Transcript Extended Exit:Now More Than Ever

ANZFAA – Sydney 2010
Tony Glad
8 Strategies for Managing Student Loan Debt
1. Know your rights and responsibilities
2. Know your loan portfolio – loan types and relative costs
3. Know your grace, deferment and forbearance options
4. Know your decision dates and keep a calendar
5. Know the cost before choosing your repayment plan
6. Keep good records
7. Understand the consequences of delinquency and
default
8. Know your resources
Borrower Rights:
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Disclosure statement
Copy of Promissory Note and actual note when paid in full.
Repayment schedule
Interest benefits, if eligible
Grace period
Prepayment without penalty
Notice of loan sale or transfer (if payments sent to a new location)
Deferments, when eligible
Forbearance requests
Borrower Responsibilities:
Notify lender/servicer of addresses changes
Notify servicer of other demographic changes
(change of name)
Repay loan on schedule (including interest and fees)
Attend Exit Counseling
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The Master Promissory Note (MPN) you signed is a legally binding
agreement where you promised to repay all federal loans you received.
Loans must be repaid in full even if you:
 Do not finish school.
 Are not satisfied with your school or program.
 Do not find a job after graduation.
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You must repay your loan—even if you don’t receive a bill—so make
sure your servicer has your current contact information.
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Each loan will begin in Standard Repayment - you may change your
repayment plan once per year, or once you qualify for income
related plans).
You can pay loans on a shorter schedule—there’s no penalty for
prepaying your federal student loans.
If you’re having trouble repaying, call your servicer to discuss option
◦ Subsidized Loan:
• Based on a borrower’s need (per FAFSA).
• Interest is paid by the government while at university, during
grace period, and during deferments.
◦ Unsubsidized Stafford Loan:
• Available regardless of a borrower’s financial need.
• Interest accrues from disbursement, and you are responsible
for paying it.
• Interest payment may be deferred while you’re at university,
in grace or deferment.
• Interest is capitalized (added to the loan principal) at
repayment
• All Stafford Loans disbursed between July 1, 1998, and June 30, 2006, have a
variable rate based on a 91-day T-bill + 1.7% in-school, grace and deferment and
91-day T-bill + 2.3% in repayment, capped at 8.25%. Currently 1.87% and 2.47%,
respectively.
• All Stafford Loans disbursed after July 1, 2006, and before June 30 , 2012, have a
fixed interest rate of 6.8 percent, with the following exception:
• The College Cost Reduction and Access Act of 2007 cut the fixed rates on new sub
Stafford loans for undergrad students to 6.0% (2008-09), 5.6% (2009-10), 4.5%
(2010-11) and 3.4% (2011-12), with a return to 6.8% in 2012-13. These cuts are
available only to undergrad students and only for subsidized loans.
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Direct PLUS Loans disbursed after 1 July 2006 are fixed at a
rate of 7.9%.
FFEL PLUS Loans disbursed after July 1, 2006 have a fixed
interest rate of 8.5% for loans
PLUS Loans disbursed from 7/1/1998 through 6/30/2006 :
91-day T-bill + 3.1, capped at 9%, currently 3.27%.
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Grace periods begin the day a student withdraws, graduates,
or drops below half-time enrollment.
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Payments are not required during grace periods.
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Direct Stafford Loans have a 6-month grace period.
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Direct Subsidized Stafford stays subsidized in grace.
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Deferment allows you to postpone payments on your federal student
loans.
If you’re approved for a deferment, the federal government will pay the
interest on a subsidized Stafford Loan for a specified period; however,
interest on unsubsidized loans will be added to your principal balance.
If you meet any of the following conditions, you may qualify for a
deferment:
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Economic hardship
Unemployment
Enrollment in school
Graduate fellowship
Rehabilitation training
Military
If you borrowed any of your outstanding federal student loans before July 1,
1993, you may be eligible for additional types of deferments, check with
servicer.
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Forbearance is similar to deferment because it’s a temporary
postponement to your repayment schedule—usually from 6
months to 12 months in length.
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During forbearance, interest accrues on both subsidized and
unsubsidized loans and you must repay it eventually.
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There are several types of forbearances, including the
following:
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Economic hardship
Internship or residency
Excessive debt
Disaster
Military mobilization
National and community service
Temporary disability
Contact your loan servicer for exact forbearance
eligibility requirements and to apply.
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Standard
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Graduated
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Extended
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Income-Sensitive (FFELP loans only)
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Income-Contingent (Direct Loans only)
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Income-Based
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Consolidation
Standard Repayment
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10 year (120 months) repayment term
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Minimum monthly payment is $50.
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Monthly payment will typically be more than $50 to ensure
your loan is repaid within 10 years.
Keeps finance charges to minimum.
Most cost-effective repayment option—you pay the least
interest.
Graduated Repayment
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Payments start smaller—$30 is the minimum monthly
payment—and gradually increase throughout repayment.
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A good alternative if you anticipate your income will
increase in the future.
