Student Loans and Educational debt: I Owe, I Owe

Educational debt of veterinary students has skyrocketed over the last five years and continues to grow. The average student loan debt of a U.S. veterinary student graduating in 2011 was $142,000. Although many scholarships and grants are available, student loans are the main source of financial support for veterinary students.

Taking out a student loan is a serious commitment and how you manage your educational debt will impact your future, both personally and professionally.

The best advice when borrowing money is to carefully determine your budget so that you borrow the absolute minimum amount you need. The more money you borrow today, the more your future earnings will be impacted and the harder you may have to work.

Helpful hint: The University of Minnesota’s Personal Financial Simulator tool will assist you in creating a budget for a variety of real-life circumstances. It is a tool for you to use as you begin veterinary school and would like to determine what it will cost for each year so as to determine how much money you will need to borrow. Access the Simulator at: http://www.finsim.umn.edu/#.


Loan Repayment
When determining a payback plan for your debt, choose the plan that will give you the most flexibility. A 20 or 30-year repayment plan will have the lowest monthly payment. Most Stafford and Grad PLUS loan terms have a 10-year repayment length. They can be extended to 25 years if the loan balance is over $30,000.

Prior to graduation, confirm if there are prepayment penalties on your loans. If not, you have the option to commit to a 30-year repayment plan on paper, with the option to make the 20-year, or 15-year level payments, as your budget allows. If you commit to a 15-year payment plan, you may not have the financial means to accomplish any other financial goals during this time period. With the longer repayment plan, you allow yourself some flexibility in building your savings, purchasing a home, and working towards paying down your debt.


Loan consolidation and repayment options
If you have multiple student loans, you may benefit from consolidating them into one loan and one payment. There are multiple payment options available. The most common are 30-year level payment, graduated payment, and income-based repayment (IBR).

With consolidation loans, the term length is determined by how much has been borrowed. If the amount is over $60,000, the term is generally 30 years. Under graduated repayment, the monthly payment starts out lower than the 30-year level payment plan and increases gradually every two years over the term of the loan.

These programs change frequently and you should contact your lender about your specific situation.

Helpful hint: Equal Justice Works has published the Educational Debt Manual to help law students understand basic information about student loans and repayment information.


Loan Repayment Table

Loan amount: $140,000
Interest rate: 6.8%
 

Repayment Monthly Interest
Term (years) Payment Paid
10 $1,610 $53,335
15 $1,243 $83,695
20 $1,069 $116,480
25 $972 $151,510
30 $913 $188,570

Note: The monthly payment is the minimum amount required to pay the loan off within the repayment term. There are no pre-payment penalties for paying more than the minimum requirement, so if you are set up with a 30-year repayment term, but you choose to pay $1,610 per month, the loan will be paid off in 10 years.

Helpful hint: Be sure to stay aware of any tax implications from loan forgiveness programs. 

Top Ten Tips for managing student debt

Before you secure a loan and while you’re a student:

  1. Borrow the least amount that you possibly need.
  2. Manage your loans while in school - be aware of interest rates, due dates, future monthly payments.
  3. Explore student loan consolidation programs.
  4. Explore service-connected repayment programs – by practicing in underserved areas, loans may be forgiven or paid in exchange for a certain number of years of service.
  5. Avoid using student loans to finance other things such as vacations, etc.

During the repayment period:

  1. Pay off higher interest rate loans first.
  2. Be willing to work part-time jobs to assist in funding.
  3. Pay more than the minimum and tell your lender that the extra money goes towards the loan principal.
  4. Use financial windfalls (birthday money, tax refunds, bonuses, etc.) to pay down the principal.
  5. Up to certain limits and income limitations, student loan interest may be deductible from your taxes.

 

 

 

© 2012 WSVMA

 Financial Planning for Veterinary Students

 

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