Article Date: 4/1/2005

Borrow Without Fear
Worried about paying off your student loans? The help you need is right on campus.
By Julia T. Lewandowski, Associate Editor

Nobody likes to think about repaying student loans, especially when they're stressed about classes, clinics and National Board exams. Borrowing for optometry school is a necessity for most students, but settling debt doesn't have to be traumatic. Here's advice from five financial aid experts to help you manage school debt without creating financial hardship.


"We start preparing students for repayment during the admissions interview," says Tami A. Sato, director of financial aid at Southern California College of Optometry in Fullerton. "We spend about 20 minutes going over budgets and programs that can help pay for school-related and living expenses. The financial aid office helps students borrow enough money to pay for school, but we also provide the knowledge and tools they need repay their loans in full and on time."

Other schools have similar strategies. "In addition to discussing student loan debt during the admission process, we remind students about debt management as soon as they arrive on campus for orientation," says Carol Rubel, director of financial aid at New England College of Optometry in Boston.

First-year students at SUNY State College of Optometry in New York attend a mandatory entrance interview, says Vito J. Cavallaro, director of financial aid. "We tell students how much they should anticipate borrowing and provide general strategies for keeping debt low, such as finding a lender and living within a budget," he says. "But we don't stop there. This is just the beginning of a counseling process that continues beyond graduation."

CAN YOU SPARE $100,000?

Successful debt repayment often begins with choosing the right combination of financial aid programs. Most schools provide a list of loan options and recommended lenders on their Web sites. You may not be eligible for every type of student loan, so check with your school's financial aid office for details about:

Guiding students toward the most beneficial package of financial aid programs is a primary goal of most financial aid offices.

Charles Agee, assistant director of financial aid at Northeastern State University in Tahlequah, Okla., advises students to research repayment options when choosing a lender. "Some lenders have special or flexible payment plans, which is important if you're thinking of applying for residency after graduation," he says. "Money can be tight during your residency year, so you should consider working with a lender who can offer forbearance during this lean time."

The New England College of Optometry is a Federal Direct Stafford Loan school that allows borrowers to consolidate their debt while they're still in school. "Students benefit by locking in the current interest rate, which may increase by the time they graduate, without losing their 6-month grace period," says Ms. Rubel.

In addition to teaching students the benefit of consolidation, Ms. Rubel encourages them to use the National Student Loan data system to monitor their debt. "As good as your income may be, you probably won't have much extra money as a first-year O.D.," she says. "You'll still need to budget your spending after you start working if you want to repay your loans and reserve enough money to meet living expenses."


One basic, if obvious, tenet always applies to debt: The more you borrow, the more you have to pay back. Nevertheless, students easily can lose track of debt when they're concentrating on their studies -- an oversight many come to regret later.

"Most optometry students know it's important to keep debt low," says Ms. Sato. "At a recent conference, a panel of professional-school graduates said they wished their schools' financial aid offices had actively educated them about budgeting so they could have borrowed less."

Some optometry school expenses, such as tuition and books are non-negotiable, but other necessities, such as food, shelter and clothing, can cost more or less depending on the choices you make.

"I discourage students from automatically taking maximum loan amounts," Mr. Cavallaro says. "In fact, I often encourage them to underestimate their needs and apply for additional funds to meet unexpected shortfalls, such as unusually high cell phone bills or rising gas and utility costs. We can help them by extending emergency loans."

Mr. Cavallaro reminds students how much they're really spending when they use loan money to pay for food and rent. "I make them think about how much a $12 pizza will really cost after accruing 10 years' interest," says Mr. Cavallaro. "Students must be aware of how much each loan dollar they spend will cost them later."

Until SUNY's new dormitory is completed in 2007, students must find their own housing in the local community. "Someone who lives in Manhattan for 4 years will owe a lot more money than someone who commutes to school from a less expensive suburb. Students are free to live where they want, as long as they realize their decisions have a long-term impact on future finances."

