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TVMA 2017 - CLIMBING MT. DEBT:

Navigating your student loans and repayment options
by

Anthony Bartels

on 18 December 2017

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Transcript of TVMA 2017 - CLIMBING MT. DEBT:

Forgiven amounts in IDR are taxable
Remaining principal
Unpaid interest
Taxed at marginal income tax rate
Crossing the chasm
Wage Garnishment
Bad Credit
$190,000 Borrowed @ 5.8%
Delinquency
Default
Climbing & Surviving Mt. Debt
Navigating Your Student Loans and Repayment Options
Tony Bartels, DVM, MBA
TonyB@vin.com

Paul D. Pion, DVM, DACVIM
Paul@vin.com
www.vinfoundation.org

Elevation:
$400,000

Staring up at Mt. Student Debt
Veterinary Student Loan Management:
recent grad CSU DVMs (2009, 2012)
> $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?
Know
your
debt:
Loan History & Signalment
married, two vet household, no kids...yet
Know your student debt
N
ational
S
tudent
L
oan
D
ata
S
ystem
Know your repayment options
~ $1,400 per month on IBR
https://www.nslds.ed.gov
Know the pitfalls, challenges, side-effects
Thinking beyond student debt...
Set yourself up for success...
Borrowed amounts
Interest rates for each loan
Accrued interest
Loan status changes
NOT in NSLDS:
Health Professions Student Loans (HPSL)
Loan for Disadvantaged Students (LDS)
Private, institutional, family loans
one specialist, one gp
Loan types and disbursement dates
Know your repayment options
Beaten path: Standard, Extended, Graduated
Public Service Loan Forgiveness (PSLF)
Acronyms ahead...
https://studentaid.ed.gov
A Road Less Traveled
Income-driven repayment (IDR) options:
Income-Contingent Repayment (ICR)
Income-Based Repayment (IBR)
IBR 2009
IBR 2014, aka IBR for “new borrowers”
Pay as you earn (PAYE)
Revised PAYE (REPAYE)*
* Released December 2015
IDR Comparison
Conventional wisdom...
Know your repayment options:
Begin with the end in mind...

Loan Repayment Simulator

~ $930 per month on REPAYE
Which plan should I use?
$ 80,000/yr taxable income (DIR = 2.6)
$ /mo month after taxes in TN:
depressing reality
that your loan balance could increase...and may
never
decrease until forgiveness
Traumatic Statement Syndrome (TSS)
Rx: Financial Wellness Plan, reassess and adjust prn.
Mind the intangibles
ICR
Can but probably shouldn't...
unless
you have Parent Plus loans
Only DIRECT program loans eligible
Largely obsolete with newer plans
IBR (2009)
Most widely utilized IDR
FFEL & Direct loans eligible
With the release of PAYE and REPAYE:
Can I choose PAYE over IBR?
Should I choose REPAYE over IBR?
Review your credit report!
https://annualcreditreport.com
Which plans CAN I use?
PAYE (executive action)
Complicated new borrower qualification requirements
Only DIRECT program loans eligible
*Usually*
the most beneficial...
REPAYE (executive action)
Newest IDR plan
Only DIRECT program loans eligible
Probably can, but REALLY hard to know if/when you should...
IBR (2014)
Update of IBR by law
WILL cause confusion soon (2018 grads)
ALWAYS choose PAYE over "new" IBR
Review NSLDS
+ Upload to My Student Loans
http://www.vinfoundation.org/studentdebtcenter
new
Private consolidation/refinance, "ReFi"
Know what you're giving up
Know what you're getting
Know how to compare costs
When it can work:
Refinancing less beneficial private student loan(s) with a more beneficial private student loan.
Debt-to-income ratio is approaching 1:1 or less and will remain there for the duration of repayment.
Cater your own refi with IDR
Can be very risky!
What If...
1:1
Pay off before forgiveness
IDR optional
Private refi optional
Use IDR
Plan for forgiveness
Re-assess every year or prn
gray
zone
Spouse?
Income?
Student Debt?
Tax filing status?
Dependents?
Children?
Elderly?
Other?
Debt : Income (DIR)
Monthly interest > IDR minimum payment

Career path (earnings and timeline?)
Family circumstances/financial goals
Academia?
Practice ownership?
Live abroad?
Rx: Financial Wellness Plan, re-assess prn...
Build an emergency fund (target 3-6 mo of gross)
Start/build retirement savings (target 10% of gross)
Save for down payment for home/practice
Thinking beyond student loan repayment
Pay off credit card debt/private loans
Start/expand family
Enjoy life :-)
Manage student loans based on your income (+/- forgiveness plan)
Summary
Set yourself up for success
Know your debt
Know your options
IBR, PAYE, REPAYE, PSLF - know the pitfalls, enjoy the flexibility
Match your repayment with your career goals and economic reality
Time is still on our side...and we'll need it
Start planning, keep adjusting
Ask questions

