Transcript Exit Counseling - Thomas Jefferson School of Law

Federal Student Loan
Exit Counseling
Presented by:
Financial Aid Office,
Thomas Jefferson School of Law
November 18, 2010
Disclaimer
Federal regulations require that the name of the entity who
developed and paid for the entrance counseling materials
be disclosed. The material presented here was prepared by
TG and the U.S. Department of Education. The completed
document was reviewed for accuracy by the Financial Aid
Office at Thomas Jefferson School of Law
Why do I need to attend?
• Federal regulations require schools to
provide exit counseling for students:
− Who have borrowed a Stafford and/or Grad
PLUS loan under the Federal Direct Loan
Program (Direct Loan) and/or the Federal
Family Education Loan Program (FFELP) and
− who are graduating, have withdrawn or have
dropped below half-time enrollment.
Stafford Loan Master Promissory Note
(MPN)
• An agreement to pay back loan(s)
• Multi-year feature vs. new MPN per year
• Details borrower rights and responsibilities
Stafford MPN
• Used for subsidized and unsubsidized Stafford
Loans
− Subsidized — need-based loan; government pays
interest while enrolled
− Unsubsidized — non-need based loan; student
responsible for all interest
PLUS MPN
Used for:
• Student PLUS loans (FDLP)
• Grad PLUS loans (FFELP)
When repayment begins
• Stafford loans have a grace period; repayment
begins six months after student graduates,
withdraws, or drops below half-time enrollment.
• PLUS loans have a deferment period; repayment
begins six months after student graduates,
withdraws, or drops below half-time enrollment.
− Direct Loan Servicing Center or lender will send
notification of your first payment due date during
your grace/deferment period.
Borrower responsibilities
• Borrowing money is a serious matter and all
loans must be paid back.
• Not receiving billing statement is not an
excuse for not making payments.
• Even if you did not complete your program,
didn't complete your program within the
regular time for program completion, are
dissatisfied with quality of education, or can’t
find a job, you must pay back the loan(s).
Consequences of default
• Loss of federal financial aid eligibility
• Withholding of federal income tax refunds
• Inability to renew professional license
(e.g., lawyer, State Bar Licensure)
• Negative credit history (will affect credit
purchase of house, car, etc.)
Consequences of default
• Wage withholding
• May be sued
• Collection fees and attorney’s fees assessed
• Enforcement of delinquent debt
collection procedures
Attachment A: Sample monthly
repayment amounts
Interest Rates
Loan
Amount
4%
5%
6%
7%
8%
9%
$70,000
$708.72
$742.46
$777.14
$812.76
$849.29
$80,000
$809.96
$848.52
$888.16
$928.87
$970.62 $1013.41
$90,000
$911.21
$954.50
$999.18 $1044.98 $1091.95
$100,000 $1012.45 $1060.66
$110,000
$1113.70
$1110.21
$886.73
$1140.08
$1161.08 $1213.28 $1266.76
$1166.72 $1221.23 $1277.19 $1334.60 $1393.43
$120,000 $1214.94 $1272.79 $1332.25 $1393.30 $1455.93
$1520.11
$130,000 $1316.19 $1378.85 $1443.27 $1509.41 $1577.26 $1646.79
Attachment A: Sample monthly
repayment amounts
Interest Rates
Loan
Amount
4%
5%
6%
7%
8%
9%
$140,000 $1417.43 $1484.92 $1554.29 $1625.52 $1698.59 $1773.46
$150,000 $1518.68 $1590.98 $1605.31 $1741.63 $1819.91 $1900.14
$160,000 $1619.92 $1697.05 $1776.33 $1857.74 $1941.24 $2026.81
$170,000 $1721.17 $1803.11
$1887.35 $1973.84 $2062.57 $2153.49
$180,000 $1822.41 $1909.18 $1998.37 $2089.95 $2183.90 $2280.16
$190,000 $1923.66 $2015.24 $2109.39 $2206.06 $2305.22 $2406.84
$200,000 $2024.90 $2121.31 $2220.41 $2322.17 $2426.55 $2533.52
Repayment plans
Offered under both FDLP & FFELP
• Standard
• Graduated
• Extended
• Income-based
Specific to loan program
• Income-contingent (FDLP)
• Income-sensitive (FFELP)
Repayment plans
• For all repayment plans, student can:
− Prepay loans without penalty;
− Pay on a shorter schedule; and
− Change repayment plans once per year.
