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Entrance Education Debt Manager
Entrance Education Debt Manager
Entrance Education Debt Manager
Organizer and Calculator, the only on-line tool that calculates detailed
repayment scenarios for personalized medical student loan portfolios while
accurately accounting for the residency/fellowship training period.
www.aamc.org/FIRST
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Loan Basics for Entering Medical Students
The first step to managing your education debt is to get organized. In the coming years, if
you track and keep all of your student loan documents in a single place, you will find that
not only are you a more educated borrower (because you understand the current state of
your debt portfolio) but after medical school you will be more prepared to manage this debt.
Medloans
score,
with scores ranging from a low of 300 to a high of 850. Knowing your exact FICO score is
not as important as understanding what it is based on.
A credit score, or FICO score, is based on only 5 specic factors (as determined by Fair Isaac
Corporation) which give no consideration to employment status, income or profession. So,
be aware of these factors, because even once you are an MD earning a nice salary, a good
credit score is not guaranteed.
Nothing in Life is Free, right?
If youre curious to nd out your FICO score, its likely you will either pay a fee or
agree to a nancial obligation (like signing up for a subscription) before youre
able to see that score. Time is better spent on reviewing your credit report at
www.annualcreditreport.com
(where it really is free)!
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35% Payment History
15% Length of
credit history
10% New credit
10% Types of credit used
30% Amounts owed
Payment History (35%)
This is the largest portion of your score.
Delinquent payments can have a major
impact on scoring, but consistent
payments made on-time will raise a
credit score. TIP: As a medical student,
be proactive against late payments. Set
up automatic withdrawal or schedule
online bill pay services with your bank,
so that a recurring monthly payment is
never late (like credit card payments).
Amount Owed (30%)
The total amount of your credit line that you are currently utilizing will impact your credit
score. The goal is to use less than 30% of your line of credit (add up the maximum credit
line on all of your credit cards and compare it to the total amount owed in order to
determine your utilization rate).
TIP: During medical school, make a focused effort to pay down your credit card debt or at
the minimum, avoid creating/increasing the balance on these cards.
Length of History (15%)
The longer the history, the higher the score, and for this reason, be careful when closing
accounts (like credit cards) as you may lose some of your credit history in the process.
TIP: To avoid having your oldest accounts, like credit cards, closed by the companies they are
with use them periodically.
New Credit (10%)
A high number of inquiries (over 3) inside of 12 months can be negative so limit
the number of times you allow a company to pull your credit
TIP: During medical school, there is no reason to be opening new credit cards. So, when you
are checking out and paying at your favorite store and they ask you if you would like one of
their cards, just say NO.
Types of Credit (10%)
Possessing a variety of credit is optimal. Note, there is a difference between secured
versus unsecured debt and how it weighs into your nal credit score.
TIP: Too much unsecured debt is never a good thing, so be conscious of the number of credit
cards in your wallet. For more information, visit www.myco.com
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The Benets of Good Credit
Good credit means you are more likely to get a loan approval. Beyond that, though, there
are additional benets to be enjoyed:
Better loan offers (rates, terms and conditions)
Lower interest rates on credit cards
Faster credit approvals
Increased leasing and rental options
Reduced security deposits
Reduced premiums on auto, home and renters insurance
Being proactive about your credit is the way to begin making smart nancial decisions that
will give you a solid foundation for years to come.
Really?
Did you know that you actually have 3 credit reports? Its true! A separate credit report is
maintained for you by each of the 3 major credit-reporting agencies Equifax, Experian, and
TransUnion. These three reports accomplish the same purpose but may vary depending on
the data included on each. To best protect yourself from mistakes and (more likely) identity
theft, its important to review each of your credit reports annually.
Reality Check: Scrutinize Your Credit Report
It is a good idea to review your credit report at least once a year. In fact, there
is a website and toll-free number through which you can request a copy of
your free report from each of the three major credit bureaus.
To order your free annual credit report, visit www.annualcreditreport.com
or call 877-322-8228.
You are entitled to a free report once a year take advantage of this!