http://www.vinfoundation.org/studentdebtcenter
new
Temptation:
"I just want to set it and forget it..."
"I need to get these loans off my back..."
"I need to pay as much as I can as fast as I can..."
"I'll start saving after I pay off my loans..."
"I need to refinance. The interest rate is too high."
4,977
Loan servicer
Use IDR for student loans
Not all debt created equal
= Pay your debt ASAP
Let your income dictate your strategy
Target 10-15% of your income
When to pay more, when to refi
Know your finances
$ 516
16%
10%
$2,310
46%
$1,327
27%
$ 774
120 full, on-time monthly payments (10 years)
Direct loans in Std 10 year, IBR, PAYE, REPAYE, ICR qualify
Even zero amount payments qualify (first job, advanced ed, etc)
Tax-FREE forgiveness
Full-time employment
with a state, federal, local or 501(c)(3) org
Right loans, in the right repayment plan(s), while working in the right job(s)...
Federal Direct Loans ONLY
May need to consolidate (non-Direct federal loan types)
Full-time = Avg 30 hours per week
Know your finances
Can't "enroll" but you can check-in...
PSLF employment certification form
NEW
-- Application for Forgiveness
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/budget.pdf
"...the Budget
eliminates
the Public Service Loan Forgiveness program, establishes reforms to guarantee that all borrowers in IDR pay an equitable share of their income...
...All student loan proposals apply to loans originated on or after July 1, 2018, except those provided to borrowers to finish their current course of study."
Public Health?
Academic careers, public health, shelter/zoo/aquarium vets,
high debt:income vets...
WikiDebt:
http://www.vinfoundation.org/wikidebt
Dept of ED:
https://studentaid.ed.gov/sa/repay-loans/
$ 20,000 Unpaid Interest
Source: 2017 AVMA & AAVMC REPORT on the MARKET FOR VETERINARY EDUCATION
Why?
How you borrow(ed) matters...
Know
your
debt:
IDR plans forgive, but the IRS does not forget
Loan Forgiveness
Uncharted Territory
Forgiveness a
Penalty

or

Discount
?
What about REPAYE?
Only responsible for 50% of unpaid interest during periods of negative amortization
But...must include spouse's income in calculation
http://taxfoundation.org/
20 years later...Party like it's 2036
Wild cards:
Forgiven amounts
Tax rate
Savings rate
i.e. $500,000 taxable income
tax = $131,628 + .396*(500,000 - 470,700)
= $143,231
effective tax rate =
28.6%
Recent vet grad
Principal: $210,000 @ 5.8%
Unpaid interest: $6,000
Family size = 1
Using PAYE for 1 year
Interest accrual: $1,015/mo
Taxable income: $80,000/yr
Increasing ~3.5%/yr
$ 1015
$ 516
-
$ 499
per month
Unpaid Interest
https://taxfoundation.org/2017-tax-brackets/
Always accepting the full amounts awarded?
Reduce/return awarded amounts vs. making payments?
BUDGET
In-school support/payments – Best way to use resources?
Shift costs to less expensive loan types?
Clinical year = 12-months, offered extra - Do you need it?
negative amortization
Learn from our mistakes
Know the challenges/side-effects of repayment
IDR Application, Annual Renewal
2. Electronic submission available
https://studentloans.gov
Federal Consolidation Loan:
Consolidation
Reduce
your number of loans
Interest rate --
Wtd Avg rounded up to the nearest 1/8th of 1%
Option to end your grace period early
Help get certain loans to qualify for IDR, PSLF
Choose
your loan servicer
Timing is important -- the earlier the better
Triggered by the following:
Entering repayment
Consolidation
Changing loan status!
Changing repayment plans
No longer demonstrating a partial financial hardship
Failing to renew your IDR
Capitalization
The adding of unpaid interest to your principal balance.
aka) Compounding your interest = paying interest on interest
Goal: Minimize frequency and magnitude of capitalization
You MUST opt-in and "re-certify"
annually

Renewal open 45 days prior to annual start date
Certification requires income and family size info
Loans must be in repayment, deferment or grace period to apply
"Your Income" Documentation Matters
= Your Taxable Income − (150% * HHS federal poverty guidelines)
Minimum IDR payment due = % of "discretionary income"
10% -- PAYE, IBR (2014), REPAYE
15% -- IBR (2009)
Difference between AGI and pay stub?
http://aspe.hhs.gov/poverty-guidelines
1) DO NOT Defer/Forbear!!!