Standard Repayment Plan
• Lowest total loan cost
• Regular payments of both principal and
interest are due monthly, excluding periods
of deferment and forbearance
• Minimum monthly payment is $50
• 10-year repayment term
Graduated Repayment Plan
• Monthly payments are smaller at the start of
the repayment period and gradually increase
• 10-year repayment term
• Total amount paid in interest will be greater
than under the standard repayment plan
Extended Repayment Plan
• Lengthens repayment term up to 25 years
• Available to borrowers with more than
$30,000 in federal student loans
• Total interest costs may be higher over life
of the loan, although monthly payment
amount may be lower
Income-Based Repayment Plan (IBR)
• Borrowers may qualify for lower monthly
payments as determined by adjusted gross
income, federal student loan debt, and family
size
• After 25 years (300 payments), remaining
balance and accrued interest is forgiven
• Must reapply annually
Income-Contingent Repayment Plan
• Offered only to borrowers under the Direct
Loan Program
• Monthly payment based on adjusted gross
income, family size, and total Direct Loan
debt
• If payment does not cover interest accrued,
unpaid amount is capitalized annually.
• Maximum repayment period is 25 years, and
any balance after 25 years is forgiven.
Sample Comparison of
Repayment Plans
Loan consolidation
• Option to combine federal education loans
• Loans must be in grace or repayment status
− Temporary provision to consolidate while in-school
(July 1, 2010–June 30, 2011)
• Original loans are paid in full
− New loan for the combined balances is issued with
new terms, including a new interest rate that is
fixed for the life of the loan
• www.loanconsolidation.ed.gov
Consolidation — factors to consider
• Negatives
− Total interest paid may be greater
− May extend repayment period
− May lose benefits (e.g., grace period, loan
forgiveness, cancellation, deferment, or a
reduced interest rate)
Consolidation — factors to consider
• Positives
− May significantly lower monthly payments
− Simplifies repayment — one monthly payment
− No minimum or maximum loan amounts or
fees with Direct Loan consolidation
Consolidation tips
• Compare and weigh all options
• For more information on consolidating your
loans, and how to apply go to
− www.loanconsolidation.ed.gov
Tax benefits
• For students and parents
− Student loan interest deduction
• reduces the taxable income based on the
amount of student loan interest paid.
− Tuition and fees deduction
• reduces the taxable income based on college
tuition and fees paid during the tax year
Tax benefits
• For students and parents
− Hope and Lifetime Learning tax credit
• a credit against federal income taxes for college
tuition and fees paid during the tax year
• See IRS publication 970 at www.irs.gov
for more information.
Debt management strategies
• Make a budget
• Loan payments are a fixed cost like utilities
and rent
• Be realistic about expected earnings for
your major
• Stick to one credit card. Keep in mind that
credit cards are loans!
Deferments and Forbearances
Deferment
• Contact your lender or servicer to find out if
you qualify
• You could postpone your payments for
several reasons, such as:
− Unemployment
− Economic hardship
− Student enrollment
Forbearance
• Forbearance is an option that lenders or
servicers can offer that permits:
− Reduced payments,
− An extension of time for making
payments, or
− The temporary cessation of payments.
• Medical or financial problems that do
not meet the requirements for a
deferment might qualify you for
forbearance, as will other special
circumstances.
