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Financial Triage for Fiscal Health . A Debt Management Overview for the University of Alabama School of Medicine. Scenario 1 – Highest Rates. Average Indebtedness: $87,000 DL Interest Rate Cap: 8.25% 10 Years to Repay: = $1067/month = $41,049 interest paid

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financial triage for fiscal health

Financial Triage for Fiscal Health

A Debt Management Overview for the

University of Alabama School of Medicine

scenario 1 highest rates
Scenario 1 – Highest Rates

Average Indebtedness: $87,000

DL Interest Rate Cap: 8.25%

10 Years to Repay:

= $1067/month

= $41,049 interest paid

= $1642/month gross income

= $197,040 gross over 10 years

scenario 2 average rate
Scenario 2 – Average Rate

Average Indebtedness: $87,000

Interest Rate: 6.25%

10 Years to Repay:

= $977/month

= $30,220 interest paid

= $1503/month gross income

= $180,360 gross over 10 years

scenario 3 consolidation
Scenario 3 - Consolidation

Average Indebtedness: $87,000

Interest Rate: 3.375%

30 Years to Repay:

= $385/month

= $51,465 interest paid

= $592/month gross income

= $213,120 gross over 30 years

why consolidate
Why Consolidate

Consolidation locks in the interest rate for the life of

the loan.

After July 1, 2005, all new consolidation loans will

have higher interest rates.

After July 1, 2005, all new consolidation loans may

have variable rates, changing annually.

Only Direct Loan borrowers can consolidate while

still in-school!

what to consolidate
What to Consolidate

All Federal education loans

Ford Direct Loans (sub & unsub)

Stafford Loans (sub & unsub)


Perkins + others

the 8640 benefit
The $8640 Benefit

Consolidating Federal Direct Loans while in-school can lower your interest rate lock to 2.875%, saving you $8640 over a 30 year extended repayment.

direct vs stafford
Direct vs. Stafford

Direct Loan rates set by Congress.

Stafford rates also set by Congress,

with competitive flexibility once in

repayment status.

direct vs stafford9
Direct vs. Stafford

Stafford repayment incentives can

allow interest rate drops or principal

reduction savings to reward timely


Only between 11-16% of borrowers

will qualify.

can i re consolidate
Can I Re-Consolidate?

Yes. New DLs can be bundled with old

DL Consolidation. Check the interest rate

effect before doing so.

Old DL Consolidation (prior to 6/01)

may be rolled into FFELP Re-Consolidation.

Rate becomes variable.

shameless plug
Shameless Plug

Student Loan Xpress is currently the only lender offering

a Federal Re-Consolidation Loan.

RightRate program offers the benefit of today’s lower

variable rates, and caps the interest rate at whatever

the previous locked rate was instead of 8.25%

Mostly for ’98-’01 graduates. Only beneficial to a few

current students.

private alternative loans
Private (Alternative) Loans

Loans outside of the Federal system.

No interest rate cap.

Rates vary quarterly.

Some defer for residency, some don’t.

No Federal protection.

private loan consolidation
Private Loan Consolidation

Check interest rate formula & deferment options.

Most can include Federal loans - DON’T DO IT.

Most can combine spouse’s loans – DON’T DO IT.

Only use these loans to consolidate private loans,

institutional loans, residency loans, and other

education debt.

credit cards
Credit Cards

Free t-shirts aren’t free.

Low rates won’t stay low.

Airline miles are paid for somehow.

Cash saved is better than cash back.

how bad can it be
How Bad Can It Be?

Top Credit Card Interest Rate


Average Credit Card Debt


2003 Profits by Credit Card Companies

1.5 trillion globally

60 billion nationally

but worse yet
But Worse Yet…

Fees have doubled.

Income from over-limit charges,

calendar manipulation and returned

checks has far outpaced actual

interest rates.

as for interest rates
As for Interest Rates

One late payment can eliminate all

low teaser rates, raising interest

from 3.9% to over 20%.

Cash advance interest rates may

capitalize daily, not monthly.

Annual fees, points program fees,

authorized user fees all add up.

the lure of the minimum payment
The Lure of the Minimum Payment


At an “early consumer” interest rate of 24%, making only the minimum payment:

  • 304 payments over 25 years (to 2030)
  • Interest payments of $7,625.48
  • Increase the cost to $10,125.48
1970s industry deregulation
1970s Industry Deregulation

There are no regulations which prevent credit card companies from changing your rate at any time for any reason

  • Failing to make a timely payment to another creditor
  • Account balances deemed too high
what if i pay on time and more than my minimum due
What if I pay on time, and more than my minimum due?
  • On a low balance, a very good practice
  • On a high balance, timely payments alert the credit companies to increase your maximum, extending you more credit and lending you more money
  • More potential credit can work against your ability to borrow
ultimately credit
Ultimately, credit . . .
  • Results in more spending, more debt and more credit costs
  • Should be used to buy what you can pay 100% for at the end of the month
  • Should be reserved for large purchases you’ve planned for, not the day to day
  • Can be based upon “good” or “bad” debt
why not the day to day
Why Not the Day-to-Day?
  • Snacks at coffee shop ($5 x 4) $ 20.00
  • Gum or candy ($1.20 x 4) $ 4.80
  • Soda or bottled water ($1.25 x 4) $ 5.00
  • Movie & snacks ($12.00) $ 12.00
  • Occasional magazine ($4.50) $ 4.50
  • Gas $ 25.00
  • A couple of CDs $ 15.00

The costs of the “little things” $ 86.30

Total over 35 weeks? $ 3,020.50

you do the math
You Do The Math!

