Lifetime Money Management

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Lifetime Money Management

• University of California, Davis
• School of Veterinary Medicine
• Thursday, November 20, 2003

Donald Klingborg, DVM Christine Milligan, SVM
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Agenda

• The value of your UCD DVM degree
• The cost of a UCD veterinary med education
• Financial aid student loan information
• Personal finance tips

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(No Transcript)
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Money

• Income - Expenses
• Working Hard Loans
• Working Smart Costs of Life style
• Savings Investments Options
• Many Purchases Big Homes Kids Education
• Fun Activities Fast Cars Exotic Vacations
• Retirement Family Cool Clothes

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Average Starting Compensation for Entering Class
of 2003 Graduates in 2007(UC Davis SVM 03)
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Who do You Believe?99 AVMA vs. Vet Econ
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99 01 SA, LA, EQ DVM Median Income (AVMA
01, 03)
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Point-in-Time Earnings96 Vet Economics data
45 100,000
1/3 180,000
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Income-- DVM vs. Board Certified Specialist
Median Income (AVMA 01, 03)
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01 Median Income by Years in Profession (AVMA
03)
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Veterinarian Salaries (98 Practice Audit)
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The Cost of Your Education

• Estimate your total expenses
• tuition fees
• books supplies
• rent
• food
• clothing
• transportation
• personal expenses
• other expenses

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Cost of a UCD DVM Degree (Class of 2007)

• Year 1 30,371
• Year 2 32,608
• Year 3 33,700
• Year 4 38,690
• Total 135,369

Assumes annual increases of 5 for current
financial aid expense budgets
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Projected Average Loan Indebtedness
Assumes 18,500 borrowed per year at UCD SVM
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Two words of comfort when going to college . . .

• Financial Aid

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3 x Two words of danger when going to college .
. .

• Credit Cards
• Pizza Beer
• Financial Aid

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The Financial Aid Equation
Budget or estimated cost of attendance
- Expected student contribution
Estimated Financial Need eligibility
for financial aid
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How to Re-Apply for Financial Aid

• Must re-apply every year using the Free
  Application for Federal Student Aid (FAFSA)
• Renewal applicants PINs are mailed in December
  (if applied for 03-04 aid)
• New applicants apply on-line at
  http//www.fafsa.ed.gov/
• Gift aid and subsidized loans are limited . . .
  apply in January 2004

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How to Re-Apply for Financial Aid

• Student Aid Report (SAR) sent to student school
  approximately 1 month after submitting FAFSA
• Vet Med and other grads are considered
  independent
• However, parental financial information must be
  reported on FAFSA to be considered for Federal
  Health Profession Loan

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Three Types of Financial Aid

• Grants (gift aid) - based on need
• UCD SVM Fee Grants UCD Grants
• Scholarships (gift aid) - merit-based, etc.
• UCD SVM Scholarships
• Loans
• Perkins Loan
• Direct Loan (subsidized unsubsidized)
• Health Professions Student Loan
• Private (alternative) Loan
• UCD SVM Student Loan Program
• Depending on financial need, students may receive
  more than one type of aid

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Loan Deferments

• No principal and/or interest payment required
• Deferment forms available from loan servicer
• Loans from previous schools? Request
  in-school deferment forms
• In-school full-time (while in school)
• In-school half-time (no limit)
• Unemployed (3 year limit)
• Economic hardship (3 year limit)

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Loan Forbearance

• Loan forbearance is a temporary postponement or
  reduction in payments
• YOU must request complete form available from
  lender or servicer
• Forbearance is a means to avoid delinquency,
  default, or a bad credit rating
• But . . . interest accrues during forbearance and
  the original repayment period is not extended

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Cancellation of Your Loan

• If you become totally and permanently disabled
  after loans are taken or
• Upon your death

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Before you borrow . . .

• There may be ways to reduce your costs so you
  dont have to borrow as much
• You can apply for a loan anytime throughout the
  school year (but within 8 weeks before the end of
  the year)
• Here are some tips that may help you reduce the
  amount you have to borrow...

