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Student MVC 2018 - CLIMBING MT. DEBT:

Evaluating Income-Driven Repayment Strategies
by

Anthony Bartels

on 19 April 2018

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Transcript of Student MVC 2018 - CLIMBING MT. DEBT:

Crossing the chasm
Wage Garnishment
Bad Credit
IDR forgiven amounts are taxable income
$200,000 Principal @ 6%
Delinquency
Default
Climbing & Surviving Mt. Debt
Set yourself up for repayment success
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 loan history?
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
Ounce of (debt) Prevention
~ $1,400 per month on IBR
https://www.nslds.ed.gov
Loan Repayment Treatment Options
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 loans, 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
Learn from our mistakes
Know the challenges/side-effects of repayment
https://studentloans.gov
IDR Application, Annual Renewal

~ $930 per month on REPAYE
Which plan should I use?
$ 75,000/yr taxable income (DIR = 3.1)
$ /mo month after taxes in OH:
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)
Most complicated 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 for soon
ALWAYS choose PAYE over "new" IBR
NSLDS - Student Loan Worksheet
http://BETA.vinfoundation.org/studentdebtcenter
new
Consolidation
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 and will remain there for the duration of repayment.
Cater your own refi with IDR
Can be very risky!
What If...
1:1
2+: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 first
Start/expand family
Enjoy life :-)
Manage student loans based on your income (+/- forgiveness plan)
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:
Loan History & Signalment:
Case 3: 2019 OSU DVM
Married, one vet, one debt
Summary
Set yourself up for success
Know your debt
Know your options
IBR, PAYE, REPAYE, PSLF - enjoy the flexibility, manage the side-effects
Match your repayment plan 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."
4,684
Loan servicer
Use IDR for student loans
Not all debt created equal
= Pay your debt ASAP
REPAYE vs. PAYE
Let your income dictate your strategy
Target 10-15% of your income
When to pay more, when to refi
Treatment Challenges and Side-effects
$0-475
15%
10%
$2,553
55%
$1,482
32%
$0-710
Public Service Loan Forgiveness (PSLF)
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
Capitalization
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/wp-content/uploads/2018/02/budget-fy2019.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, and eliminates subsidized loans.
...All student loan proposals would apply to loans originating on or after July 1, 2019, except those provided to borrowers to finish their current course of study."
Borrowed $181,557 to date, $25,739 for remainder of this year, estimate $60.000 for final year
Married, planning on mixed animal practice in CA
Anticipates income ~ $70,000, combined ~$100k
Spouse would like to go college
Plans to start family, purchase home...
Key takeaways:
Qualifies for PAYE, REPAYE, IBR (2009)
Consolidate, waive grace period, enter PAYE, use auto-debit
Filing taxes jointly vs. separately?
Tax cost vs. loan savings?
Community Property State (CA)
Pay the minimum, plan for forgiveness
Public Health?
https://studentloans.gov
https://studentaid.ed.gov/sa/repay-loans
Academic careers, public health, shelter/zoo/aquarium vets,
high debt:income vets...
VIN Foundation Student Debt Center
WikiDebt
http://www.vinfoundation.org/StudentLoanFAQs
$ 30,000 Unpaid Interest
DIR > 1, get started in IDR!
Consolidate, waive grace, apply for IDR
Pay the minimum, Plan for forgiveness
Renew your IDR annually on time!
Choose IDR over deferment/forbearance
Guidelines:
Source: 2017 AVMA & AAVMC REPORT on the MARKET FOR VETERINARY EDUCATION
Why?
How you borrow(ed) matters...
Know
your
debt:
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?"
IDR plans forgive, but the IRS does not forget
Loan Forgiveness
Uncharted Territory
Forgiveness a
Penalty

