www.dwoq.com w.dwoq.com Agenda Repa paymen yment t Mar arketpl - - PowerPoint PPT Presentation

A Strategic Approach to Managing Student Debt: Best Practices for 2016 Medical Graduates

Florida Atlantic University by Jason DiLorenzo Founder & Executive Director

www.dwoq.com w.dwoq.com

Agenda

• Repa

paymen yment t Mar arketpl tplac ace e Overvi rview ew

• Loan

an Forgivene giveness ss an and Legis islat ation ion Up Updat ate

• Sav

avin ings gs Cas ase Studi dies es

• The Refin

inan anci cing ng Mar arketp tplac lace

• Trai

aining ing “Exit Interview”

• Tax

axes s an and Other r Considerati iderations

• ns
• Avai

ailab able e Resou

• urc

rces es

• Q&A

&A

Changes in Student Debt Levels

~$50k ~$89k

1993 2000

~$220k

2015

$300k

Debt levels have quadrupled in the last 20 years

3/30/2016 4

• Anesthesia:

$276k

• Emergency Medicine:

$231k

• Family Medicine:

$161k

• IM, General:

$180k

• OBGYN:

$220k

• Pediatrics:

$160k

• Psychiatry:

$179k

• Surgery, General:

$275k

• Surgery, Neuro:

$520k

Physician Starting Salaries by Specialty

Higher Salaries Reduce Forgiveness Benefit

3/30/2016 5

Repayment Timeline After Graduation

Spring 2016: Graduation, File 2015 Taxes July 2016: Begin Residency Fall 2016: End of Grace Period on Stafford/Grad PLUS IDR Renewal every 12 Months / Review Profile and Legislative Changes Training Exit Analysis: PSLF / Standard / Refinance

Repayment Options Upon Graduation

• MOST COSTLY!
• MPH/other students CAN waive deferment if in residency

Forbearance / Deferment

• 15% of discretionary income
• Available if loans outstanding on Oct 1, 2007

IBR

• 10% of discretionary income
• Available if no loans outstanding on Oct 1, 2007

PAYE

• 10% of discretionary
• No borrowing restriction, no PFH required

REPAYE

• Available with attractive underwriting profile, may be

appropriate for some graduates

Refinancing

• Most Housestaff need payment relief during training

Standard or Extended Term

Forbearance: No Payment, No Problem?

Extended Term Payment: 10-Year Standard Payment: Salary:

• Payment unmanageable during residency
• Deferment regulation changes necessitate forbearance

$1,961 $1,961 $1.961 $1,961 $1,154 $1,154 $1,154 $1,154 $ 50,000 $51,500 $53,045 $54,636

Monthly interest cost = $906 Total interest accrual = $43k+ No subsidy benefits Not PSLF Eligible

$175k @ 6.21%

Pay As You Earn for 2016 Graduate

Extended Term Payment: 10-Year Standard Payment: Salary:

$50,000 $51,500 $53,045 $54,636

$175k @ 6.21%

PAYE Payment:

$ 0 $ 57 $261 $262

Almost $7,000 in interest paid Potential subsidy from undergrad, and no capitalization PSLF Eligible

$1,154 $1,154 $1,154 $1,154 $1,961 $1,961 $1.961 $1,961

REPAYE: Pros and Cons

REPAYE not appropriate for high income households

Pros:

• 50% of accruing interest paid by government (Unsubsidized

loans become partially Subsidized!)

• Previous payments made towards 120 for PSLF count
• Prorated for married borrowers: If John owes 30% of the combines

total eligible loan debt and Jane owes 70% of the combined total eligible loan debt, John's calculated payment amount would be $120 and Jane's would be $280 Cons:

• Household income will be used regardless of how you file taxes
• 25 year taxable forgiveness for graduate students, not 20 like PAYE
• No cap to payments (10-year standard in IBR & PAYE)

How Revised Pay As You Earn Works:

~$200k @ 7% $14k

$250/month x 12 months = $3000 $14,000 - $3000 = $11,000 outstanding

$11,000 x 50% =

$5,500 savings

less than 4% effective rate in training!

Requires 10% of discretionary income like PAYE, but 50% of accruing interest not charged when payments don’t cover interest!