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Saving Tips

• Buy used books
• Use only one credit card
• Pay off credit card balance every month
• Take advantage of free activities (biking,
  lectures, tennis, reading, hiking, etc.)
• Get a roommate
• Cook your meals

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Saving Tips

• Clean your apartment to get your deposit back
• Use email instead of long distance calls
• No cell phone, call waiting, cable TV, DS/T1
  line, pager
• Use the library
• Sign up for utilitys balanced payment plan
• Negotiate your rent
• Keep your pets to a minimum

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Credit Cards . . .
Danger Zone

• There are 1 billion cards in circulation nearly
  4 cards for every US citizen
• 70 of all card holders carry a revolving balance
  every month, paying min. amt. due
• Example
• 1,000 debt
• pay minimum amount due every month (2 or 10
• will take 19 years to pay off 1,000 and cost
  1,900 in interest (2,900 total cost of 1,000
  purchase)
• Pay off credit card debt, then pay off balance
  each month

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Increase Income

• Get a Job!
• Summer
• SWEP www.cvma.net
• School Year
• UCD Student Employment Center
  http//jobs.ucdavis.edu
• UCD Human Resources http//www.hr.ucdavis.e
  du
• Other

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Lets look at a real life case . . .

• Student just graduated from UCDs School of
  Veterinary Medicine and borrowed 74,000 in
  subsidized and unsubsidized Direct Loans (maximum
  for all 4 years)
• What are his/her options? First job pays 60,000
  and making payments under the Standard payment
  plan?
• Standard payment plan fixed monthly amount, 10
  years maximum

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Worse Case
Annual Monthly
Gross income 60,000 5,000
- Less
Taxes soc. sec (33) 19,800 - 1,650
Rent - 1,000
Food (in restaurant) (20/day) - 600
Utilities - 150
Telephone - 75
Student loan repayment (under standard plan) -
908
Car (payment, insurance, gas, maintenance)
- 250
Clothes, personal, gifts, etc. -
100
Recreation, bad habits, etc. -
50
Total expenses - 4,783
Difference (discretionary income) 217
Student borrowed 74,000 for a DVM degree at UC
Davis.
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Worse case
Annual Monthly
Gross income 60,000 5,000
- Less
Taxes soc. sec (33) 14,850 1,238
Rent 1,000
Food (in restaurant (20/day) -
600
Utilities 150
Telephone 75
Car (payment, insurance, gas, maint.) 250
Clothes, personal, gifts, etc. 100
Student loan repayment (under standard plan)
908
Recreation, bad habits, etc. 50
Total expenses 4,783
Difference (discretionary income) 217
(Student borrowed 74,000 for a DVM degree at UC
Davis.
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Worse case
Annual Monthly
Gross income 60,000 5,000
- Less
Taxes soc. sec (33) 19,800 - 1,650
Rent 1,000
Food (in restaurant) (20/day) -
600
Utilities 150
Telephone 75
Student loan repayment (under standard plan)
908
Car (payment, insurance, gas, maint.) 250
Clothes, personal, gifts, etc. 100
Recreation, bad habits, etc. 50
Total expenses 4,783
Difference (discretionary income) 217
Student borrowed 74,000 for a DVM degree at UC
Davis.
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Worse case
Annual Monthly
Gross income 60,000 5,000
- Less
Taxes soc. sec (33) 19,800 - 1,650
Rent 1,000
Food (in restaurant) (20/day) - 600

Difference (discretionary income) 217
Student borrowed 74,000 for a DVM degree at UC
Davis.
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Worse case
Annual Monthly
Gross income 60,000 5,000
- Less
Taxes soc. sec (33) 19,800 - 1,650
Rent 1,000
Food (in restaurant) (20/day) -
600 Equals One Steves Medium Pizza daily for 30
days, no beverages, no other food Food
available for 33 of your breakfast, lunch, and
dinner meals

Difference (discretionary income) 217
Student borrowed 74,000 for a DVM degree at UC
Davis.
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Cost of BorrowingDirect Loan Monthly Repayment
Schedule

• Loan Amount Payments Payment
  Total
• 10,000 120 122 14,640
• 20,000 120 245 29,400
• 30,000 120 368 44,160
• 40,000 120 491 58,920
• 50,000 120 613 73,560
• 60,000 120 736 88,320
• 70,000 120 859 103,080
• Assumes Standard 10 year repayment schedule at
  capped rate of 8.25 (122.43 per month per
  1,000 _at_ 8.25)
• 25-30 year repayment schedules lower monthly
  payments and increase interest costs