"Realistic budgets provide guidelines for creating aid packages that meet students' needs," says Ms. Sato. "Instead of automatically packaging maximum loan amounts, we make students determine how much they want to borrow in subsidized and unsubsidized Stafford loans," she says. "If they choose an unsubsidized loan, we make sure they understand they'll accrue interest while they're still in school. Adding this extra step allows students to think about what they really need and keeps overall debt to a minimum."


Five Tips For Avoiding Default

1. Create a realistic budget -- and stick to it

2. Don't borrow more money than you need

3. Choose a lender with flexible repayment plans

4. Replace loan money with work-study funds

5. Consolidate loans to take advantage of fixed interest rates.


Another strategy for keeping student loan debt as low as possible is staying aware of your overall indebtedness.

"We give students a list of their loan programs, total amounts for each program and names of their secondary markets and servicers every time they take out a new loan," Ms. Sato says. "By the time they're ready to graduate, they know how much they owe and their approximate monthly repayment obligation."

Cindy Garner, director of financial aid at Southern College of Optometry in Memphis, believes the school's practice of sending frequent debt reminders has helped SCO maintain a 0% default rate for the past 8 years. "Every year, students receive a statement summarizing how much debt they've accrued," she says. "We also remind them how much they owe whenever they request more money. When they see the total, they often decide not to increase their debt at that time."

Mr. Agee increases debt awareness by meeting with all four classes during general assemblies three or four times a year. "For the rest of the year, I do a lot of phone counseling," he says. "I concentrate on talking to them about special circumstances, such as unexpected expenses and reassure them we can make adjustments to meet changing needs."

Although their methods may differ, financial aid experts agree that keeping students well informed about debt is the best way to prevent excessive borrowing.


As graduation draws near, you'll probably be busier than ever setting up a residency or looking for a job, but don't cheat yourself by missing your financial aid exit interview. You'll be able to gather information about:

Repayment options. Most lenders offer more than one repayment plan. A financial counselor can help you choose a plan that will work best for you. "Some students initially sign up for a graduated repayment plan and either switch plans or accelerate repayment as their financial situation changes," Ms. Rubel says.

Loan consolidation. Students who've borrowed from more than one lender often benefit from this option. Loans can be combined into one new loan that students can pay with one check, or loan consolidation can extend the repayment period beyond the standard 10 years. Consolidation information is available from many lender services, including the American Optometric Association.

Money-saving tips. Your financial aid counselor can tell you if you're eligible for tax breaks, such as the IRS Lifetime Learning Benefit or Student Loan Interest Deductions.


Don't be afraid to use your school's financial aid department and its well-trained staff to manage student debt, even after you graduate. "Alumni who've been out of school for years often contact us for financial advice," Ms. Sato says.

When you repay your student loans, you're not just fulfilling an obligation to the lending institution, you're establishing a habit of fiscal responsibility that will serve you well during your optometric career.


The Downside Of Default

If you're more than 270 days late with a scheduled loan payment, the lending agency considers you in default. In 2002, the national average default rate for all institutions of higher learning was 5.2% -- how do schools and colleges of optometry compare?

"Our default rate at the New England College of Optometry is 0%," says Carol Rubel, director of financial aid. "Students want to repay their debt, and the profession they've chosen allows them to repay their loans on time."

Some financial aid experts would even say it takes more effort to default than to stick to a payment schedule.

"Student loan terms have so many provisions, such as deferments, forbearance or loan consolidation, that it's difficult to default, unless students forget to notify their lender of their current address," says Tami A. Sato, director of financial aid at the Southern California College of Optometry in Fullerton, Calif. "Students may not realize that defaulting on student loans affects their credit rating, which becomes a problem when they apply for a home loan or for business start-up funds."

In addition to affecting credit, default can hinder career advancement. "If a student defaults, a hold is placed on his or her records until repayment arrangements are made," says Ms. Rubel. "For example, the school won't release transcripts, making it difficult to complete job applications."


Optometric Management, Issue: April 2005