HLS Student Financial Services Understanding Student Loans The

HLS Student Financial Services Understanding Student Loans 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 BOS HLS and You Presentation FINAL APRIL Annual Income Annual Salary Projections, College Degree vs. HLS degree $400,000.00 $350,000.00 $300,000.00 $250,000.00

$200,000.00 $150,000.00 $100,000.00 $50,000.00 $0.00 Years from graduation College degree HLS degree Net Present Value Comparison $5,000,000 $4,295,856 $4,000,000 $3,000,000 $2,000,000 $1,446,590 $1,000,000 $0

College degree HLS degree ege debt repayment $12,000, HLS debt repayment $250,000 ed on 30 year salary projections using annual salary increase rate of 3% S degree salary projections based on 2012 average private sector starting salary, bonus pay exc V calculations use inflation (discount) rate of 3% 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 BOS HLS and You Presentation FINAL APRIL

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 BOS HLS and You Presentation FINAL APRIL 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 BOS HLS and You Presentation FINAL APRIL 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 lenders 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 BOS HLS and You Presentation FINAL APRIL 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 BOS HLS and You Presentation FINAL APRIL Amortization Schedule - example Balance = $150,000, interest rate 7%, 10 year term Payment Number 1 2 3 4 5 6

7 8 9 10 11 12 Payment $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 $1,741.63 Interest $875.00 $869.94

$864.86 $859.75 $854.60 $849.43 $844.22 $838.99 $833.72 $828.43 $823.10 $817.74 Principal $866.63 $871.69 $876.77 $881.88 $887.03 $892.20 $897.41 $902.64 $907.91 $913.20 $918.53 $923.89

Cumulative Interest $875.00 $1,744.94 $2,609.80 $3,469.55 $4,324.15 $5,173.58 $6,017.80 $6,856.79 $7,690.51 $8,518.93 $9,342.03 $10,159.77 Cumulative Principal $866.63 $1,738.32 $2,615.09 $3,496.97 $4,384.00 $5,276.20

$6,173.61 $7,076.25 $7,984.16 $8,897.37 $9,815.90 $10,739.79 Remaining Balance $149,133.37 $148,261.68 $147,384.91 $146,503.03 $145,616.00 $144,723.80 $143,826.39 $142,923.75 $142,015.84 $141,102.63 $140,184.10 $139,260.21 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 BOS HLS and You Presentation FINAL APRIL 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 BOS HLS and You Presentation FINAL APRIL

Managing Loan Repayment Calculate your net income after taxes; i.e. the money available to make your monthly loan payment $154,000 $80,000 $45,000 Salary: 33.0% 29.6% 23.4% All taxes: $103,230 $56,352 $34,493 Net income: $8,603 $4,696 $2,874 Net monthly: Calculate your estimated monthly loan payment - Multiply number of thousands borrowed by BOS HLS and You Presentation FINAL APRIL

Calculating Monthly Take-Home Pay Amount borrowed while in law school: $135,000 Example 1 minus equals divided by 12 equals minus plus $ Annual income: 154,000 $ All taxes: 50,770 $ Net annual income: 103,230 $ Monthly income: 8,603 Education loan $ payment: 1,701 Monthly LIPP assistance: $

Monthly take-home pay after taxes, loan $ BOS HLS and You Presentation FINAL APRIL Example 2 $ 60,000 $ 16,122 $ 43,878 $ 3,657 $ 1,701 $ - 1,334 $ 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 lowerincome graduates, to keep payments manageable By making good budgeting decisions now, you are maximizing future takehome pay All borrowers must attend an Exit BOS HLS and You Presentation FINAL APRIL 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 BOS HLS and You Presentation FINAL APRIL 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/ BOS HLS and You Presentation FINAL APRIL

Contact Us 1585 Massachusetts Avenue Wasserstein Hall, Suite 5027 Cambridge, MA 02138 617-495-4606 [email protected] BOS HLS and You Presentation FINAL APRIL

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