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CVMA Veterinary Student Debt Management

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by

Anthony Bartels

on 23 September 2014

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Transcript of CVMA Veterinary Student Debt Management

Pitfalls of student loan
Staring up at Mt. Debt
Veterinary Student Debt Management:
FLEXIBILITY
"Uncertainty is the only certainty..."
Wanna pay a lot less?
Public Service Loan Forgiveness (PSLF)
recent CSU DVMs (2009, 2012)
Know your options
Standard, Extended, Graduated, Extended Graduated Repayment
Public Service Loan Forgiveness (PSLF)
- John Allen Paulos
> $4,500 per month on std 10-yr plan
Combined student debt ~ $400,000
one in-state, one out-of-state
What's your baggage?
www.nslds.ed.gov
Default
Lost license
wage garnishment
Bad Credit
IBR/PAYE - your lifeline
https://studentloans.gov
Acronyms ahead...
studentaid.ed.gov/repay-loans
Know
your
debt
Long journey = Time to prepare, analyze, change course
Standard 10 Year Repayment is default program
Loan servicers
Re-certification
Move from MyEd to one of eleven private loan servicers
Customer service variability
Errors during transfer process (Dept of Ed or Servicer)
Getting better...http://www.consumerfinance.gov/paying-for-college/ (CFPB)
Etch your repayment start date into your brain
9/7
Sept 7
7-Sep
You MUST "re-certify"
annually
to remain in IBR/PAYE
Certify via loan servicer (AVOID)
NEW electronic submission available
Traumatic Statement Syndrome (TSS)
requires:
depressing reality
that your loan balance is going to increase...and may
never
decrease until forgiveness
courage
patience
persistence
diligence
Temptation:
ignore your loan statements
"set it and forget it"
Loan Forgiveness
IBR forgives, but the IRS does not forget
Test Hardship limits:
Mean debt + 6 months capitalized interest:
0.15*AGI - 3,539 = $23,148
"Fall out of hardship" with AGI > $177,913
0.15(
$67,136
-1.5(15,730)) = $6,531/year or $544/month
Mean starting salary, 2013
Partial Financial Hardship
IBR Payment = 15% of your discretionary income
HHS 2014 Poverty Guidelines >
http://aspe.hhs.gov/
ie HHS Poverty Guidelines for Family of 2 in continguous 48 states: $15,730
Unpaid interest does not
capitalize
, unless...
Payment can never be more than standard ten year
You can always pay more if you can afford it
Applying for an income-driven repayment plan
Can't afford not to...IBR/PAYE
Loan of 200,000 @ 6.8%
IBR Forgiveness = $153,040
Additional Tax liability = $46,139
@ Est tax rate = 30%
Income-driven Repayment Programs
Climbing Mt. Debt...
Elevation: $162, 113
120 full, on-time monthly payments (10 years)
Federal loans in IBR, PAYE, ICR qualify
Even zero amount payments
Tax FREE forgiveness
Full-time employment with a 501(c)(3) organization
Avg 30 hours per week = full-time
Perfect plan for academic "lifers"
Internship(s), residency, fellowships, other academic positions may qualify
position details/structure
paid by the 501(c)(3)
Shelter, zoo, aquarium vets...
What's the catch?
PSLF Not guaranteed to be there in current form in 10 years
- Discussing caps...
10 years in a non-profit
No easy feat
lower salary (usually)
Can't enroll, just check-in
Hasn't been tested...yet
First PSLFs due in 2017
Summary
Set yourself up for success
Know your debt
Know your options
IBR, PAYE, PSLF - know the pitfalls, enjoy the flexibility
Match your repayment with your career goals and economic reality
Time is still on your side...and you'll need it
Start planning, keep adjusting
Ask questions
Tony Bartels, DVM, MBA
tonyb@vin.com

