Student Loans and Challenges Facing Medical Students

Prepared by:Joshua Stanton, MSIV

New York Medical College

Objectives

• Loan Types

• Consolidation

• Forbearance and Deferment

• 20/220 and IBR

• Problems with IBR

• Solutions

Student Loans

• Financial aid packages that are required to be repayed and often acquire interest while open

• 3 Primary Types:– Stafford Loans– PLUS Loans– Private Education Loans

Stafford Loans

• Stafford loans are federal loans made directly to the student.

• These loans are then further subdivided into Subsidized and Unsubsidized– Subsidized loans accrue interest that is paid by the

Federal government.– Unsubsidized loans accrue interest for which the

student is responsible.

• There are lifetime limits on both Subsidized ($65,000) and Unsubsidized ($224,000) loan

PLUS and Private Loans

• PLUS - Federally sponsored student loans– Supplemental to Stafford

• Private loans can be also bridge gaps– Subprime crisis – Decline in the economy– Decreased lenders providing these loans

With Graduation Comes so Many More Problems

Loan consolidation and other Loan consolidation and other avenues of repaymentavenues of repayment

Loan Consolidation

• May have multiple educational loans to pay

• Consolidation allows a student to combine several loans into one big loan

• Consolidation is available for most federal loans– Some restrictions do exist:

• Students cannot consolidate while attending school• Married couples cannot consolidate together• Loans can be consolidated only once • Additional loans must be added to be reconsolidated

Deferment and Forbearance

• Deferment – postponement of payments with interested paid by the government:– Graduate program– Unemployment – Economic hardship

• Income-Based Repayment became law in 2008 that made deferment near impossible

• Forbearance – postponement of payments with interest accruing to the student

20/220 Pathway and the Income-based Repayment

• 20/200 Pathway was the old system– Resident qualified for deferment if they were:

• Employed full time• If their debt burden is greater than 20% of their income• If their income (minus their debt burden) is not greater

than 220% of the federal poverty level.

• As of July 1, 2009 the 20/200 pathway was replaced by the Income Based Repayment (IRB) system.

Income Based Repayment (IBR)

• Requires payments based on a percentage of income

• Rationale – Encourage payment on loans and prevent large debt burden– Medical school unique with low-paying residency– Not considered in blanket approach passed to cover

all graduate programs

IBR 10 Year Plan

• Once in Residency:– Work for non-profit entity for 10 years– Pay IBR calculated payment for 10 years– After which, the remainder of loans are forgiven

• The good news: Residency, Fellowship, and most hospitals count as non-profits.

• The Bad news: Once an attending, have to pay on the 10 year plan, thus limited utility

Loans Eligible for IBR

• Federal Direct Unsubsidized Stafford Loans

• Federal Direct Subsidized Stafford Loans

• Federal Direct PLUS Loans for parents and grad/professional students

• Federal Direct Consolidation Loans

Concerns and Solutions

• The average American medical student graduates from school with 126,000 dollars

• Average Resident salary is 46,000

• Even minimal payments difficult for some residents in urban settings

Possible Solutions and Objectives

• Permanent reinstatement of the 20/200 Pathway

• Expansion of the Hardship Deferment Criteria

• Return of in-school consolidation

• Increases in federal grant aid

• Reduction of IBR mandated repayment percentage

Conclusions

• Graduate Education is Very Expensive

• Loan Repayment options are no longer as favorable

• IBR System can be very challenging for residents

• New systems with better adaptability to individual conditions will be needed

Online Resources

• Calculator available to estimate amount of IBR payment and borrower eligibility: www.studentaid.ed.gov

• NSLDS available to borrower to obtain complete Federal student loan information - www.NSLDS.ed.gov

Resources for you Decision Making

1. National Student Loan Data Systems for Students http://www.nslds.ed.gov

2. Federal Direct Loan Home Page http://www.ed.gov/offices/OSFAP/DirectLoan

3. Free Application for Federal Student Aid (FAFSA) http://www.fafsa.ed.gov

4. Association of American Medical Colleges http://ww.aamc.org

5. American Medical Association http://www.ama-assn.org 6. The Smart Student Guide to Financial Aid

http://www.finaid.org 7. Sallie Mae http://www.salliemae.com8. Nellie Mae http://www.nelliemae.com