Transcript Document 7140580

Life after Graduation…
Debt Management and Loan Repayment Strategies
Presented by: Sharon Gifford
Vice President
Graduate & Health Professions Programs
Types of Loans
• Stafford
– Subsidized
• government pays interest
during eligible periods
– Unsubsidized
• borrower pays interest
– 10 year repayment
– $50 minimum monthly
payment
– 6 month grace period
• Grad PLUS
– Fixed interest rate 8.5%
– 10 year repayment
– $50 minimum monthly
payment
– Immediate repayment (no
grace period)
Loan Repayment
• Repayment
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Standard
Graduated
Income Sensitive
Extended
Consolidation
Prepayment
• Loan Cancellation
– Death
– Total & permanent disability
– Some courses of study (check with
FAO or guaranty agency)
What is capitalization?
• Repayment begins 6 months after graduation
• Interest accrues on unsubsidized debt during in-school,
grace and deferment
• Lenders retain the right to periodically add this unpaid
accrued interest to the total outstanding unsubsidized
principal, usually done once at repayment
• The Result - borrowers are technically paying interest on
capitalized interest that was added to principal
Standard Repayment
8.25%
Principal
Amount
Monthly
Payment
Total
Repaid
$ 60,000
$ 735.92
$ 88,310
$ 80,000
$ 981.22
$ 117,747
$ 100,000
$ 1,226.53
$ 147,183
$ 120,000
$ 1,471.83
$ 176,620
$ 150,000
$ 1,839.79
$ 220,775
Tip: you will repay approximately $12.25/month for each thousand you
borrow if repayment is at the cap of 8.25%
Standard Repayment
6.8%
Principal
Amount
Monthly
Payment
Total
Repaid
$ 60,000
$ 690.48
$ 82,858
$ 80,000
$ 920.64
$ 110,477
$ 100,000
$ 1,150.80
$ 138,096
$ 120,000
$ 1,380.96
$ 165,716
$ 150,000
$ 1,726.20
$ 207,145
Tip: you will repay approximately $11.51/month for each thousand you
borrow if repayment is at 6.80%
What If I Can’t Make
My Monthly Payment?
Contact your servicer to discuss:
• Deferment Options
• Forbearance Options
• Consolidation Loans
Avoid Delinquency, Default
and Bankruptcy
• Delinquency
• Usually occurs when 30 days late making payments
• Late payments are reported to a credit bureau
• Becomes part of your financial history
• May impact eligibility for borrower benefits
• Default
• Occurs when loan payments are 270 days past due
• Serious consequences
What happens if I default?
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Bad credit
May impact employment opportunity
Income tax refunds withheld through Federal Offset
Lottery winnings withheld
Wages can be garnished
Professional license may be revoked, cancelled or not renewed
Not eligible for future financial aid
Not eligible for Federal benefits
You will be responsible for all collection costs
You’ll lose the option of deferment and/or forbearance
Your payments may become larger and your ability to pay more
strained
• There is NO statue of limitations, so your obligation to repay this debt
will never go away
Talk To Your
Lender/Servicer if:
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You have questions
You move or change names
You transfer to another school
You can not make your payment
You want to apply for a deferment
or forbearance
Helpful Hints
• Open, read, and respond to all correspondence
sent from your school and lender
• Keep all copies of loan information in one place
• Make all payments on time
– Contact your lender for options during times when
financial difficulties occur
• Use credit wisely!
Auto-Pay and Overdraft
• Most lenders offer incentives for electronic
repayment of your education loans
• Many offer additional incentives for on-time
payments (after a certain number of months)
• Why? Electronic payments = lower costs AND
fewer delinquencies
• BUT … if you bounce a payment, you lose the
on-time incentive
Auto-Pay and Overdraft
If you enroll in auto-pay AND then elect
overdraft protection from your bank, you’ll
never again bounce a payment to any of your
creditors. This saves you overdraft fees (from
both your bank and your creditor).
If you have a lender that offers repayment
incentives, you will also ensure your ability to
earn them without fear of eliminating yourself.
Additional Assistance
Office of the Ombudsman, Student Financial Assistance
U.S. Department of Education
Room 3012, ROB-3
7th & D Street
Washington, D.C. 20202-5144
1-877-557-2575
http://ombudsman.ed.gov
Consolidation
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Combines eligible loans into a single new loan
Longer repayment term (up to 30 years)
Lowest payments
Highest total cost potential
The fixed interest rate for a Consolidation
Loan is based on the weighted average of the
interest rates of the loans you consolidate
(rounded up to the nearest 1/8th percent).
Eligible Federal Loans
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Federal Stafford Loans
Federal Perkins Loans
Health Professions Student Loans (HPSL)
Federal Nursing Student Loans (NSL)
Health Education Assistance Loans (HEAL)
Federal Graduate PLUS Loans
Federal PLUS Loans
Federal Consolidation Loans
– must consolidate at least one additional eligible loan
Ineligible Loans
• Private education loans
• Spouse’s education loans
Program Guidelines
• Borrower may consolidate:
– During grace period: application may be
submitted and consolidation delayed until
end of grace
– When in repayment
– Loans in deferred status: deferment
continues, if consolidated
Program Guidelines
• Cannot consolidate again with competing
program unless you have a new loan that
has not been consolidated
• Exceptions to repeat consolidation
– Borrower needs income-contingent repayment
plan
– Initial consolidation loan has been submitted to
the guarantor for default aversion assistance
Program Guidelines
• If you omitted a loan, it can be added to
initial consolidation within 180 days
• If you return to school and obtain a new
eligible federal loan AND are no longer in
“in-school” status you can re-consolidate
What Happens to
Borrower Benefits?