Public Service Loan Forgiveness
Loans Eligible for Public Service Loan
Forgiveness
• Federal Direct Unsubsidized Stafford Loans
• Federal Direct Subsidized Stafford Loans
• Federal Direct PLUS Loans for parents and
grad/professional students
• Federal Direct Consolidation Loans
Loans Eligible for Public Service Loan
Forgiveness
• Other Federal loans may qualify for public
service loan forgiveness if consolidated into a
Direct Consolidation Loan, including:
− FFEL Subsidized/Unsubsidized Stafford Loans
− FFEL PLUS Loans for parents and
grad/professional students
− FFEL Consolidation Loans (excluding joint
spousal consolidation loans)
− Federal Perkins Loans
− Certain Health Professions and Nursing Loans
Repayment Plans Under Which 120 Payments
Must be Made
• Income-based repayment plan (not available for
parent PLUS loans)
• Income-contingent repayment plan (except parent
PLUS borrower)
• 10-year Standard repayment plan
• Any other repayment plan if monthly payment is not
less than that paid under Direct Loan standard
repayment plan
Eligible Public Service Jobs for Loan
Forgiveness
• Employment, in any position, by a public
service organization
• Service in a position in Americorps or the
Peace Corps
• Employment or service must meet the
definition of “full-time”
Definition of Public
Service Organization
•
A Federal, State, local, or Tribal government organization,
agency, or entity
− A job in government excludes time served as a
member of the United States Congress
•
A public child or family service agency
• A non-profit organization under section 501(c)(3) of the Internal
Revenue Code that is exempt from taxation under section 501(a)
of the Internal Revenue Code
• A Tribal college or university
Definition of Public
Service Organization (cont.)
• Public service organization is a private
organization that provides public services:
− Emergency management
− Military service
− Public safety
− Law enforcement
− Public interest law services (legal advocacy may be provided
“on behalf of” low-income communities at a nonprofit
organization rather than strictly “in” low-income communities
at a non-profit organization
Definition of Public
Service Organization (cont.)
•
Public service organization is a private organization that
provides public services:
− Early childhood education (including licensed or
regulated health care, Head Start, and statefunded pre-kindergarten)
− Public service for individuals with disabilities and
the elderly
− Public health (including nurses, nurse
practitioners, nurses in a clinical setting, and fulltime professionals engaged in health care
practitioner and health care support occupations)
Definition of Public
Service Organization (cont.)
• Public Service Organization is a private
organization that provides public services:
− Public Education
− Public Library Services
− School Library and other school-based
services
Definition of Public
Service Organization (cont.)
• A private organization is not:
− A for-profit business
− A labor union
− A partisan political organization or
− An organization engaged in religious activities
unless activities are unrelated to religious
instruction, worship services, or any form of
proselytizing
Eligible Public Service Jobs for Loan
Forgiveness
• Americorps position means:
− A position approved by the Corporation for National
and Community Service under section 123 of the
National and Community Service Act of 1990
• Peace Corps position means:
− A full-time assignment under the Peace Corps Act as
provided for under 22 U.S.C. 2504
Treatment of Lump Sum Payments from
Americorps or Peace Corps
• If a borrower makes a lump sum payment using all
or part of an Americorps service award or Peace
Corps transition payment, qualifying payments equal
lesser of:
− # of payments resulting after dividing the amount of
lump sum by monthly payment amount required
under appropriate repayment plan or
− Twelve payments
Definition of “Full-time” for Qualifying
Employment
• Full-time means working in qualifying employment in
one or more jobs for the greater of:
− An annual average of at least 30 hours weekly, or
− For a contractual or employment period of at least 8
months, an average of 30 hours per week; or
− Unless the qualifying employment is with two or more
employers, the number of hours the employer
considers full-time.
Definition of “Full-time” for Qualifying
Employment
• Definition of full-time (cont.):
− Vacation or leave time provided by the
employer or leave taken for a condition that is
a qualifying reason for leave under the Family
and Medical Leave Act is not considered in
determining the average hours worked on an
annual or contract basis.
