student loans (multiple) with a new loan at the same blended interest rate Refinance: Private bank replaces your student loan(s) with a new loan at (hopefully) a lower interest rate

Consolidation Consolidation Only Federal Loans can be consolidated 1. $50,000 Federal loan at 8% interest 2. $50,000 Federal loan at 4% interest Consolidation 1. $100,000 Federal loan at 6% interest Only Federal Loans can be consolidated No interest rate benefit!

Reasons to Consolidate Simplicity Consolidating older Federal Loans (or Perkins Loans) can make them eligible for newer repayment plans/forgiveness

Reasons NOT to Consolidate Lose ability to pay down high interest rate loans first Extending loan term = paying more over time

Refinancing Private loans: Federal Loans:

Student Loan Strategies Make sure your Federal Loans are on the right repayment plan (Standard, PAYE/REPAYE or Old IBR/REPAYE) Consolidate Federal Loans as needed to qualify for repayment or forgiveness provisions If you have private loans, try to lower your interest rate through refinancing Refinance Federal Loans at your own risk

Strategy: Don’t Defer Payments During Residency Example: $100,000 in Student Loan Debt $55,000 Salary for 3 Years of Residency, then $165,000 Salary 6% Interest Rate on Loans Not Married The Student Loan is or can be made eligible for any repayment plan

Strategy: Don’t Defer Payments During Residency Scenario A: No Payments During Residency Monthly Payment During Residency: $0 Monthly Payment after Residency for 10 years: $1,329 (9.66% of Income) Total Cost to Repay the Loan: $159,495. Scenario B: PAYE During Residency, 10 Year Standard Repayment Plan After Residency Monthly Payment During Residency: $308 (6.72% of Income) Monthly Payment after Residency for 10 years: $1,194 (8.68% of Income) Total Cost to Repay the Loan: $154,368

Student Loan Strategies Make sure your Federal Loans are on the right repayment plan (Standard, PAYE/REPAYE or Old IBR/REPAYE) Consolidate Federal Loans as needed to qualify for repayment or forgiveness provisions If you have private loans, try to lower your interest rate through refinancing Refinance Federal Loans at your own risk Income-driven repayments during residency are better than no payments at all

Strategy: Don’t Defer Payments During Residency Scenario C: PAYE During Residency, 10 Year Standard Repayment Plan After Residency, Public Sector Loan Forgiveness after 7 years post-residency Monthly Payment During Residency: $308 (6.72% of Income) Monthly Payment after Residency for 7 years: $1,194 (8.68% of Income) Loan Balance Forgiven: $39,248 Total Cost to Repay the Loan: $111,384

…which brings us to….

Public Sector Loan Forgiveness (PSLF) “Forgiveness of loans for people who work for nonprofits (hospitals can count) after 10 years. So, I’ll defer payments for three years of residency, maybe even another year of fellowship, make payments for 6 or 7 years as an attending and be forgiven”

Public Sector Loan Forgiveness (PSLF) “Forgiveness of loans for people who work for nonprofits (hospitals can count) after 10 years. So, I’ll defer payments for three years of residency, maybe even another year of fellowship, make payments for 6 or 7 years as an attending and be forgiven”

Public Sector Loan Forgiveness (PSLF) Make the right kind of payment On the right kinds of loans While working at the right kind of job Repeat 120 times Prove it

COUNT THE PAYMENTS, not years Key Points COUNT THE PAYMENTS, not years

Key Points Not All Loans Qualify!!! Private, Perkins, FFEL (pre-2010) loans don’t qualify. Can consolidate non-qualifying Federal Loans

File Employment Certification Form Annually Key Points Burden of Proof is on you!! File Employment Certification Form Annually

Student Loan Strategies Make sure your Federal Loans are on the right repayment plan (Standard, PAYE/REPAYE or Old IBR/REPAYE) Consolidate Federal Loans as needed to qualify for repayment or forgiveness provisions If you have private loans, try to lower your interest rate through refinancing Refinance Federal Loans at your own risk Income-driven repayments during residency are better than no payments at all If pursuing PSLF- file Employment Certification Form annually, and make sure your loans/payment plan/job qualify

After Residency…. Pay Extra on Student Loans? Example: Sarah, Age 25 $25,000 in Student Loan Debt, Standard 10 Year Repayment Plan, $265.16/month Able to save an extra $200/month on top of that Should She…. Save the $200/month for retirement? Or Save $100/month for retirement, and pay an extra $100/month for her student loans?

