Transcript law.capital.edu

Overview of student loan
repayment options
Capital University Law School
Managing Student Debt
To successfully manage loan
repayment, you should…
•
•
•
•
Know how much you have to repay and to whom
Understand the terms and conditions of your loans
Define your short- and long-term financial goals
Develop an affordable budget plan and estimate how
much you can afford to pay each month on your debt
• Keep good financial records
• Select the repayment plan that best achieves your goals
given what you can afford to pay each month
• Take advantage of loan forgiveness programs when you
qualify for them
Looking Ahead
What Happens after graduation?
Does loan have a
GRACE period?
YES
(e.g. Stafford, Perkins)
Repayment begins
After grace period:
6 mos – Stafford
9 mos - Perkins
NO
(e.g., Grad PLUS,
Consolidation)
Repayment resumes
after graduation
Start making
payments
Postpone
repayment
Federal Student Loan Database
National Student Loan Data System (NSLDS)
Information about your Federal Student Loans
Toll-free telephone
1-800-4-FED-AID
Web site
www.nslds.ed.gov
You can access NSLDS with your SSN, first 2
letters of your last name, birth date and Dept.
of Education PIN
What if I can’t afford to make loan
payments?
• Deferment and Forbearance
– Options to Postpone Payments
• Deferment
– Temporary postponement of your monthly student loan
payments
• Forbearance
– Temporary postponement or reduction of your monthly
student loan payments
• Contact your loan holder/servicer for more
information and to apply
Current deferment types
•
•
•
•
•
In-school (at least half-time)
Unemployment
Economic hardship
Military
Post-enrollment (for Grad PLUS made on/after 7/1/2008)
Contact your current loan holder/servicer for information about loan deferment eligibility
if you first borrowed a FFELP loan prior to 7/1/93
Unemployment deferment
• To qualify…
– You must be:
“Diligently seeking but unable to find full-time
employment in the U.S. in any field or at any salary or
responsibility level:
AND
Registered with a public or private employment agency
(school placement offices and “temporary” agencies do
not qualify as public or private employment agencies)
OR
Eligible for unemployment benefits
Economic Hardship Deferment
New Rules as of July 1, 2009
Generally, you’re eligible if you’re:
Receiving benefits from federal or state public
assistance programs (such as food stamps)
OR
Employed full-time, but your household Adjusted
Gross Income (AGI) is less than 150% of the
HHS poverty guideline for your household size
and state of residence
For 2009, this is an AGI of less than $16,245
for a household size of one (1) living in the 48
states
Forbearance
Temporary postponement or reduction of
monthly payments, or extension of time for
making payments
1. You’re responsible for all accrued interest
2. Must request a forbearance from your current
loan holder/servicer
3. Must provide whatever documentation is
requested
4. Mandatory forbearance may be available in
certain cases including periods of economic
hardship
Capital university law school – Class of 2010
2010 Graduates
Average student loan borrowing
FSL = $25,500; UFSL = $36,000;
Grad PLUS = $36,500
$98,000
Estimated capitalized interest
FSL = $0; UFSL = $5,200;
Grad PLUS = $6,600
$11,800
Estimated total debt at repayment
$109,800
Estimated monthly loan payment
Standard 10-year fixed Repayment Plan
$1,301
Estimated monthly loan payment
Extended 25-year fixed Repayment Plan
$809
Assumptions: Federal Stafford Loan interest rate = 6.8%
Federal Grad PLUS Loan interest rate = 8.5%
Comparing Payment plans
Federal Student Loan Balance = $109,800
Standard
Graduated
Extended
Monthly Payment
$1,301
$683 (2 yrs)
$1,523 (8 yrs)
$809 (fixed)
OR
$683 (2 yrs)
$834 (23 yrs)
Maximum Payment Period
10 yrs
10 yrs
25 yrs
$156,177
$162,572
$242,724
Or
$246,506
Total Paid
Income-based repayment option
$3,600
$300/month
$24,000
$40,000
$16,000
Income-Based Repayment (IBR)
Example #1
Eligible federal student loan debt
Estimated monthly payment
$109,800
$1,301
(Standard plan – 10 years)
Annual amount due ($1,301 x 12)
$15,612
Household size
1
Household AGI
$60,000
Poverty line for household size
$10,830
150% of poverty line
$16,245
AGI – 150% of poverty line
$43,755
15% of calculated amount
$6,563
Partial financial hardship – YES or NO
YES
IBR monthly payment, if eligible
$547
Income-Based Repayment (IBR)
Example #2
Eligible federal student loan debt
Estimated monthly payment
$109,800
$1,301
(Standard plan – 10 years)
Annual amount due ($1,301 x 12)
$15,612
Household size
1
Household AGI
$40,000
Poverty line for household size
$10,830
150% of poverty line
$16,245
AGI – 150% of poverty line
$23,755
15% of calculated amount
$3,563
Partial financial hardship – YES or NO
YES
IBR monthly payment
$296
Ibr PLAN
Estimated Monthly Payment in 2009
AGI
Monthly Payment
HH Size = 1
Monthly Payment
HH Size = 2
$0
$0
$0
$10,000
$0
$0
$20,000
$47
$0
$30,000
$172
$102
$40,000
$297
$227
$50,000
$442
$352
$60,000
$547
$477
$70,000
$672
$602
$80,000
$797
$727
$90,000
$922
$852
$100,000
$1,047
$977
Loan Forgiveness
• Example #1
– Assume starting salary of $60,000 with 3% annual salary
increases
– Years in repayment = 20.8
– $0 Forgiven
• Example #2
– Assume starting salary of $40,000 with 2% annual salary
increases
– Years in repayment = 10
– Government forgives entire principal + $27,000 interest
Choosing a Repayment Plan
Steps to consider…
Identify your financial goals
Determine your monthly budget
View your debt as a “portfolio”
Evaluate trade-offs
Select your repayment plan
Loan Prepayment
• You can prepay federal loans without any
penalty
• When prepaying a loan, you should:
– Verify where to mail payment
– Include written explanation on how it’s to be
applied
– Request that it be applied to principal
– Target payment at loans having highest interest
rate
What’s new?
• Income-Based Repayment Provisions
– Married individuals may either:
• File income taxes separately, or
• File income taxes jointly and include spouse’s income
and student debt
– In either case, household size includes all family
members
What’s new…
• Forgiven loan balance is not a taxable event
under the Public Service Loan Forgiveness
Program;
• However, it remains taxable under the general
25 year loan cancellation
What’s coming?
• For loans issued after July 1, 2014…
– Income-based Repayment Option reduces payment from
15% to 10% of discretionary income
– Loan balance is forgiven after 20 years rather than 25
• Effect on current graduates is unclear at this time.