2) BEWARE THE AUTO-DEFERMENT
Internship
Residency
MPH/PhD
Unpaid leave
Job move/relocation
Decrease in income
Pay thousands more in total
In repayment longer...
Triggers Additional Capitalization:
Use income driven repayment, re-certify
Decrease interest cost
Decrease repayment time
Colleagues don't let other Colleagues defer their student loans!
Partial Financial Hardship (PFH)
: Your payment under IBR/PAYE is less than your Std 10-year repayment amount
Income qualification test for
IBR
&
PAYE
If you no longer demonstrate a PFH or fail to provide annual income documentation, unpaid interest will be
capitalized

Rule of thumb: PFH may be a consideration when income is nearing your starting repayment balance
i.e. $200,000 @ 6%, family size 1
$196,000
$284,000
There is no PFH test for REPAYE; Payment is always 10% of Discretionary Income.
"Will I get kicked out of IDR if I make too much money?"
1. Certify via loan servicers
Loan servicers
Document everything!
Use Certified Mail
Follow-up, verify!
PAYE "Cap"
Deferment/ Forbearance
Action Plan --
Organize
Simulate
Apply for IDR
DIR > 2
https://studentloans.gov
Apply for IDR as part of consolidation process
First cohort qualifies now!
Rx: Strategize, Reassess, adjust prn
Devil is in the details...
http://askheatherjarvis.com
http://www.vinfoundation.org/studentdebtcenter
Research/Post your questions on VIN*
Rx: Strategize, Reassess, adjust prn
*You can now post ANONYMOUSLY in the VIN Student Debt folder!!!
Resources:
https://studentloans.gov
https://studentaid.ed.gov/sa/repay-loans
Inventory you loans:
https://www.nslds.ed.gov
https://annualcreditreport.com
http://vinfoundation.org/mystudentloans
DIR > 2, then IDR is right for you!
Organize, Simulate, Apply for IDR
Pay the minimum, Plan for forgiveness
Renew your IDR annually on time!
Choose IDR over deferment/forbearance
Guidelines:
$285,175 borrowed to date, $35,550 for last semester
$29,816 of unpaid interest, plus ~$9k more before grad
Considering GP vs. Radiology Specialty
GP income: $75-85k
Specialty: Internship(s), 4 year residency, $175k after
Loan History & Signalment:
Case 1: 2018 UT DVM
Key takeaways:
Direct loans qualify for PAYE, REPAYE, IBR (2009)
Regardless of path, consolidate, waive grace period, enter PAYE asap (quickest/best)
Autopay for 0.25% interest rate discount
Don't defer -- use IDR!
Start a forgiveness savings plan ASAP in GP route
Re-assess forgiveness plan if/when a specialist
Federal Student Loans Estimated Principal: $320,725
Federal Student Loans Estimated Interest: $ 38,816
Estimated Wtd Avg Int Rate: 6.1%
Chief Complaint:
REPAYE or PAYE? How much will my career path change my loan costs?
Loan History & Signalment::
Case 2:
Married, double vet, double debt, one PSLF
Vet 1 graduated 2012, working towards PSLF, income = $72k
Vet 2 graduated 2013, not working towards PSLF, income = $94k
Recent AGI ~ $134k, family size = 2
Household IBR = $1,370/mo
Vet 1 ~ $850/mo
Vet 2 ~ $520/mo
Household REPAYE = $915/mo
Vet 1 ~ $567/mo
Vet 2 ~ $348/mo
Key takeaways:
Double vet, double debt
File jointly, use PAYE/REPAYE
Proportional payment based on "household" debt
Switching plans will capitalize unpaid interest
Take advantage of REPAYE unpaid interest subsidy
PSLF -- pay as little as possible, maximize forgiveness
Submit PSLF employment certification form annually
Renew your IDR annually on time
vet 1
vet 2
Principal: $201,474
Unpaid Interest:$33,741
Wtd Avg Int Rate: 6.45%
Principal: $141,928
Unpaid Interest:$1,203
Wtd Avg Int Rate: 6.5%
All Direct Loans
IBR @ $406/mo
41-47 PSLF months
97% Direct Loans/3% FFELs
IBR @ $709/mo (NSLDS)
Avg interest = $769/mo
$1,630/mo to pay in 10 years
38%
62%
Total "Household" student debt: $378,826, DIR = 2.3
http://www.vinfoundation.org/loansim
$80,000 - (1.5*12,060) = $61,910
@ $80,000 and a family size of 1, discretionary income =
PAYE/REPAYE = (0.10*61,910)/12 = $516/mo
IBR = (0.15*61,910)/12 = $774/mo
Public Service Loan Forgiveness (PSLF)
https://www.lmunet.edu/academics/schools/college-of-veterinary-medicine/admissions/financial-aid/cost-of-attendance-budget
https://onestop.utk.edu/estimates/vetmed/
$122,799 (4.5%)
$317,312
$193,511 (4%)
$325,729
How?
Source: 2017 AVMA & AAVMC REPORT on the MARKET FOR VETERINARY EDUCATION, Table 8
http://www.vinfoundation.org/MyStudentLoans
2+:1
Source: 2017 AVMA & AAVMC REPORT on the MARKET FOR VETERINARY EDUCATION
http://www.vinfoundation.org/mystudentloans
Oct 1, 2007
Oct 1, 2011
Replaces existing loan(s) with a NEW loan
Full transcript