1. HLS Student Financial Services Understanding Student Loans

2. The Value Proposition of Law School • Net present value of an HLS degree • Loans represent an investment in your future earning potential in the legal profession • HLS offers support for public service / low income careers

4. - College debt repayment $12,000, HLS debt repayment $250,000 - Based on 30 year salary projections using annual salary increase rate of 3% - HLS degree salary projections based on 2012 average private sector starting salary, bonus pay excluded - NPV calculations use inflation (discount) rate of 3%

5. Student Loans - definitions • Principal – the total amount initially borrowed plus any interest that has been capitalized • Interest – a charge that reflects the market cost to the lender for loss of use of funds until loan is fully repaid (“time value of money”) • Interest rate - the rate at which interest is charged and accrues on the loan

6. Student Loans – more definitions • Loan fees – additional fees that are deducted at disbursement or added to principal balance at repayment • Capitalization – occurs when accrued interest is added to the outstanding principal balance, becoming the new basis for future interest • Compound interest – interest charged on previously capitalized interest as well as on remaining principal balance

7. Student Loans – even more definitions • Annual Percentage Rate (APR) – reflects the total loan cost, including fees and interest • Amortization – the process of decreasing an amount (e.g. principal on a loan) over time • Amortization schedule – a table showing the amortization process as a schedule of payments reducing the loan amount to $0 • Repayment term – how long it will take to repay the loan according to the schedule

8. Student Loans – enough with the definitions! • Deferment – a temporary postponement of repayment obligation, typically during a period of enrollment or unemployment • Forbearance – like a deferment, but typically at lender’s discretion during a period of financial hardship • Discharge – the release of a borrower from the obligation to repay, typically granted (for Federal loans) in case of death or disability

9. Amortization Schedule • Typically shows the following info • Number of payments • Amount of each payment directed toward principal and interest • Cumulative principal and interest paid • Outstanding principal balance • Good loan payment calculator with schedule: • http://www.finaid.org/calculators/loanpayments.phtml

10. Amortization Schedule - example Balance = $150,000, interest rate 7%, 10 year term Monthly interest calculation: Beginning balance x 7%, divided by 365, x 30.41666 (percentage of year for 1 month) Example: $150,000 x .07 = $10,500, divided by 365 = $28.77, x 30.41666 = $874.9997

11. Loan Repayment • Loan debt – only part of the picture • What is the monthly payment on your loan debt? • How does that monthly payment compare to your monthly income (net, after taxes)? • Are you likely to qualify for loan repayment assistance? • Average starting salaries for HLS Class of 2012 • Private practice (law firm): $154,092 • Private business: $116,582 • Government: $58,604 • Judicial clerkships: $58,849 • Public interest: $42,850

12. Managing Loan Repayment • Calculate your net income after taxes; i.e. the money available to make your monthly loan payment • Calculate your estimated monthly loan payment - Multiply number of thousands borrowed by 12.6

13. Calculating Monthly Take-Home Pay Amount borrowed while in law school: $135,000 Example 1 Example 2

14. Managing Loan Repayment – key points • Education is an “appreciating asset” • Education is a long-term investment • Salary typically increases over time while loan payments remain stable • LIPP assistance is available for lower-income graduates, to keep payments manageable • By making good budgeting decisions now, you are maximizing future take-home pay • All borrowers must attend an Exit Interview during the last semester at HLS

15. Should I pay off my loans early? • Pay yourself first • Develop a budget to manage fixed living expenses, make required loan payments, and save for short-term goals • Establish an emergency fund, start funding your retirement, obtain insurance (health, life, disability) • Pay off all higher-interest debt, e.g. credit cards • Consider early repayment scenarios vs. long-term savings scenarios • Get help from a fee-only financial planner to make decisions

16. For more information Overview of Education Loans, Terms, Options http://www.law.harvard.edu/current/sfs/myaid/education-loans/ Calculators and Planning Tools www.law.harvard.edu/current/sfs/myaid/tools/ LIPP Guidelines www.law.harvard.edu/current/sfs/lipp/ iGrad Graduate Student Loans module See login link at http://www.law.harvard.edu/current/sfs/

17. Contact Us 1585 Massachusetts Avenue Wasserstein Hall, Suite 5027 Cambridge, MA 02138 617-495-4606 sfs@law.harvard.edu