REPAYE for 2016 Graduate

Extended Term Payment: 10-Year Standard Payment: Salary:

$50,000 $51,500 $53,045 $54,636

$175k @ 6.21%

PAYE Payment:

$ 0 $ 57 $261 $262

Almost $7,000 in interest paid Roughly $20,000 not charged

• If uncertain of PSLF track, huge benefit

PSLF eligible

$1,154 $1,154 $1,154 $1,154 $1,961 $1,961 $1.961 $1,961

Switching Programs

• Borrowers are permitted to switch to/from

REPAYE

• Payments count towards PSLF
• Conversion requires “reduced payment”

forbearance, 1 month

• Capitalization will occur when exiting, but

impact minimal if PSLF achieved

Public Service Loan Forgiveness El Eligibl ble Loans: Direct t Staffo ford rd & Gr Grad d PLUS (FFEL, Perkins, HPSL and LDS can be consolidated for eligibility) Specifi ific requi uirement rements: s:

• Borrower must make 120 qualifying payments on a Fe

Fede deral al Direct t Loan

• Borrower must work for a public service entity as defined by

the program, such as a Federal, State, Local, or non-profit

• rganization
• Employment Certification Form is available, not mandatory
• Will trigge

ger r transi sition

• n to FedLoan
• ans as servi

vicer er

Approximately 80% of hospitals are non-profit

• Bans the practice of physician self-referral, there are loopholes
• Some states have more restrictive interpretation than others
• Specialties with higher likelihood of for-profit employment after training:

– Emergency Medicine – Anesthesia – Radiology

• Paths with higher non-profit opportunity:

– Family Medicine/Primary Care – Pediatrics – Academic – States where non-profit hospitals more inclined to employ directly

Stark Law Overview and Impact

Non-profit “Setting” May Not Qualify as Public Service

10-Year Case Study: 2016 Graduate Profile:

• Debt - $220k
• Specialty – OBGYN
• PSLF Eligible, unsure of employer after training
• Future expected income - $250k
• Marries in 2019, spouse earns $125k

10 Year Case Study: 2016 Graduate

Obama 2016 Budget Proposal

Repayment Under Obama's Proposal Income Driven Repayment Calculation

Limited to 10% of discretionary income Cap on payments removed

Loan Forgiveness

10 Years if working in the Public Sector AND loan balance less than $57,500 20 years for borrowers with total loan balance less than $57,500 25 years for borrowers with total loan balance greater than $57,500

• Expansion of PAYE to all federal

loan borrowers

• Removal of cap on payments

(REPAYE)

• New cap on amount forgiven

through PSLF

• $57,500 limit, based on max

borrowing amount for independent undergrads

• Balances above $57,500 will

not be forgiven until 20-25 years of participation

• Household income used for

documentation instead of MFS (REPAYE)

• 20 and 25 year forgiveness
• ptions to be tax-free (still waiting)

Income Documentation

If 2016 Graduate uses pay stubs only, payment will be based on inflated AGI $0 tax return can result in $0 payment

• Without proper planning, this can add cost

Tax return remains preferred method of income documentation Alternative Documentation in online application

• When selected, forms required to be mailed, delays processing

Married Filing Jointly/Separate: Case-by-Case

• Do I need to consolidate?

– PSLF and PAYE are available for Direct Loans only – IBR available for FFEL loans but not PSLF eligible – Perkins, HPSL, LDS (some don’t appear on NSLDS!)

• Option to choose servicer

– FedLoans is PSLF servicer – Varying turnaround times for processing applications – Varied standards for income verification (best to file tax return) – Service considerations

• Servicer Errors

– Eligible loans not included in consolidation – Wrong repayment plan implemented – Incorrect advice regarding consolidation for forbearance, IBR/PAYE/PSLF

Considerations for Loan Consolidation

You have 10 business days to make changes once Loan Summary Sheet is issued

A Physician’s Fork in the Road

Considerations:

• Loss of subsidy/forgiveness benefits on Federal education loans
• Liquidity, as forbearance and deferment typically not allowed after

refinancing

• Origination and other fees may erode savings
• Fixed vs. variable rate loan types have significant impact on long-term vs.

short-term savings

• Your time horizon for paying off the particular debt
• You CAN refinance an already refinanced loan

Private Rarketplace

To Re or Not to Re: That is the Question

Opportunity:

• Lending marketplace increasingly crowded and highly competitive
• Transaction-focused, not consultative
• Rates can be competitive, fixed as low as 3.5%
• Available in training for some Housestaff
• For graduates with $75k or less in federal debt, PSLF likely holds little value,

refinancing may make sense

• 1. Identify if refinancing is suitable!
• Debt-to-income ratio considered
• No negative credit history, min 680 score
• Adding co-signer can improve results
• 2. Review existing

financial and credit profile to determine if refinancing is available

• 3. Approach marketplace
• Work with an Advisor
• Deferment/Low payments in residency available
• Better rates available for shorter terms, but can you afford

higher payment right after training?

• 4. Once terms and rates

are quoted, select option in the context of your liquidity needs

Recommended Refinancing Process

Training Exit Strategy

EXIT INTERVIEW

After 4 years of training, a graduating resident contemplates the next step in her career. How does loan forgiveness impact the economics of working for a non-profit? Original Debt: $250,000 Debt after training: $308,000 Non-profit salary offer: $155,000 For-profit salary offer: $205,000

EXIT INTERVIEW

645,702.11 (77,175.54) 853,993.11 (435,303.98) (600,000.00) (400,000.00) (200,000.00) 0.00 200,000.00 400,000.00 600,000.00 800,000.00 1,000,000.00 PV of Earnings in Years 5 - 10 PV Total Spent

Costs and Benefits of Career Opportunities

PSLF For-Profit (Standard 10 Year Payoff Amount)

$155,000.00 $205,000.00

$94,076.74

$- $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 $300,000.00 Public/Non-Profit For-Profit Base Salary Added Salary Equivalent for PSLF

Salary Equivalent Public VS Private

Assumptions: PAYE eligible. The taxable equivalent amount assumes a marginal federal tax rate of 20% and a marginal state tax rate of 5%.

Actual Public Service Salary Actual For-Profit Practice Salary

Additional from Public Service derived from forgiveness

3/30/2016 27

Repayment Timeline After Graduation

Spring 2016: Graduation, File 2015 Taxes July 2016: Begin Residency Fall 2016: End of Grace Period on Stafford/Grad PLUS IDR Renewal every 12 Months / Review Profile and Legislative Changes Training Exit Analysis: PSLF / Standard / Refinance

Jason DiLorenzo help@dwoq.com www.dwoq.com 314.787.7399

Wishing You The Best of Luck With Your Career in Medicine

www.DWOQ.com

Doctors Without Quarters

“til DEBT do us part…”

DWOQ Services

Personal Consultations: $250 ($400 for couples)

• Review federal and private loan portfolio
• Repayment options overview, including Income-Driven options and loan

forgiveness opportunities

• Overview or completion of consolidation and repayment application
• Review loans for refinancing opportunities
• Tax, credit & legislative considerations overview
• Assist in creating a budget
• Income protection and financial goals (home/practice purchase, etc)
• Develop a timeline of action items
• Annual add-on service for $50 quarterly available Feb 15th

Refinancing Marketplace

• Complimentary review of loans, savings opportunity, introduce partner,

rate/term selection consultation

• Disability Insurance protects your ability to earn an income
• Residents are eligible for up to $5k/month in coverage
• This helps hedge risk against losing all that education and training that a

doctor has spent learning over the past 10 years

• Work with a broker, not an agent!
• Group policies often not sufficient

– Taxable benefit – Not specific to your OWN occupation

• Coverage Considerations

– Guaranteed Insurability – OWN occupation coverage

Income Protection: For YOUR Occupation

Income Protection: Coverage Comparison

Questions from Housestaff

• If I’m in IBR, is it possible that some or all of my federal

loans could not be PSLF eligible?

• Is it better to choose a deferment if I’m eligible for one?
• What happens to our loan debt if we die?
• Could you address Obama’s 2016 budget changes and

how, if implemented, they would affect those of us who are already submitting paperwork for loan forgiveness (e.g. is there a possibility that we would be grand- fathered in through the original program)?

Loan Forgiveness – True Cost of Debt

4-Year Residency

500 1000 1500 2000 2500 3000 3500 Residency 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th Standard Repayment IBR Payment PAYE Payment

$395,160 Standard $164,590 IBR $109,726 PAYE

Can I Buy a Home During Training?