After Residency…. Pay Extra on Student Loans? *Assumes 7% Investment Return

Retirement How to Think about Retirement Savings During Residency

The Earlier You Start… $2,000,000 $1,000,000 Saving $500/month 8% Return

How Do We Catch Up? As…. Your income increases You pay down your loans You get married Keep your cost of living (mostly) the same

How Do We Catch Up? Example: Joe and Sally Both make $65,000/year Starting at age 35, Joe saves 15% of his income Starting at age 35, Sally saves 25% of her income Income grows 3% every year, their savings earns an 8% return

Double Benefits Higher saving increases retirement benefits…… and decreases retirement needs

How To Save (in Addition to Your 403(b)) Traditional IRA Roth IRA Contributions Up to $5,500 per Year, Tax Deductible Up to $5,500 per Year, No Tax Deduction Withdrawals Before Age 59.5 Taxable, Plus 10% Penalty Contributions: Tax Free, No Penalty Earnings: Taxable, Plus 10% Penalty Withdrawals After Age 59.5 Taxable Tax Free, No Penalty* Income Restrictions No Yes! Maximum Contributions start to be reduced at: Individuals: $118,000/year income Married: $186,000/year income *As long as the withdrawal is made 5 years after deposited- Not relevant to you until age 54 

Important Things to Know About the Financial Advising Industry

Things You Should Know #1: Most Financial Planners Aren’t Required to Act in Your Best Interest

Two Standards of Care: Suitability Standard Fiduciary Standard Is the product/advice appropriate for you? Fiduciary Standard Is the product/advice the best thing for you?

Two Standards of Care: Suitability Standard Fiduciary Standard Is the product/advice appropriate for you? Fiduciary Standard Is the product/advice the best thing for you?

Department of Labor Fiduciary Rule Retirement Investments (401k, IRA) Non-Retirement Accounts (Savings, Brokerage) Debt (Student Loans, Mortgage) Life Insurance, Annuities, Disability Insurance Only Applies to Retirement Accounts

Questions to Ask Your Financial Planner Are You a Fiduciary? All the time, or just for retirement accounts?

Things You Should Know #2: The Financial Industry has a lot in Common with How the Medical Industry Worked 15-20 years ago

Three Types of Financial Advisors Paid by Mutual Fund or Life Insurance Companies to Sell Financial Products Commissions Kickback payments Clients Pay a Percentage of Investments Managed Clients Pay Hourly, Project-Based, or Subscription Fees

Three Types of Financial Advisors Paid by Mutual Fund or Life Insurance Companies to Sell Financial Products Commissions Kickback payments Clients Pay a Percentage of Investments Managed Clients Pay Hourly, Project-Based, or Subscription Fees

Questions to Ask Your Financial Planner Are You a Fiduciary? All the time, or just for retirement accounts? How do you get paid? Only acceptable answer: “Only by my clients”

Example Fee Structure “I have $5,000 to invest. What should I do with it?” Invest in a Mutual Fund* Commission: $287.5 Invest in a variety of funds under my advisement for a 1% annual fee Annual Fee: $50 Buy a disability insurance policy with a $5,000 annual premium Commission: $5,000 *A Share Class

Questions to Ask Your Financial Planner Are You a Fiduciary? All the time, or just for retirement accounts? How do you get paid? Only acceptable answer: “Only by my clients” Does the amount you get paid vary depending on the recommendations you give me? If the answer is “Yes”, it will be difficult to get impartial advice

One Last Thing….

What Brings You In Today? I woke up with a sore throat.

I’m sorry to hear that. Here’s a prescription for Amoxicillin.

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Why is Money Important to You?

(Without Using These Words) Freedom Independence Security Flexibility

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