Reality Check: Scrutinize Your Credit Report
Additional information on credit reports and credit scores is available on the FIRST website at:
www.aamc.org/first/factsheets
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Budgeting
Having a spending plan is the cornerstone of a solid nancial foundation. All other efforts
for borrowing wisely will be undermined if you dont have a plan of action for managing
your money during medical school. Living on a budget isnt hard to do and your efforts will
be met with a more immediate realization of nancial goals.
Benets of Budgeting
Lets face it. Money will probably be tight during medical school; thats why having a realistic
spending plan is essential for you to most efciently accomplish the following:
Track and control your spending
Identify hidden leaks in your cash ow
Avoid credit card debt
Reduce the total cost of your medical education
Creating a Budget
The most difcult part of developing your spending plan is taking the time to sit down and
actually create it. This intimidating task can seem overwhelming at rst, but it can be done
in a few dedicated minutes using the right templates and guides. To get you started, the
AAMC offers several options to help you create a detailed budget.
Resource Format Name
Financial Literacy 101 Online module Budgeting for Medical School Students
Budget Calculator Online module Budgeting for Medical School Students
Financial Aid Fact Sheet* PDF Budgeting Worksheet
* also available on page 36
All of these resources can be found online at www.aamc.org/FIRST. Use your AAMC login
and password. If you need assistance, contact dhales@aamc.org to request your login and
password. The PDF templates are free to be downloaded. Each of these resources allows you
to document your spending plan (in writing), save these planned expenditures and revisit the
data at a later date to compare your actual spending behavior to your plans.
Once you compare your written budget to your actual spending, make the necessary
adjustments to either your behavior or your budget and repeat this process continually
throughout medical school.
A Spending Plan in 1-2-3
1) Put it in writing
2) Review periodically to
identity leaks
3) Make necessary adjustments
Your Total Income
- Your Total Expenses
= Your Discretionary Income
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The Basics of Budgeting
Income. The rst step is to document all of your incoming funds. If you are married,
calculate your spouses income as well. If you receive consistent gifts from family members,
add this into your income. Any monies that are incoming, like your refund checks from
nancial aid, should be included in your income calculations.
Expenses. Secondly, identify all of your monthly expenses, or monies that are outgoing.
There are two types of expenses, with the most obvious being the routine xed amounts like
rent, car payments, insurance, and so forth. Then,
dig a little deeper for those more sporadic variable
expenses that uctuate in amount like eating out,
gas, cell phone, groceries and utilities. Total your
monthly expenses, then subtract that amount from
your income, and what youre left with is your
discretionary income.
Discretionary Income. Once all income and
expenses have been honestly accounted for and
properly subtracted, the remaining number is your bottom line (aka discretionary income).
If youre being completely honest in your planning, you may nd that your discretionary
income is a negative number. If so, simply go back and adjust accordingly until you break
even on your planned spending. (By the way, if you initially end up with a negative number
on your budget - good job! The point of creating a spending plan is to find these overages
and make adjustments in advance.)
On the other hand, if you happen to have a positive bottom line (meaning extra money left
over) consider two things: 1) have you accurately documented all of your expenses and 2) if
so, ask yourself if you could possibly be paying more aggressively towards student loans or
saving more monies for retirement. Typically, during medical school, there wont be a lot of
discretionary income, so when there is, handle it wisely.
Finding Alternatives
Having a budget doesnt mean eliminating all of the joy from your life, rather, it means
keeping many of those good things and nding alternatives only when necessary.
Once your cash ow is visible in black and white on your budget form, it will be easier
to consciously reduce your cost of living. By periodically reviewing your budget for any
imbalances, youll realize that it may only require small adjustments to make a big difference.
Expenses
FIXED VARIABLE
Rent Groceries
Auto payment Entertainment
Health insurance Clothing
Credit cards (debt) Dining out
Taxes
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Common alternatives for medical students living on a budget include:
Buying groceries instead of eating out
Brewing your own coffee instead of stopping at the gourmet coffee shop
Choose generic instead of name brand
Opt for free TV instead of Netix, or Netix instead of the Movies, or Matinees instead
of Cable TV
Get a roommate or two
TIP: Choose to live like a student when you are a
student, so you dont have to live like one later.