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Disposable Income vs. Debt(33 to
taxes/withholding)
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Instead of the Direct Loan standard loan payment,
you can request

• Income Sensitive Repayment
• pay interest only for 1 year (may reapply for up
  to 5 years)
• Graduated Repayment
• payments increase every 2 years up to 30 years

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Instead of the Direct Loan standard loan payment,
you can request

• Extended Repayment
• 12 - 30 years pay plan, based on amount borrowed
• Income Contingent
• pay 4 of income first 5 years, up to 25 years

Extended and Income Contingent repayment
options are currently available for Direct Loans
only
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Monthly Payments go Down With Longer Repayment
Periods Lower Interest Rates
Monthly Payments per 10,000
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Interest Paid Increases with Longer Terms
Summary per 10,000 _at_ 8
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Interest Paid Increases with Longer Terms
Higher Rates
Total Interest per 10,000
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If you dont repay your loan . .

• Lose your deferment and forbearance options
• May not be eligible for further financial aid
• Academic transcripts may be withheld
• You will be reported to credit bureau, damaging
  your credit record
• Your federal and state tax refunds may be
  garnisheed
• Your employer may withhold part of wages
• Your car and other possessions may be repossessed
  and sold to pay your loans

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Borrowing is scary business, but . . .

• A loan is an investment in you and your future
• The terms and repayment options are very
  attractive and sensitive to the needs of students
  

With deferments, forbearance, consolidation, and
up to 5 repayment options, there is no reason
for any student to become delinquent or go into
default on her/his student loan.
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Federal Loan Consolidation

• Consolidate all federal educational loans into
  one new loan and lower monthly payments
• Only one payment each month
• Up to 30 years to repay
• Interest either
• a) weighted average of all loans or
• b) variable rate with a cap of 8.25 (contact
  lender)
• No fees to consolidate
• No penalty for early payment for any loans
• Website http//loanconsolidation.ed.gov

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Helpful Web Sites

• FAFSA on the Web http//www.fafsa.ed.gov/
• Your PIN www.pin.ed.gov
• To electronically sign your FAFSA
• To access your student loans
• Direct Loans http//www.ed.gov/DirectLoan/
• UCD Graduate Financial Aid Office
• http//faoman.ucdavis.edu/gradfao.htm
• National Student Loan Data System (NSLDS)
• www.nslds.ed.gov
• Loan Consolidation http//loanconsolidation.ed.g
  ov
• Alternative Loans http//www.estudentloan.com

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10 Tips After You Graduate

• Continue to live like a student
• Transfer at least 10 of your gross salary from
  paycheck to savings
• Contribute to a 401(k) or IRA - to the max.
• Buy used cars
• Buy no-load mutual funds

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10 Tips After You Graduate

• Pay off loans as soon as possible
• If you have children, give them the best
  education
• Live minimally but take care of your stuff
• Pay off your mortgage by the time you retire
• Invest through a discount broker

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Establish an A-1 Credit Rating

• Pay your bills on time to maintain a good credit
  record
• If you get in trouble, contact your creditors and
  make arrangements to pay something to show good
  faith
• Avoid using credit cards unless you pay them off
  every month
• Reserve consumer credit for major purchases (car
  or house)

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Managing Your Credit

• Check your credit rating annually adjust any
  errors immediately
• Avoid total debt payments exceeding 35 of income
• National Credit Bureaus
• 800-685-1111 Equifax www.equifax.com
• 888-397-3742 Experian -- www.experian.com
• 800-888-4213 TransUnion (PA)
  www.transunion.com
• Complaints or help to resolve problem?
• 202-326-2222 Federal Trade Commission

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Insurance

• Insure your possessions, car, and your health
• Complete a detailed inventory of what you own
• Take photos of your possessions
• Keep the list and photos in a safe deposit box or
  fire-proof safe
• Term-life insurance is cheaper than whole life
• Regularly review your beneficiaries

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Taxes
April 15th

• Get organized (folder, file drawer or paper bag)
  If eligible, open a 401(k) or IRA and fund it
• Order IRS Publication 17 (800-TAX-FORM)
• Get forms and help on the web
• www.irs.gov
• Automatic filing extension to August 15th
• Keep your records for 5 years