Maximum repayment term is 10 years; however, the
lender/holder may extend the term up to 4 additional years
in certain cases.
Remember: increased interest cost.
Extended Repayment
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For borrowers with more than $30,000 in loan debt.
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Payment amounts can be either fixed or graduated.
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Extends your repayment term.
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Maximum repayment term is 25 years.
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Minimum monthly payment is $50.
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More expensive because extending your term increases the
time you pay interest.
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Available to borrowers whose oldest loan was originated on
or after October 7, 1998.
Income-Sensitive Repayment
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FFELP loans only
Monthly payment is adjusted annually so payment is between 4
percent and 25 percent of your gross monthly income (must be
greater than the accruing interest).
Maximum repayment period is 10 years; however, the
lender/holder may extend the term up to 5 additional years in
certain cases.
Again, smaller up-front payments mean higher back-end
payments and more interest.
Income-Contingent Repayment
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Direct Loans Only
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Payments are based on the borrower's income and the total
amount of debt.
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Monthly payments are adjusted each year as the borrower's
income changes.
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The loan term is up to 25 years. At the end of 25 years, any
remaining balance on the loan will be discharged.
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The write-off of the remaining balance at the end of 25 years
is taxable under current law.
Income-Based Repayment
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Available beginning July 1, 2009.
Monthly payments are capped at no more than 15 percent of
your discretionary income, which is based on your income,
family size, and total amount borrowed.
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Maximum repayment period is 25 years.
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Any remaining debt after 25 years is forgiven.
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Must display partial financial hardship to qualify.
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Multiple loans combined to make one new loan
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Underlying loans are paid in full
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New, usually longer term of payment
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Fixed interest rate
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No fees associated with consolidating
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Cannot “un-consolidate”
Direct
Sub, Unsub & PLUS
Loans (DL)
Federal
Sub, Unsub Stafford & PLUS
Loans (FFELP)
Loans
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Direct
Perkins Loans
National
Health
Defense Student
Education Assistance
and Federal
Loans
Consolidation Loans (prior to
7/1/06)
Health Professions Student
Loans
Guaranteed Student Loans
(GSL)
Loans for Disadvantaged
Students
 Supplemental Loans for
Students (SLS)
Nursing Student Loan
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Any loans made by individuals, states or private alternative
lenders that are not guaranteed by the federal government,
for example:
◦ Primary Care Loans – due to work requirements
◦ State loans
Defaulted Loans – unless the borrower has made satisfactory
repayment arrangements
Credit card debt, home mortgages, car loans etc.
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After you graduate
Things to consider:
◦ Impact on grace
◦ Higher loan costs due to interest rate and/or longer
repayment term
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Weighted average of interest rates rounded up to
nearest 1/8 point and capped at 8.25%
Example:
$8,500 * 7% = $595
$10,000 * 5% = $500
$8,500 * 9% = $765
$27,000
$1860
$1860 ÷ $27,000 = 6.888
(.0688)
So 6.888% , nearest 1/8% (.125)
= 7.00%
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Amount of Loan
Less than $7,500
$7500 - $9,999
$10,000 - $19,9999
$20,000 - $39,9999
$40,000 - $59,999
Over $60,000
Repayment Length
10
12
15
20
25
30
years
years
years
years
years
years
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Convenience of one monthly loan payment
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Single point of contact for all customer service needs
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Lower monthly payment amount
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Long-term payment relief – up to 30 years to repay
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Fixed interest rate – ability to lock in fixed rate and protected against
future rate increases
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You’ll retain the option of choosing different repayment plans.
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You can still prepay your loan at any time -keep in mind that payments
above your billed amount will help pay down your principal.
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Loss of borrower benefits tied to underlying loans
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Accrued interest will capitalize when you consolidate
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May adversely affect grace, deferments, discharges
(particularly Perkins), and interest subsidies
Likely increase in total repayment amount – the longer
you take to pay off the loan, the more interest you will
ultimately pay
Reconsolidation only possible in certain circumstances
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How to choose? Easy – Direct Consolidation is only game
in town!!
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http://www.loanconsolidation.ed.gov
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Monthly payments on underlying loans are still due –
keep loans current until consolidation is complete
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Make sure you receive “Paid in Full” stamped promissory
notes from underlying loans when consolidation process
is complete
 Keep forever!!
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Expect process to take 30-90 days – start
early!
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Gather information about underlying loans
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www.nslds.ed.gov will have info on all your
Federal Loans
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Current balance
Interest rates
Holders
Original balance
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University must provide student with average
indebtedness figures and estimated payment
examples based either on student’s actual
debt or average indebtedness of students at
the university or in the student’s program
Estimated Standard Repayment Schedule
Amount Borrowed
Number of Months
Monthly Payment
Total Amount Repaid
$5,000
120
$58
$6,905
$15,000
120
$173
$20,714
$25,000
120
$288
$34,524
$35,000
120
$403
$48,334
$45,000
120
$518
$62,143
$55,000
120
$633
$75,953
$65,000
120
$748
$89,763
$75,000
120
$863
$103,572
$85,000
120
$978
$117,382
$95,000
120
$1,093
$131,192
$105,000
120
$1,208
$145,001
$115,000
120
$1,323
$158,881
$125,000
120
$1,439
$172,621
Total amount includes principal and interest. This schedule assumes a 6.8 percent
interest rate and a standard repayment term of 10 years.