THE MINIMUM PAYMENT TRAP
$2,000 financed at 19% - paying the minimum
monthly payments results in:
Over 18 years to pay off
Pay more than $5,000
WHAT COULD POSSIBLY BE WORTH PAYING
MORE THAN TWICE ITS ORIGINAL VALUE?
Budget Worksheet
INCOME:
List all sources of income
Salary (after deductions) ______
Spouse salary (after deductions) ______
Investment income ______
Financial aid
(in excess of tuition & fees) ______
Gifts ______
Income tax refunds ______
Other (child support/alimony) ______
Veterans benets ______
Total Income ______
FIXED EXPENSES:
These are monthly or yearly expenses that are
usually unavoidable and typically unchanging in
their amounts. There is no clear-cut distinction
between fixed and variable expenses; it is up to
the individual. You may or may not have all of
these expenses.
Yearly/Monthly
Tuition & fees ______/______
Books & supplies ______/______
Regular savings ______/______
Rent/mortgage ______/______
Utilities* ______/______
Telephone (base rate) ______/______
Taxes (federal, state) ______/______
Vehicle payments ______/______
Other transportation ______/______
Credit card payments ______/______
Personal loans ______/______
Educational loans ______/______
Life insurance ______/______
Health insurance ______/______
Home/renter insurance ______/______
Auto insurance ______/______
Auto registration/taxes ______/______
Professional fees/dues ______/______
Child care ______/______
Other (i.e., alimony) ______/______
Total Fixed Expenses ______/______
VARIABLE OR FLEXIBLE:
After determining your xed expenses, list
variable expenses. When trying to gure out
variable expenses, you will be most successful,
if you write down all of your expenditures for
two weeks. Be as realistic as possible. You will
be surprised to see where your money goes and
how it adds up.
Monthly
Food/household supplies ______
Dining out ______
Clothes ______
Laundry/dry cleaning ______
Gas, oil, auto maintenance ______
Parking ______
Medical/dental/eye care ______
Hobbies/recreation ______
Entertainment ______
Travel/vacation ______
Pets, supplies, food ______
Sports ______
Records & books ______
Child care ______
Heath & beauty aids ______
Haircuts ______
Postage ______
Subscriptions ______
Cable TV ______
Long-distance calls ______
Cell phone ______
Gifts ______
Charity/contributions ______
Savings for interviews/relocation ______
USMLE ______
Other ______
Total Variable Expenses ______
Total Fixed Expenses + ______
Total Monthly Expenses = ______
Total Income ______
Total Expenses ______
Total Discretionary Income ______
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* gas, electric, water, sewer, garbage
Association of American Medical Colleges 2011
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Financial Literacy
Identity Theft
Identity theft is the fastest growing white collar crime in America.
Source: spendingonlife.com
Protect your identity by checking your credit report, shredding
your personal information, carry only necessary information
with you (43% of identity theft occurs because of stolen
wallets, purses and paper documents), enter your debit card
pin carefully and be smart with your passwords (dont use
them on public computers).
Credit Cards
Credit cards arent bad; there are many positive nancial
aspects of a credit card. These include, among other things,
the ability to use someone elses money for free for thirty days
(depending on the terms of the card). Credit cards can also be
used to improve your credit score, as a tool in tracking your
spending and as a source of rewards for the purchases that
you make. Despite this, what were more familiar with is the
negative side of credit cards. What we hear about repeatedly
is Americans bad relationship with debt, which most often
comes in the form of credit card debt. Credit cards that are
not used responsibly will have a very negative impact on your
nancial well-being.
24% of 2010
medical
graduates
reported leaving
with an average
of $11,000 in
non-education
debt
Currently,
1 out of 10
people are victims
10 million
victims
in 2008 (a 22% increase
from 2007)
Studies show that anyone earning over $70,000
experiences an increased chance of having their
identities stolen. Thus, physicians are
2 xs
more likely to be victims of identity theft.
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On average, the current college student leaves their undergraduate program with an estimated
$4,138 in credit card debt (as reported by Sallie Mae, 2009). This amount grows for each
additional year of education the student obtains. For medical school graduates, 24% report
leaving with an average of $11,000 in non-education debt (this includes car, credit card and
residency loans). To prevent this statistic from being a reection of your situation at graduation,
youll want to be a savvy user of credit cards throughout medical school.