or

Discount
?
negative amortization
20 years later...Party like it's 2037
Wild cards:
Forgiven amounts
Tax rate
Savings rate
OSU vet student (2017)
Student Debt Principal: $200,000@6%
Unpaid interest: $30,000
Family size = 1
Qualifies for PAYE, REPAYE, IBR(2009)
Interest accrual: $1,150/mo
Taxable income: $75,000/yr
$ 1150
$ 473
-
$ 677
per month
Unpaid Interest
$133,663 borrowed to date, estimates $27,800 for rest of this year plus $80,000 for fourth year
Planning on small animal gp, maybe mixed animal in OH
Possible income $70-75k/year
Future goal of owning a practice
Other debt
Private student loan ~ $23,000
Car loan ~ $16,000
Loan History & Signalment:
Case 1: 2019 OSU DVM
Key takeaways:
Qualifies for PAYE, REPAYE, IBR (2009)
Consolidate, waive grace period, enter PAYE
Auto-debit for 0.25% interest rate discount
Often less expensive to pay using IDR than ASAP
Start a forgiveness savings plan!
IDR can help with living a comfortable lifestyle :-)
Minimize federal student loan payment
Pay off less flexible debt
Federal Student Loans Estimated Principal: $220,000
Federal Student Loans Estimated Interest: $ 30,000
PAYE: $0-551/mo
Estimated Wtd Avg Int Rate: 5.8%
Chief Complaint:
How I can consolidate and pay off my loans in a reasonable manner so that I can still live a good and comfortable lifestyle. I want to be able to own horses and take occasional vacations so I don't burn out, but still manage my debt.
Loan History & Signalment::
Case 4:
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://vet.osu.edu/education/professional-dvm-program-admissions/financial-aid-information
Don't forget:
annual increases (2.8%/yr)
living expenses
12 month clinical year
interest & fees...
~$20,000 @ 6%
In-school Interest
~$ 40,000 @ 6.2%
http://BETA.vinfoundation.org/studentdebtcenter
PAYE "Cap"
Deferment/ Forbearance
Action Plan --
Graduate
Consolidate (federal)
Waive your grace period
Apply for IDR (PAYE > REPAYE > IBR)
Choose your loan servicer
Renew
on-time
each year
DIR > 1
Beginning with the Class of 2017, 4th years will be charged 3 full terms of tuition (approximately 50% higher tuition than VME 1-3)
$144,534
$273,798
Source: 2017 AVMA & AAVMC REPORT on the MARKET FOR VETERINARY EDUCATION, Table 8
Borrowed $100,750 to date, $19,250 to cover rest of this year, estimates $55,000 more to cover final year
Planning on small animal practice for a few years
Possible income $75k/year
Begin residency after a few years $30k/year
After residency, income likely $100k/year
Loan History & Signalment:
Case 2: 2019 OSU DVM
Key takeaways:
Qualifies for PAYE, REPAYE, IBR (2014)
Consolidate, waive grace period, enter IDR, maybe REPAYE?
Auto-debit for 0.25% interest rate discount
REPAYE can often help with residency and lower DIR
Do not defer during internship/residency, use IDR!
Consider PSLF with academic career path
Federal Student Loans Estimated Principal: $175,000
Federal Student Loans Estimated Interest: $ 25,000
PAYE/REPAYE: $0-551/mo
Estimated Wtd Avg Int Rate: 5.8%
DIR = 2.7
Chief Complaint:
Recommendations to live comfortably and repay my loans during my residency? I have heard of programs where after working for a university for a certain amount of time (10 years) your loans are forgiven. Is that something I should be considering?
http://BETA.vinfoundation.org/studentdebtcenter
Chief Complaints:
What is the best way to pay less on interest? Should we refinance?
-Do you see loan forgiveness programs fading? Rumor has it that they are going to disappear.
-If we are anticipating large expenses in the future (mortgage, car payment, family bills), what is the best loan repayment method??
Federal Student Loans Estimated Principal: $267,000
Federal Student Loans Estimated Interest: $ 39,000
Estimated Wtd Avg Int Rate: 6.2%
DIR = 3.1
Always accepting the full amounts awarded?
Reduce/return awarded amounts vs. making payments
BUDGET
Shift costs to less expensive loan types
4th year = 12-months, offered extra - Do you need it?
In-school support/payments – Best way to use resources?
DIR = 3.6
https://vinfoundation.org/studentdebtcenter
http://www.vinfoundation.org/mystudentloans
6%
7%
2020 OSU DVM Estimate
"Normals"
https://vinfoundation.org/loansim
Student Loan Hx & PE:
https://www.nslds.ed.gov
https://annualcreditreport.com
https://vinfoundation.org/mystudentloans
Tax Reform
:
What happens in 8 years?
Lower tax on forgiveness?
Employer Student loan payments:
When is it a good deal for you?
Can you negotiate something better?
How do you maximize the benefit?
Change in how borrowing and repayment works?
Who will it impact?
What happens to PSLF?
Higher Education Reauthorization:
Hot topics to follow...
Children
Health trouble
Act of nature
Location/Job change
Car trouble
What If...
"Speed Debting"
https://www.merck-animal-health-usa.com/pdfs/vca/MAH-Well-Being-Study.pdf
Full transcript