Public Service Loan
Forgiveness Process
•
•
•
•
Borrower requests loan forgiveness after making 120 qualifying
payments
Generally, borrowers repaying under IBR or ICR will have outstanding
balances left to forgive after 120 qualifying payments
ED will determine borrower’s eligibility and notify borrower accordingly
In the interim, ED will:
− Develop a forgiveness application form
− Develop a process to review, maintain and track borrower’s
employment and payments
INCOME-BASED
REPAYMENT
§682.215 FFEL
§685.221 Direct Loans
Income-Based Repayment
• New repayment plan that began July 1, 2009
for FFEL and Direct loan borrowers
• Caps monthly payments on eligible loans to
an affordable amount, based on income and
family size
Loans Eligible for IBR
• FFEL or Direct
− Stafford loans
• Subsidized and Unsubsidized
− Grad PLUS loans; not Parent PLUS
− Consolidation loans, except consolidation
loans that paid off Parent PLUS loan
• Loans must not be in default
Borrower Eligibility
• Determined by comparing monthly payment
for all eligible loans under 10-year Standard
repayment plan to the calculated IBR
payment
• If IBR amount is less than Standard
repayment, borrower is eligible (deemed to
have “partial financial hardship”) and may
choose to make IBR payment
Calculating the IBR payment
• Annual IBR payment is 15% of the difference
between borrower’s income and 150% of the
HHS Poverty Guidelines, adjusted for family
size and state of residence
Calculating the IBR payment Borrower’s
Income
• Adjusted Gross Income (AGI), as reported to
IRS
• If married and filed joint return, combined AGI
is used as borrower’s AGI for IBR calculation
Calculating the IBR Payment Borrower’s
Income (cont.)
• Other documented proof of current income
may be accepted if AGI is not available or
AGI reported to IRS does not reasonably
reflect current income
Calculating the IBR Payment
HHS Poverty Guidelines
• Income amounts based on family size and
state of residence
• Published annually in Federal Register
• Posted on IFAP as an Electronic
Announcement
Calculating the IBR Payment Family size
• Borrower and borrower’s spouse
• Borrower’s children who receive more than
half their support from borrower
− includes children expected to be born in year
of certification
• Other individuals who live with, and receive
more than half their support from the
borrower
Calculating the IBR Payment
Sample Maximum Payments
Annual Income
Family Size
1
2
3
4
5
6
10,000
$0
$0
$0
$0
$0
$0
20,000
$47
$0
$0
$0
$0
$0
30,000
$172
$102
$32
$0
$0
$0
40,000
$297
$227
$157
$87
$16
$0
50,000
$442
$352
$282
$212
$141
$71
Calculating the IBR Payment
Special Rules
• If calculated IBR amount is less than $5.00,
monthly payment is $0.00
• If calculated IBR amount is equal to or
greater than $5.00 but less than $10.00,
monthly payment is $10.00
Calculating the 10-year Standard
Repayment
• Based on 10-year repayment of aggregate
amount of IBR-eligible loans outstanding at
point of entering repayment
Comparison of IBR and Standard
Repayment Amount
• If monthly amount calculated under 10-year
Standard repayment plan is LESS than IBR monthly
amount, borrower is not eligible for IBR
• If monthly amount calculated under 10-year
Standard repayment plan is MORE than IBR
monthly amount, borrower is eligible and may
choose to repay under IBR
Example 1:
Eligible for IBR
AGI: $50,000
Family size: 4
State of residence: California
Eligible student loan debt: $20,000
Interest rate: 6.8%
10-year Standard repayment: $230
IBR repayment: $212
Example 2:
Not Eligible for IBR
AGI: $30,000
Family size: 1
State of residence: New York
Eligible student loan debt: $10,000
Interest rate: 6.8%
10-year Standard repayment: $115
IBR repayment: $172
Online help
• Calculator available to estimate amount of
IBR payment and borrower eligibility:
www.ibrinfo.org
• NSLDS available to borrower to obtain
complete Federal student loan information www.NSLDS.ed.gov
• Websites of individual loan holders
IBR Process
• Borrower must annually provide the loan
holder with information needed to determine
eligibility and calculate IBR payment amount
• Proof of AGI
− Borrower authorizes IRS verification of AGI
− Alternative documentation required if AGI
does not reflect current income
IBR Process (cont.)