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Your Biggest Tax Breaks

• Exclusion of income of retirement plan
  contributions earnings (IRA, 401k, etc.)
• Exclusion of employer contribution for insurance
• Interest deductions for home mortgage
• Exclusion of state local income property
  taxes
• Accelerated depreciation on machinery equipment

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Your Biggest Tax Breaks

• Partial exclusion of social security benefits
• No income tax from appreciation on assets at
  death
• Tax exclusion on capital gains on home sales
• Charitable contribution deductions
• Deduction of interest on educational loans
• Deductions for real estate taxes

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Savings Programs

• Risk-free savings (savings accounts, money market
  funds, certificates of deposit
• U.S. Savings Bonds (tax-free earnings)
• Mutual Funds (pooled investors funds)
• Stocks (potential for long-term growth)
• Zero Coupon Bonds (purchased at discount)
• Insurance program (annuities, whole life)
• Company retirement plans (401k, etc.)

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The Secret of Compounding Interest

• You earn interest income on your original
  investment and . . .
• also earn
• interest on interest

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The Power of Compounding72/Interest Rate
doubling period
_at_ 5 Your money doubles in 14.4 years
2,000 becomes 14,080 in 40 years _at_ 5
2X
2X
2X
Assumes an 5 pretax return and reinvesting all
earnings.
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The Power of Compounding72/Interest Rate
doubling period
1 in interest
2,000 20,571 in 40 years _at_ 6
2X
2X
2X
2X
Higher interest shortens the doubling period
72/612 years Assumes an 6 pretax return and
reinvesting all earnings.
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Tax-Deferred Programs

• Personal Financial Treasures
• 401(k), 403(b), IRA, etc.
• Unequaled tax benefits
• contributions reduce taxable income dollar for
  dollar
• profits earned on investments grow untaxed until
  withdrawal
• start a 401(k), etc. as soon as you can
• Many companies match employee contribution (.50
  for every dollar, up to 6 of salary)

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Investing

• The only way to get money to invest is to save
  regularly
• The only way to save regularly is to spend less
  than you earn
• Establish an emergency fund first
• Dont invest in something you dont understand
• Be skeptical . . . if it sounds too good to be
  true, it probably is
• Dont put all your eggs in one basket

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Big Retirement Issues

• Were living longer
• We need to anticipate (and beat) inflation
• At what age do you want to retire?
• Dont count on your employer or the government
  (social security or pensions) for retirement
  benefits

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Cumulative Investment Returns Inflation
Stocks win!
Source T. Rowe Price Associates. For period
ending 9/93. Chart does not necessarily predict
future results.
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Financial Security

• Paying off your student loans
• Buying a home
• Educating your children
• Meeting adversaries of life (unemployment,
  disability, emergencies)
• Retiring comfortably, not running out of money
• Yes, you can!

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Subsidized Loans

• Perkins Loan
• 5 fixed interest rate
• Interest repayment begins 9 months after
  graduation
• 10 years to repay

Must demonstrate financial need through FAFSA.
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Subsidized Loans

• Direct Loan
• Variable interest, capped at 8.25 (3.42 in
  2003-04)
• Interest repayment begins 6 months after
  graduation
• 8,500 maximum each year of graduate study
• 10-30 years to repay

Must demonstrate financial need through FAFSA.
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Subsidized Loans

• Health Professions Student Loan
• 5 fixed interest rate
• Interest repayment begins 12 months after
  graduation
• 10 years to repay

Must demonstrate financial need through FAFSA.
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Subsidized Loans

• UCD SVM Loan
• 5 fixed interest rate
• Interest repayment begins 6 months after
  graduation
• 3-10 years to repay

Must demonstrate financial need through FAFSA.
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Unsubsidized Direct Loans

• Not based on financial need
• 10,000 maximum each year of graduate study
• Variable interest begins immediately after first
  disbursement (3.42 in 2003-04 with cap of 8.25)
• May capitalize or defer interest until after
  graduation
• Payments on principal start 6 months after
  graduation
• 10-30 years to repay

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Private (Alternative) Loans
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Loan Servicers

• Direct Loans 800-848-0979
• AMS (Perkins) 800-334-8609
• UCD Student Accounting Office
• (Perkins) 530-752-3646
• Consolidation 800-557-7392