Signs You Could be Heading for Trouble
These are tangible signs that youre either headed for troubleor youre already there.
Relying on credit cards to pay for the basics like food and utilities
Responding to offers to transfer balances from one card to another
Increasing your credit line or applying for new credit cards
No cushion in your nancial life for even a small or unplanned expenditure
Making only minimum monthly payments
Ignoring credit card statements
Maxing out all of your credit cards
Fixing the Problem
First and foremost: GET HELP. You dont have to face this alone. Its easy to lose control of
your credit and to let it run away from you, but there are ways to get it back. Depending on
your situation, there may be a variety of solutions.
Talk to the nancial aid ofce. Often, they have dealt with similar situations and will
be able to provide sound guidance.
Go back to the basics, work on a budget; see how you can start paying down your
credit card balances
Call your credit card company(ies) and work out a repayment plan.
If you do work out a repayment plan with your credit card company, make sure to be
clear on the interest rate.
Negotiate! Although its not widely known, often times you can negotiate rates.
If your situation is more complicated, seek the advice of a professional credit counselor.
Take Positive Steps to Get Out of Debt
Remember: Creditors would rather work with you to help you pay off your loans and repair
your credit than have you default. You have options. You dont have to give up, but you do
have to get out of debt.
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Other Considerations
Private Loans
The cost of your medical education, plus all living expenses, should be completely covered
by your nancial aid package (consisting of federal and institutional loans). For this reason,
resist the temptation to utilize private loans of any type to supplement your nancial
situation during school.
Typically, private education loans are less favorable than federal debt... including possibly
higher and more volatile rates (that can rise into double digits), no forgiveness programs,
limited postponement options and reduced control over the actual amount of the required
monthly payment.
The discrepancy exists between federal and private student loans because private education
debt is not regulated by the legislation that governs federal loans, therefore, the terms and
conditions of private loans are at the discretion of the lender. In fact, most of the repayment
options discussed in this booklet are applicable only to your federal loans.
Therefore, the borrowing of private loans should be avoided, and if you find
yourself in need of additional funds during medical school, visit your financial aid
office to see what other options may exist.
Federal Direct Loan Consolidation
Federal loan consolidation allows you to combine one or more existing federal student loans
into a single loan. A consolidation loan pays-off the old loans and gives you a single new
loan with new terms, conditions and possibly even a new interest rate. The advantages and
disadvantages of consolidating depend on what loans you include in the consolidation and
when you consolidate.
Advantages
Lower monthly payment
Extend the repayment period
Make a single payment to a single
lender
Fixed interest rate
No prepayment penalty
Repayment plans can be changed
Disadvantages
Longer repayment period
Possible higher interest costs
May lose current borrower benefits
Interest rate is calculated as the weighted
average of the loans in the consolidation,
then rounded up to the nearest 1/8 of a
percent
May negatively impact grace, deferment or
forgiveness options
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As a student, consolidation will likely not be an option available to you until after
you separate from school. However, for many medical students leaving school, the
primary reason to consolidate is to simplify the repayment process during residency. This is
especially true in the case when multiple payments are required. Alternatively, in the future,
if you would prefer to avoid consolidation, scheduling automatic payments from your online
checking account will also simplify repayment (and avoid the need to consolidate).
Currently, the only lender offering federal consolidation loans is Direct Loans.
Visit www.loanconsolidation.ed.gov for more details.
Final Note
Dont forget the nancial aid ofce at your institution. They are available to help you and are
keenly aware of issues affecting medical students. This can be a lot to sort through, so take
it one step at a time.
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NOTES
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NOTES
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NOTES
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NOTES NOTES
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The Association of American Medical Colleges has a variety
of Financial Information, Resources, Services and Tools for
students and residents concerned with debt management.
Take some time to go through the website
www.aamc.org/FIRST.
Congratulations on your entrance into medical school and
good luck.
AAMCs FIRST for Medical Education team wishes you
great dividends on your investment in knowledge and
encourages you to use this resource in accomplishing
your nancial goals.
2011 AAMC. All rights reserved.
rev. 6/2011