Money Management for Medical Students Entrance Interview Ellen McGuire Director of Financial Aid TCMC August 10, 2011 Disclaimer: All information and estimates are based on AAMC interpretation of federal regulations as of June 2011 and are subject to change. These are estimates only. Students should always contact their servicer(s) to discuss the terms and conditions of the loans.

“An investment in knowledge always pays the best interest” - Benjamin Franklin

©2011 Association of American Medical Colleges. All rights reserved. 86% of class report having educational debt 59% of class report debt $150,000 or higher All Schools Public Schools Private Schools Median$160,000$150,000$180,000 Class of 2010 Indebtedness Refer to page 1 Source: AAMC 2010 Graduate Questionnaire (GQ)

Agenda Know The Details of Your Loans The Timeline Borrowing Strategically Have a Spending Plan Understand and Protect Your Credit

©2011 Association of American Medical Colleges. All rights reserved. Know the Details of Your Loans

©2011 Association of American Medical Colleges. All rights reserved. Refer to page iv

©2011 Association of American Medical Colleges. All rights reserved. The FIRST Stop… Medloans ® Organizer and Calculator Refer to page 3

©2011 Association of American Medical Colleges. All rights reserved. Master Promissory Note Refer to page 6 A contract with the lender Has a multi-loan feature Carefully read before signing Rights and responsibilities

©2011 Association of American Medical Colleges. All rights reserved. Rights include the ability to: Prepay any federal loan without penalty Request a shorter repayment schedule Change repayment plans Request a deferment or forbearance Review your promissory note for all rights Refer to page 7 Rights and Responsibilities

©2011 Association of American Medical Colleges. All rights reserved. Rights and Responsibilities Responsibilities include: Make on time loan payments Make payments despite receipt of bill Notify the lender of changes in contact info Attend an Exit Counseling session Review your promissory note for all responsibilities Refer to page 7

©2011 Association of American Medical Colleges. All rights reserved. A Serious Obligation Student loans must be repaid Manage your debt - don’t let it manage you Refer to page 6

©2011 Association of American Medical Colleges. All rights reserved. Delinquency Default Refer to page 8 Consequences of…

©2011 Association of American Medical Colleges. All rights reserved. Finding Your Federal Loans To access, provide: - SS# - Date of Birth - First 2 letters (last name) - PIN # ( Refer to page 4

©2011 Association of American Medical Colleges. All rights reserved. Finding Other Loans Refer to page 4 To access, provide: - Name - Address - Date of Birth - Social Security #

©2011 Association of American Medical Colleges. All rights reserved. Refer to page 11 Interest Rates

©2011 Association of American Medical Colleges. All rights reserved. Subsidized vs. Unsubsidized Sub si dy [suhb-si-dee] noun - Financial assistance granted by the government to cover accruing interest while in-school, in grace, or in a qualifying deferment. Source: Refer to page 9

©2011 Association of American Medical Colleges. All rights reserved. Subsidized vs. Unsubsidized Refer to page 9 Subsidized Stafford Perkins* Primary Care Loans LDS Loans* Instiututional Loans (some) Consolidations Loans (underlyng subsidized loans) Unsubsidized Stafford Direct PLUS Private Loans Institutional Loans (some) Consolidation Loans (underlying unsubsidized loans) SubsidizedUnsubsidized *subsidy and deferment rights lost during consolidation

©2011 Association of American Medical Colleges. All rights reserved. Capitalization Addition of unpaid interest to the principal Principal + Interest = Larger Principal Refer to page 11

Debt Management Tip Pay the interest on unsubsidized loans PRIOR to capitalization

©2011 Association of American Medical Colleges. All rights reserved. If dropping below half-time or withdrawing: Contact the Financial Aid Office immediately Exit Counseling is required Payments are required or grace periods begin For questions contact your Financial Aid Office NOTICE: Repayment Begins Refer to page 8

©2011 Association of American Medical Colleges. All rights reserved. Direct PLUS loans Enters repayment upon full disbursement In-school deferment will post-pone payments Interest begins accruing upon disbursement Interest accrues continuously Maximum interest rate is 7.9% NOTICE: Repayment Begins Refer to page 22

©2011 Association of American Medical Colleges. All rights reserved. The Timeline

©2011 Association of American Medical Colleges. All rights reserved. Grace Periods Grace A period when payments are not required : Occurs automatically Subsidized loans are interest free during grace Unsubsidized loans continue to accrue interest Availability and duration is based on loan type Refer to page 19

©2011 Association of American Medical Colleges. All rights reserved. Grace Periods Refer to page 19

©2011 Association of American Medical Colleges. All rights reserved. Options During Residency During residency, there are two choices: Postpone Payments Make Payments Deferment Forbearance Select a Repayment Plan

©2011 Association of American Medical Colleges. All rights reserved. Deferment A period when payments are not required Must apply and qualify Interest does not accrue on subsidized loans Unsubsidized loans continue to accrue interest NOTE: For more details on deferment or to request a deferment, contact your servicer Options During Residency Refer to page 21

©2011 Association of American Medical Colleges. All rights reserved. Options During Residency Refer to page 22 Forbearance A period when payments are not required Must request from the servicer Interest accrues on sub and unsub loans Many types (administrative, discretionary, mandatory) NOTE: For more details on forbearance or to request a forbearance, contact your servicer

©2011 Association of American Medical Colleges. All rights reserved. Options During Residency Determines the payment amount & interest cost Refer to page 24 $2,100 /mo $1,300 /mo $1,000 /mo $ 610 /mo $ 390 /mo