My baggage
married, two vet household
Know your student debt
Income Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay-as-you-earn (PAYE) plans...
2013 Mean Veterinary Student Debt
$162,113
~$5,500 Capitalized (added to principal)
=
$1,900/month
(on $167,613 @ 6.8%)
due November after graduation
...
+ 6 months of unsubsidized interest
repayment programs
Let's do some calculatin'
for family of two
N
ational
S
tudent
L
oan
D
ata
S
ystem
Document everything
Send everything Certified Mail
Preparation
:
Save ~$113/mo
Avg 2.5% APR
~ $47,000 in 25 years
Check your statements early and often
Set yourself up for success
IBR/PAYE: $0-620/month
Rule of thumb: Won't fall out of hardship until salary is about equal to starting debt amount
Resources
studentloans.gov
studentaid.ed.gov
nslds.ed.gov
vinfoundation.org
Student Loan Repayment Simulator
vin.com
Search Student Loans
tonyb@vin.com
presentation notes:
Know your repayment options
~ $500 per month on IBR
https://studentloans.gov
Know your finances
Know the pitfalls/challenges
Strategize > Plan, Re-assess, Plan again...
Set yourself up for success...
The Road Less Traveled
studentloans.gov
Income-Driven Repayment
Timing Crucial
2007
2010
2012
College Cost Reduction Act
Income-based Repayment (IBR) and Public Service Loan Forgiveness (PSLF) Programs Created
Health Care and Education Reconciliation Act
Payments 10% of discretionary income
Executive Order Creates PAYE
Acceleration of planned 2014 IBR changes = Pay As You Earn (PAYE)
Std 10 year program
PSLF: Untaxed loan forgiveness with 120 qualifying payments made after Oct 1, 2007
Payments 15% of discretionary income
Payments Never > Std 10 year repayment
IBR modified for new borrowers starting July 1, 2014
Forgiveness after 25 years
Forgiveness after 20 years
New borrowers as of Oct 1, 2007
At least one loan disbursed after Oct 1, 2011
2014
New Executive Order Expands PAYE
PAYE conditions extended to borrowers, regardless of loan origination date.
Expected to be made available by December 31, 2015
ICR, IBR and PAYE programs
Fortunately, income-driven plans change course with you...
Manage your finances
Lest they manage you...
> 50% of take-home @ $67,136
Pay off credit cards
Save for retirement
Save for forgiveness
Health trouble
Children
Act of nature
Location/Job change
Car trouble
Internship(s)
Residency
https://studentloans.gov
If you have not established an emergency fund (3-6 months of income), acquired adequate health insurance, paid off high interest credit cards,
started a retirement account
, etc...
Get into an income-driven repayment program and take control of your financial health
Specific to your situation...your IFs
Strategies utilizing IBR/PAYE for repayment
If your are graduating in the next year or have an unpaid position...
FILE A TAX RETURN (whether you need to or not)
Time value of money
If you don't know where to start...
studentloans.gov, nslds.ed.gov, tonyb@vin.com...
If you're not enrolled in auto-debit with your loan servicer...
Enroll. You receive a 0.25% discount with auto-debit
Can save you $500 per year on $200,000 at 6.8%
If you work for a non-profit (501(c)3)), government or public agency...
PSLF...
Federal Loan Consolidation
Demonstrate a "Partial Financial Hardship" aka) Veterinarian
Percentage (15% vs 10%) of your discretionary income is less than your standard ten year amount due when entering repayment
Income-driven strategies
Complications of Consolidation
Income-driven strategies
Income-driven strategies
Any other "IFs" ???
Income-driven strategies
If you are considering a federal consolidation loan...
The BEST time to start is the day after graduation
The next best time is before/as your grace period ends
Avoid if you have unpaid interest balance
Income-driven strategies
If you're applying for IBR/PAYE or doing your annual re-certification...
Submit documentation that favors the lower monthly payment
Minimum = AGI from most recent tax return (easiest)
Alternative = Paystubs, other income documentation
Income-driven repayment = Flexibility
Last BIG If...
2013 Mean Veterinary Student Debt
$162,113
26.7% had debt > $200,000
Mean salary
$67,136
You are NOT alone...
Debt : Income
2.4:1
A brief timeline...
Kid's college fund
Start an emergency fund
https://studentaid.ed.gov/repay-loans
Repayment Estimator
Discretionary Income = AGI - 150% (HHS Poverty Guidelines)
% of your discretionary income
PAYE Payment = 10% of your discretionary income
Solve for AGI
$167,613
monthly payment = $1,929/month or $23,148/year
If you are in an internship/residency, or considering one, or you know someone who is...
DO NOT DEFER!!!
Apply for an income driven repayment plan

ie $150k to $176k...
Colleagues don't let other Colleagues defer their student loans!
Pros
Group loans together
End grace period early
Longer term extended options
Cons
> 60 days to complete
May slightly increase interest rates
Capitalizes accrued interest
Strategy = lowest starting repayment balance,
minimize interest on interest
Income-driven repayment options
IBR first eligible July 1, 2009
Don't fall back into the abyss
Not without faults...
Currently
, forgiven amounts are
taxable
May change, but plan for the payment
Balance
of paying, saving, affordability...
If IBR Payment < Std 10 year payment, then you have partial financial hardship
If you have private AND federal loans...
Put your federal loans into an income-driven plan, stay current on private
Federal Loans >>>> Flexibility
Public Service Loan Forgiveness (PSLF)
https://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service
Pitfalls...
Do you have accrued interest?
May not be a good idea to consolidate if
Grace period ending
Already using an income-driven repayment plan
Do all of your loans have the same interest rate?
Beware -- gov't rounds interest rate up to nearest 1/8%
If pre-consolidation rates = 6.8% -> 6.875%
If pre-consolidation rates = 7.9% -> 8.0%
Do you have subsidized loans?
Leave those out of consolidation

No interest accrues during grace/deferment
Gov't covers first three years of interest accrual on subsidized loans
Have you made qualifying income-driven payments on your loans already?
Beware -- consolidation creates a NEW loan
payments made toward previous loans will not count toward qualifying programs
Forgiveness, PSLF implications
Federal Loan Consolidation
https://studentloans.gov
https://www.dropbox.com/s/parwivty0xvhd5f/NavigatingStudentDebt_2014.pdf?dl=0

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Veterinary Student Debt Management
15%(AGI-1.5(HHS Poverty) = Yearly IBR Payment
Delinquency
Full transcript