HLS Student Financial Services Understanding Student Loans

HLS and You Presentation FINAL APRILBOS The Value Proposition of Law School Net present value of an HLS degree Loans represent an investment in your future earning potential in the legal profession HLS offers support for public service / low income careers

- College debt repayment $12,000, HLS debt repayment $250,000 - Based on 30 year salary projections using annual salary increase rate of 3% - HLS degree salary projections based on 2012 average private sector starting salary, bonus pay excluded - NPV calculations use inflation (discount) rate of 3%

HLS and You Presentation FINAL APRILBOS Student Loans - definitions Principal – the total amount initially borrowed plus any interest that has been capitalized Interest – a charge that reflects the market cost to the lender for loss of use of funds until loan is fully repaid (“time value of money”) Interest rate - the rate at which interest is charged and accrues on the loan

HLS and You Presentation FINAL APRILBOS Student Loans – more definitions Loan fees – additional fees that are deducted at disbursement or added to principal balance at repayment Capitalization – occurs when accrued interest is added to the outstanding principal balance, becoming the new basis for future interest Compound interest – interest charged on previously capitalized interest as well as on remaining principal balance

HLS and You Presentation FINAL APRILBOS Student Loans – even more definitions Annual Percentage Rate (APR) – reflects the total loan cost, including fees and interest Amortization – the process of decreasing an amount (e.g. principal on a loan) over time Amortization schedule – a table showing the amortization process as a schedule of payments reducing the loan amount to $0 Repayment term – how long it will take to repay the loan according to the schedule

HLS and You Presentation FINAL APRILBOS Student Loans – enough with the definitions! Deferment – a temporary postponement of repayment obligation, typically during a period of enrollment or unemployment Forbearance – like a deferment, but typically at lender’s discretion during a period of financial hardship Discharge – the release of a borrower from the obligation to repay, typically granted (for Federal loans) in case of death or disability

HLS and You Presentation FINAL APRILBOS Amortization Schedule Typically shows the following info -Number of payments -Amount of each payment directed toward principal and interest -Cumulative principal and interest paid -Outstanding principal balance Good loan payment calculator with schedule: -

HLS and You Presentation FINAL APRILBOS Amortization Schedule - example Payment Number PaymentInterestPrincipal Cumulative Interest Cumulative Principal Remaining Balance 1 $1,741.63$875.00$866.63$875.00$866.63$149, $1,741.63$869.94$871.69$1,744.94$1,738.32$148, $1,741.63$864.86$876.77$2,609.80$2,615.09$147, $1,741.63$859.75$881.88$3,469.55$3,496.97$146, $1,741.63$854.60$887.03$4,324.15$4,384.00$145, $1,741.63$849.43$892.20$5,173.58$5,276.20$144, $1,741.63$844.22$897.41$6,017.80$6,173.61$143, $1,741.63$838.99$902.64$6,856.79$7,076.25$142, $1,741.63$833.72$907.91$7,690.51$7,984.16$142, $1,741.63$828.43$913.20$8,518.93$8,897.37$141, $1,741.63$823.10$918.53$9,342.03$9,815.90$140, $1,741.63$817.74$923.89$10,159.77$10,739.79$139, Balance = $150,000, interest rate 7%, 10 year term Monthly interest calculation: Beginning balance x 7%, divided by 365, x (percentage of year for 1 month) Example: $150,000 x.07 = $10,500, divided by 365 = $28.77, x = $

HLS and You Presentation FINAL APRILBOS Loan Repayment Loan debt – only part of the picture -What is the monthly payment on your loan debt? -How does that monthly payment compare to your monthly income (net, after taxes)? -Are you likely to qualify for loan repayment assistance? Average starting salaries for HLS Class of Private practice (law firm): $154,092 -Private business: $116,582 -Government: $58,604 -Judicial clerkships: $58,849 -Public interest: $42,850

HLS and You Presentation FINAL APRILBOS Managing Loan Repayment Calculate your net income after taxes; i.e. the money available to make your monthly loan payment Calculate your estimated monthly loan payment - Multiply number of thousands borrowed by 12.6 Salary:$154,000$80,000$45,000 All taxes:33.0%29.6%23.4% Net income:$103,230$56,352$34,493 Net monthly:$8,603$4,696$2,874

HLS and You Presentation FINAL APRILBOS Annual income: $ 154,000 $ 60,000 minus All taxes: $ 50,770 $ 16,122 equals Net annual income: $ 103,230 $ 43,878 divided by 12 equals Monthly income: $ 8,603 $ 3,657 minus Education loan payment: $ 1,701 plus Monthly LIPP assistance: $ - $ 1,334 equals Monthly take-home pay after taxes, loan payment: $ 6,902 $ 3,290 Loan payment-to-salary ratio:13.3%7.3% Gross income after loan payment: $ 133,588 $ 55,596 Calculating Monthly Take-Home Pay Amount borrowed while in law school: $135,000 Example 1Example 2

HLS and You Presentation FINAL APRILBOS Managing Loan Repayment – key points Education is an “appreciating asset” -Education is a long-term investment -Salary typically increases over time while loan payments remain stable LIPP assistance is available for lower-income graduates, to keep payments manageable By making good budgeting decisions now, you are maximizing future take-home pay All borrowers must attend an Exit Interview during the last semester at HLS

HLS and You Presentation FINAL APRILBOS Should I pay off my loans early? Pay yourself first -Develop a budget to manage fixed living expenses, make required loan payments, and save for short- term goals -Establish an emergency fund, start funding your retirement, obtain insurance (health, life, disability) -Pay off all higher-interest debt, e.g. credit cards Consider early repayment scenarios vs. long- term savings scenarios Get help from a fee-only financial planner to make decisions

HLS and You Presentation FINAL APRILBOS For more information Overview of Education Loans, Terms, Options loans/ Calculators and Planning Tools LIPP Guidelines iGrad Graduate Student Loans module See login link at

HLS and You Presentation FINAL APRILBOS Contact Us 1585 Massachusetts Avenue Wasserstein Hall, Suite 5027 Cambridge, MA