©2011 Association of American Medical Colleges. All rights reserved. Estimated Monthly Payment Amounts Repayment Plans Refer to page 27

©2011 Association of American Medical Colleges. All rights reserved. Strategic Borrowing

©2011 Association of American Medical Colleges. All rights reserved. Alternatives to Debt Refer to page 13 Scholarships Support Forgiveness/ Repayment Options Outside Service based Institutional I II IIi Financial Aid Office Family

©2011 Association of American Medical Colleges. All rights reserved. Borrow Wisely Refer to page 14

©2011 Association of American Medical Colleges. All rights reserved. Borrow Wisely Private Monthly Payment Total Interest Total Cost 10 Years$722$46,640$86,640 PLUS Monthly Payment Total Interest Total Cost 10 Years$565$27,800$67,800 Stafford Monthly Payment Total Interest Total Cost 10 Years$527$23,240$63,240 Based on borrowing $40,000 (unsubsidized) with interest capitalizing after 4 years of medical school; based on interest rates of 6.8% (Stafford), 7.9% (Grad Plus), 12% (Private). Refer to page 15

©2011 Association of American Medical Colleges. All rights reserved. How Will You Borrow? Do NOT borrow just because you are eligible Borrow what you need, not what you want Decline loans that exceed your need Accepting loans may affect eligibility for other aid Avoid forfeiting low rate loans for higher rate debt Refer to page 15

Financial Aid Fact If a shortfall occurs, previously declined monies may be obtained – see financial aid for assistance

©2011 Association of American Medical Colleges. All rights reserved. CHALLENGE Borrowing $5,000 less each year will REDUCE: Monthly Payment By: $400 (+) The Total Loan Cost By: $39,000 (+) Repayment Term By: 2 (+) years Borrow Wisely Note: Assumes amount borrowed in Stafford Loans with 6.8% interest with forbearance during a 3-year residency Source: AAMC FIRST Analysis TIP: Have a budget and borrow less Refer to page 17

©2011 Association of American Medical Colleges. All rights reserved. Have a Spending Plan

©2011 Association of American Medical Colleges. All rights reserved. Have a Spending Plan A Spending Plan in ) Put it in writing 2) Review periodically to identify leaks 3) Make necessary adjustments “Live like a student while you are a student…” Refer to page 33

©2011 Association of American Medical Colleges. All rights reserved. Have a Spending Plan Refer to page 36

©2011 Association of American Medical Colleges. All rights reserved. The Basics of Budgeting Refer to page 33 Your Total Income Your Total Expenses Your Discretionary Income

©2011 Association of American Medical Colleges. All rights reserved. Spending Wants: Leaks Small amounts add up over time It may not look like much in the short term $5 gourmet coffee X 25 weekdays/mo $125 per month

©2011 Association of American Medical Colleges. All rights reserved. Spending Wants: Leaks Small amounts add up over time It may not look like much in the short term $125 in coffee per mo. X 10 months $1250 per year

©2011 Association of American Medical Colleges. All rights reserved. Spending Wants: Leaks Small amounts add up over time It may not look like much in the short term Total Cost of Starbucks: $5,000 But it adds up over time

©2011 Association of American Medical Colleges. All rights reserved. Spending Alternatives Pay attention to the small stuff… Commit to review your budget regularly $8 coffee beans X 1 bag per month $8 per month Refer to page 34

©2011 Association of American Medical Colleges. All rights reserved. Spending Alternatives Pay attention to the small stuff… Commit to review your budget regularly $8 per month X 42 weeks a year $336 per year Refer to page 34

©2011 Association of American Medical Colleges. All rights reserved. Spending Alternatives Pay attention to the small stuff… Commit to review your budget regularly Total Cost of coffee beans: $1,344 Refer to page 34

©2011 Association of American Medical Colleges. All rights reserved. Spending Alternatives Pay attention to the small stuff… Commit to review your budget regularly Savings Savings$3,656 Refer to page 34

Are Credit Cards Bad?

©2011 Association of American Medical Colleges. All rights reserved. The Minimum Payment Trap Source: BankRate.com Refer to page 35 $5,000 Balance with an 18% Interest Rate (Making minimum monthly payments)

©2011 Association of American Medical Colleges. All rights reserved. The Minimum Payment Trap $5,000 Balance with an 18% Interest Rate (Making minimum monthly payments) Source: BankRate.com Refer to page years to repay in full $6,923 in total interest costs alone What could possibly be worth paying more than twice its original value?

©2011 Association of American Medical Colleges. All rights reserved. Credit: Understand & Protect

©2011 Association of American Medical Colleges. All rights reserved. 35 % 30 % 15 % 10 % Payment history Utilization rate (amount owed) Length of credit history New credit Type of credit used A FICO Score is Based On … Refer to page 30

©2011 Association of American Medical Colleges. All rights reserved. How to Improve Your Score During medical school, be sure to: Refer to page 29 Pay bills on time Pay down debt on lines of credit Apply for credit sparingly

©2011 Association of American Medical Colleges. All rights reserved. Refer to page 31 Check your Credit Report

©2011 Association of American Medical Colleges. All rights reserved. Your loan servicers’ and their websites Your medical school financial aid office Support Along the Way FACEBOOK: FIRST for Medical Education Refer to page 7 Careers in Medicine ® Medloans ® Organizer and Calculator

Questions?