Comparison of Repayment Options
Total Loan
Repayment Amount
(Principal and
Interest)
Repayment Schedule
Number of
Payments
Monthly Payment
Interest Rate
Total Interest
Repayment
Amount
Standard
120
$345
6.8%
$11,429
$41,429
Graduated
120
$170 (first 4 years)
$406 (remaining 6
years)
6.8%
$13,059
$43,059
Income-Sensitive
120
$83 (first 5 years)
$713 (remaining 5
years)
6.8%
$17,771
$47,771
Extended
240
$229
6.8%
$24,961
$54,961
Consolidation (Standard)
120
$346
6.875%
$11,567
$41,567
Consolidation (Extended)
240
$230
6.875%
$25,282
$55,284
Consolidation (Graduated)
240
$216 (average)
6.875%
$21,925
$51,925
Source: American Student Assistance, 2009.
This chart is based on a student graduating with $30,000 in Stafford Loans at a fixed interest rate of 6.8 percent and earning a salary of
$25,000 (note that Income-Sensitive and Graduated Repayment totals vary depending on the amount of time you make lower payments).
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During your grace period your servicer will send you a
repayment or disclosure statement listing your:
 Monthly repayment
 Payment due dates
 Length of repayment
 Current interest rates
If you do not hear from your servicer, call and update them on
your location. Even if you do not hear from them you are
responsible for making timely loan repayments!
Forgiveness for Federal Student Loans
US Federal Student loans may be forgiven for the following
reasons:
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Public Service Loan Forgiveness (Direct Loans only)
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Service in Areas of National Need Forgiveness
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Teacher Loan Forgiveness
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Loan Forgiveness for Civil Legal Assistance Attorneys
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New public service loan forgiveness program will discharge
remaining debt after 10 years of full-time employment in public
service.
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Unlike the 25-year forgiveness, the 10-year forgiveness is taxfree due to a 2008 IRS ruling.
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Borrower must make 120 payments as part of the Direct Loan
program.
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Only payments made on or after October 1, 2007 count toward
the required 120 monthly payments.
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Borrowers may consolidate into Direct Lending in order to qualify
for this loan forgiveness program.
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You die or become totally and permanently disabled.
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Your school closed before you could complete your program.
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Your school forged your signature on a promissory note, or
certified your loan even though you didn't have the ability to
benefit from the coursework.
Identity theft.
You file for bankruptcy. (This cancellation is rare and occurs
only if a bankruptcy court rules that repayment would cause
undue hardship.)
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Delinquency
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Default Consequences
◦ Failure to make repayment when due
◦ Reported to credit bureaus, affecting your credit history
◦ After 270 - 360 days becomes…Default.
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After 270 - 360 days, servicer assumes you will not pay
Servicer will garnish wages and tax returns
Collection agencies take over and add15-18% to loan
Universities may withhold records
Licences pulled in growing numbers of US states
Student loans cannot (usually) be discharged in bankruptcy
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NSLDS is the U.S. Department of Education’s central database for federal
student aid records.
Visit www.nslds.ed.gov to view a list of all your federal student loans.
To access your account, select “Financial Aid Review” on the home page and
enter your Social Security number, the first two letters of your last name,
your date of birth, and your personal identification number (PIN).
If you forgot your PIN, wish to change it, or have to apply for a new one, visit
www.pin.ed.gov.
NSLDS is the best resource for information on all the federal student loans
you have borrowed.
U.S. Department of Education
Ombudsman
830 First Street N.E., Fourth Floor
Washington, D.C. 20202
877.557.2575
www.fsahelp.ed.gov
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The FSA Ombudsman is a neutral entity dedicated to helping
students resolve disputes and other problems with federal
student loans.
The FSA Ombudsman will research your problem in an
impartial and objective manner and will try to develop a fair
solution.
Be sure to have complete and accurate records, as your
lenders, guarantors and servicers certainly will!!
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Your Financial Aid Office
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Other Resources
www.studentloans.gov
www.nslds.ed.gov
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http://www.mapping-your-future.org
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o
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Pay your bills on time—1 day late can make a difference.
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Don’t max out your credit cards—aim to carry balances no more
than 25 percent of your available credit.
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Keeping older accounts open and active can increase your credit
history and debt-to-income ratio, but don’t open numerous credit
cards as a short-term way to increase your credit score.
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Establishing good credit now will benefit you later.
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Review your credit report frequently and correct mistakes.
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Consumer reporting agencies must offer you one free report per
year:
 Equifax
 Experian
 TransUnion
www.equifax.com
www.experian.com
www.transunion.com
 Visit www.annualcreditreport.com for copies of all three.