Bob’s $2.80 tall, double-shot, nonfat mocha from the coffee shop really jump starts his day. In four-and-a-half years when he can’t make his first student loan payment or pay his rent, how much could he have stashed away in a shoe box under his bed?


your credit is seen by
Your Credit Is Seen By
  • apartment managers
  • employers
  • car dealers
  • retail creditors
  • banks
    • income
    • length of employment
    • length of tenancy or homeownership
    • the kind of credit requested
what do potential creditors see
What Do Potential Creditors See?

For up to 10 years:

  • Late payments
  • Paid charge-offs
  • Paid collection accounts


  • Unpaid collection accounts
  • Charged-off accounts
all carefully tracked by
All carefully tracked by

Fair, Isaac & Company

(a.k.a. FICO)

how is fico measured
How is FICO Measured?

FICO measures your financial responsibility based on your credit history calculated from 5 categories:

a fico score
A FICO Score

• Considers all 5 categories

• Looks at all information

• Considers positive and negative information

• May contain errors which are the individual’s responsibility to know about and correct

fico scores
FICO Scores
  • 75% of Americans have a recorded credit history (225M)
  • Median credit score – “good” – is 720
  • Highest score is 850
  • The riskiest population – those who

will most likely charge off debt or file bankruptcy – is below 600

the 3 credit bureaus
The 3 Credit Bureaus


800-685-1111 (


888-397-3742 (


800-888-4213 (

www annualcreditreport com

Beginning June 1, 2005, all Alabama residents may

receive one credit report from each bureau annually.

Follow instructions to dispute any errors.

Ask creditors to reduce unnecessarily high limits to more

reasonable amounts.

Close unused accounts.

You don’t need a “credit repair” company!

checking your reports
Checking Your Reports
  • Review all information carefully
  • Every detail is important – from the SS# to the individual account numbers
  • Review reports every year,

preferably more than once

to dispute items
To Dispute Items
  • Read the denial letter carefully (which potential creditors must send by law)
  • Accept the fault
  • Send written dispute letters
  • Retain copies!
letter example
Letter Example

Your name, address and phone number


Credit Agency name & Address

RE: Dispute and Investigation Requests

Dear Sir or Madam:

Please accept this letter as a written request to dispute account information which appears on my credit report. To prevent any confusion, I have listed the items and account numbers separately.

Account 1 #XXXXXX- (example) I have settled this account to the satisfaction of the creditor (copy of store letter enclosed). You may verify this with the creditor by calling them at (XXX) XXX-XXXX.

Account 2 #XXXXXX- (example) This account appears under a Social Security Number which is not mine (my SS# is XXX-XX-XXXX).

Thank you very much.

fico scores and today s credit
FICO Scores and Today’s Credit

Mid-range scores require income

verification; higher scores may not.

The theory: If your score is high, you

won’t make foolish debt decisions, so

you’ll usually get whatever you ask


hits against your fico score
Hits Against Your FICO Score

Late payments

Uncollected debt

High debt

High potential debt

Frequency of applications

Frequency of inquiries

always opt out
Always Opt-Out

Opting Out can prevent possible

telemarketing fraud or 1-888-382-1222

Opting Out can prevent much of your

personal information and financial habits

from being sold to marketing companies

  • In July 2002 all 3 major credit bureaus

in the U.S. received permission from

Congress to sell your information

2 ways to opt out
2 Ways to Opt-Out


debt management strategies
Debt Management Strategies

Create a spreadsheet, showing the following:

type of creditbalancemo pmtAPR

student loan $87,000 $ 361 2.9

car loan $14,000 $ 350 8.9

Visa $ 7,200 $ 144 15.9

Mastercard $ 2,400 $ 48 18.9

mortgage $95,000 $ 750 6.3

TOTALS 292,000 $1653

debt management strategies40
Debt Management Strategies

Now sort by APR, highest to lowest:

type of creditbalancemo pmtAPR

Mastercard $ 2,400 $ 48. 18.9

Visa $ 7,200 $ 144. 15.9

car loan $14,000 $ 350. 8.9

mortgage $95,000 $ 750. 6.3

student loan $87,000 $ 361. 2.9

TOTALS 292,000 $1653.

debt management strategies41
Debt Management Strategies

Pay all extra money each month towards

the debt with the highest APR.

Once that debt is eliminated, roll that

budgeted monthly payment amount into

the second highest APR.

This is a good rule-of-thumb -- not an


debt management strategies42
Debt Management Strategies

There are tax implications.

Home mortgages, business loans,

and student loans all have interest


There may be limits.

your graduation to do list
Your Graduation To-Do List

Consider consolidating latest education debts, weighing

how consolidation terms may have changed.

Request deferments while in grace period.

Enroll in auto-pay for all possible debts.

Enroll in overdraft protection.

Find a good accountant.

Find a good financial planner.


Financial Planners


Student Loan Xpress

Information on Federal and private

consolidation loans, residency

relocation loans, practice acquisition

and expansion loans.

(866) SLX-PRES


Kevin McNamara

Vice President, Graduate & Health Professions Programs

Student Loan Xpress, Inc.

(866) 311-8135