Student Loan Repayment and Forgiveness

1. Student Loan Repayment and Forgiveness How you could have over $150,000 of your Direct Loans forgiven.

2. “Reality continues to ruin my life.” -Bill Watterson, cartoonist Calvin and Hobbes

3. Reality….. • 89% of all medical students graduate with loan debt • Median debt for Public Schools is $150,000 • 22% owe more than $200,000 • Median stipend for a 1st year resident is $46,717 • 38% of medical graduates reported on the graduation questionnaire that loan indebtedness had some influence on their specialty choice Fact Source: AAMC Debt Fact Card

4. Public Service Loan Forgiveness • Effective October 1, 2007 • Government program that provides forgiveness, or cancellation, of debt on the remaining balance (principal and interest) due on eligiblefederal Direct student loans after the borrower has made 120 monthly payments to Direct Loans while also employed “full-time” in qualifying service jobs

5. Qualifying Service Jobs • Tax-exempt, 501(c)(3) non-profit organizations • Federal, state, local or tribal government • Military (active duty) • Public schools and colleges • AmeriCorps or Peace Corps • Private organizations that provide public services • Public service for individuals with disabilities and the elderly • Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner and health care support occupations) • Check studentaid.ed.gov website for more info

6. Employment • Must be working “full-time” (at least 30 hours per week) • Must be employed while… • making the required payments • at the time you apply for the forgiveness, and • at the time the remaining balance is forgiven • Does not have to be continuous employment • Can be employed in more than one job (as long as your hours worked at the qualifying jobs average at least 30 hours per week)

7. Eligible Loans • Any non-defaulted loan made under the Direct Loan Program • Federal Direct Subsidized Stafford/Ford Loans • Federal Direct Unsubsidized Stafford/Ford Loans • Federal Direct PLUS loans for graduate or professional students (Grad PLUS) • Federal Direct Consolidation Loans If you have other federal loans, like FFEL Stafford or Perkins, you should consider consolidating those loans with Direct Loans so they qualify.

8. 120 Required Monthly Payments • Must not be in default • Make 120 required monthly payments on time to Direct Loans in one of the following repayment plans: • Standard Repayment • Income Contingent Repayment • Income-Based Repayment (IBR) • Voluntary payments made during periods of deferment, forbearance or grace do NOT count toward forgiveness • Repayment Calculator: http://www.ed.gov/offices/OSFAP/DirectLoan/calc.html

9. Repayment Options • National median debt • Current interest rate • Total at graduation with interest • Standard Repayment (10 years) • Graduated Repayment (10 years) • Extended Repayment (25 years) • Extended Graduated Repayment (25 years) • Income Contingent Repayment • Income-Based Repayment $150,000 6.8% $170,870 $1,966 $1,350 $1,186 $ 968 $ 586 $ 380

10. How does IBR work? • Must show a “partial financial hardship” • If you earn below 150% of the poverty level for your family size, your required payment is $0 • If you earn more, your payment is capped at 15% of your household income that is above 150% of the poverty level for your family size

11. IBR Monthly Payment Amount

12. Does IBR work if you’re married? • You must list your spouse’s income if you filed a joint tax return and it will be used to calculate your payment • NEW JULY 2010 – Lenders will also consider the spouse’s loan debt knowing that both incomes must be used to pay both loan debts – calculators currently do not reflect this change in law • You could file taxes separately; however, you could also lose a lot of tax benefits by doing so – consult a CPA

13. What about interest? • Interest continues to accrue, but on the principal amount only • If your reduced payment does not cover the accrued interest, then the government will pay the interest on your subsidized loans for the first three years in IBR • Anything you owe while in IBR after 25 years is forgiven – including interest

14. Can I get kicked out of IBR? • Your payment will increase as income increases, but you cannot be “kicked out” of IBR unless you default • If your income increases to where there is no “partial financial hardship”, then unpaid interest capitalizes • No matter your income, you’ll never have to pay more than the 10-year standard monthly payment on the balance you owed when you first entered repayment on the loan • If you voluntarily leave IBR, then you repay the loan under the standard repayment with a 10-year term less any time spent in IBR (i.e. less time and higher payment)

15. Estimating the numbers • Balance at start of IBR $170,870 • IBR payments during 4 yr residency $380 - $500 • IBR payments for 6 years* $1,300 - $1,800 • Total Payment $128,000 • Total Interest Paid $92,000 • Forgiven Amount $170,000 You’ll never have to pay more than the 10-year standard calculated at the start of repayment Assumptions: household of 1 in continental US, starting salary of $120,000 after residency, 5% annual salary increase, 2009 poverty guidelines

16. This all sounds great, but can I really afford payments during residency? It is true that most residents postpone repayment. Let’s run the numbers……

17. Your first bump in income • Average Stipend 1st Post-MD Year $46,717 • After taxes* (federal, state, FICA) -$32,473 • Take home pay per month $2,706 • Financial aid living allowance -$1,595 • Additional amount available in budget $1,111 • Income Based Repayment (yr 1) - $380 • Remaining amount in budget $731 *Assumes single filer, 0 allowances at 2009 tax rate, standard deductions, MO resident

18. Public Service Loan Forgiveness: Basic Checklist • Find out what loans you have: www.nslds.ed.gov • Consolidate your FFEL loans with Direct Loans: www.loanconsolidation.ed.gov • Sign up for the income-based repayment plan: • www.dl.ed.gov select “repayment plan selection” form • Submit proof of income (tax return or alternative income form) • Make qualifying payments each month for 10 years while working in public service full time • Check that your job qualifies (federal tax letter) • Keep paystubs and record of payments • Apply for the forgiveness – stay tuned for application

19. Resources • www.ibrinfo.org – get updates emailed to you, excellent FAQ, complete calculator, links to more information • www.aamc.org/first - informational brochures • http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp - Direct Loans informational page on IBR • http://som.missouri.edu/financial/smartdocs/ - will have this presentation and other resources posted