• If borrower requests IBR from loan holder, all
loans held by that entity must be repaid under
IBR unless borrower requests otherwise
• If there are multiple loan holders, the
borrower must apply to each loan holder to
qualify on all loans
• Loan holders pro-rate payment amounts
Subsequent Years
• Borrower may continue if still eligible for
reduced payment based on annual
recalculation
− Amount of IBR payment may change
Subsequent years (cont.)
• If borrower no longer eligible for IBR reduced
payment or chooses to stop making reduced
payments under IBR
− May stay in IBR program with maximum
monthly payment recalculated on 10-year
Standard repayment of amount owed at point
borrower initially started IBR
− Repayment period may exceed 10 years
Subsequent years (cont.)
• Any borrower who leaves IBR plan will be
placed on Standard repayment
− For non-consolidation borrowers, payment
recalculated under 10-year Standard plan,
based on time remaining and amount
outstanding at the point the borrower
discontinued payments under IBR
Subsequent Years (cont.)
• Any borrower who leaves IBR plan (cont.)
− For a consolidation loan, payment is
recalculated based on
• repayment period remaining in period originally set
for consolidation repayment (up to 30 years),
• balance owed on consolidation loan and other
student loans at time borrower discontinued paying
under IBR
Subsequent Years (cont.)
• Interest capitalization
− Interest is capitalized if borrower is no longer
eligible for reduced IBR payment or if
borrower chooses to leave IBR
Interest Subsidy
• If reduced IBR payment does not cover full
amount of interest that accrues each month
on borrower’s subsidized Stafford loans (or
subsidized portion of consolidation loans),
Secretary pays remaining interest for
borrower for period up to 3 consecutive years
from repayment period start date.
Loan Forgiveness
• Amount of accrued interest and principal
remaining after borrower makes the equivalent
of 25 years of payments through combination of
eligible monthly payments and Economic
Hardship deferment is forgiven.
• Eligible payments counted towards total of 25
years:
− Monthly reduced payments under IBR calculation
Loan Forgiveness (cont.)
• Eligible Payments (cont.)
− Monthly reduced payments capped at maximum
payment under 10-year repayment based on
repayment of loans outstanding at time entered IBR
− Monthly payments under ICR (DL)
− Monthly payments under any repayment plan if
amount is not less than 10-year Standard repayment
based on loans outstanding at initial repayment of
loans
Changes in Regulations
• Proposed change to calculation of 10-year
Standard repayment for purposes of determining
IBR eligibility would be based on the greater of
the amount due at the time
− Borrower initially entered repayment or
− Borrower elected repayment under IBR
• Proposed change concerning borrowers filing joint tax
return would take into account the combined amount of
borrower and spouse’s eligible loan debt
Advantages of IBR
• Affordable payments (including $0)
• If borrower’s calculated IBR payment does not cover
the monthly accrued interest, the remaining interest
is paid for borrower for three years on subsidized
loans
• Remaining principal and interest forgiven after 25
years of payments
• IBR payments count for Public Service Loan
Forgiveness
IBR Disadvantages
• More interest paid over time
• Repayment period more than 10 years
• Annual submission of information on income
and family size to prove continued eligibility
for reduced payments under IBR
Accessing your loan information
• National Student Loan Data System (NSLDS)
− U.S. Department of Education's central
database for student aid
− NSLDS receives data from schools, guaranty
agencies, the Direct Loan program, and other
Department of Education programs
− www.nslds.ed.gov
− Need a PIN for access
Reminders
• Keep copies of all correspondence
• Keep the Direct Loan Servicing Center or
lender informed of status changes (e.g.,
address change or going to graduate school)
• Direct Loan borrowers
− www.dl.ed.gov
− 1-800-848-0979 or (TTY) 1-800-848-0983.
• FFELP borrowers
− Know your lender’s phone number
Problem resolution process
• Federal Student Aid Ombudsman of the
Department of Education
− Helps resolve disputes
− When you have done all you can do
yourself and haven’t been able to reach a
solution, the Ombudsman provides a process
and resources to assist you, the student.
− www.ombudsman.ed.gov
Questions
Please e-mail questions or comments to
[email protected] or call me at 619-2979700 x1353.