• Consolidation creates a new loan with total
loan balances and has new terms and
conditions
• Could lose certain benefits that were on the
original loans
• Can choose which loans to include in
consolidation
Things to Consider
• Look at individual loan programs and benefits
offered
• Perkins Loan offers forgiveness for:
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Teaching in shortage or low-income area
Social work
Nurse or medical technician
Law enforcement or corrections officer
AmeriCorps VISTA or Peace Corps volunteer
Service in Armed Forces
Interest Rate Comparison
• Perkins Loans
– Fixed interest rate at 5%
• Stafford Loans: Disbursed prior to July 1, 2006
– During Grace : 6.62% (variable rate)
– In Repayment: 7.22% (variable rate)
• Stafford Loans: Disbursed on or after July 1, 2006
– 6.8% (fixed rate)
• Consolidation Loans
– Fixed interest rate for life of loan
• Weighted average of underlying loans (rounded up to next
1/8 of a percent)
Weighted Average
Multiple loans (currently in repayment):
Amount
Loan Type
Interest Rate
$
10,000
Perkins Loans
5.00%
$
20,000
Stafford Loans (variable rate)
7.22%*
$
30,000
Stafford Loans (fixed rate)
6.80%
Consolidation Loan
6.75%
$ 60,000
* Current variable rate, subject to change each July 1.
Repayment Periods
Total Amount of
Loans*
Maximum Repayment
Period
Under $ 7,500
10 years (120 months)
$ 7, 500–9,999.99
12 years (144 months)
$ 10,000–19,999.99
15 years (180 months)
$ 20,000–39,999.00
20 years (240 months)
$ 40,000–59,999.99
25 years (300 months)
More than $ 60,000
30 years (360 months)
* Based
on outstanding amount of all education loan debt, regardless of
whether or not the loan is eligible and/or if you choose to consolidate the
loan.
Monthly Payments
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Typically reduced after consolidation
May make monthly costs more reasonable
Costs more in the long run
Repayment term extended up to 30 years
Repayment Example
$ 60,000 student loan debt with various lenders/servicers:
Amount
Loan Type
Term
Payment
$ 10,000
Perkins Loans (undergraduate)
120
$ 106.07
$ 20,000
Stafford Loans (7.22%)
120
$ 234.49
$ 30,000
Stafford Loans (6.8%)
120
$ 345.24
Loan Type
Balance
Payment
Term
Total Repayment
Not Consolidated
$ 60,000
$ 684.97
120
$ 82,196.40
Repayment Example
with Consolidation
• Consolidation extends the repayment term
– You pay more if you use the full term
– You can pay the loan off early with no penalty
Loan Type
Balance Payment Term
Total Repayment
Not Consolidated
$ 60,000
$ 684.97
120
$ 82,196.40
Consolidated
$ 60,000
$ 526.80
180
$ 94,823.00
Consolidated
$ 60,000
$ 384.19
360
$ 138,307.00
Interest Subsidy
• Portion of Consolidation Loan that was
subsidized remains subsidized for:
– FFELP and FDLP Stafford Loans
• Does not retain subsidy on portion of
FFELP Perkins Loans or FDLP Perkins
Loans
Consolidation
Repayment Options
• Standard
– Same payment each month
• Graduated
– Payments start low and gradually increase
• Income-sensitive or income-contingent
– Monthly payments based on income
– Adjusted annually
Think Twice
Before You Consolidate
• If ALL of the following are true:
• You only have eligible federal student loans with
FIXED interest rates
• You qualify for Extended Repayment
• You qualify for on-time payment incentives on
Federal Stafford/PLUS Loans
• Then, you could have both a lower monthly
payment and pay less over the life of repayment
by NOT consolidating
$40,000 Stafford Fixed 6.8%
Extended
Repayment
Consolidation
Interest
Rate
6.8%
6.875%
Term
25 yr
30 yr
Monthly
Payment
$277.63
$262.77
Total
Amount
Paid
$83,289
$94,598
$100,000 Stafford Fixed 6.8%
Extended
Repayment
Consolidation
Interest
Rate
6.8%
6.875%
Term
25 yr
30 yr
Monthly
Payment
$694.07
$656.93
Total
Amount
Paid
$208,222
$236,494
$40,000 Stafford
Combination 6.8% & 7.14%
Extended
Repayment
Consolidation
Interest
Rate
6.97%
7.0%
Term
25 yr
30 yr
Monthly
Payment
$281.95
$259.44
Total
Amount
Paid
$84,584
$93,398
$100,000 Stafford
Combination 6.8% & 7.14%
Extended
Repayment
Consolidation
Interest
Rate
6.97%
7.0%
Term
25 yr
30 yr
Monthly
Payment
$704.87
$665.30
Total
Amount
Paid
$211,460
$239,509
What should you do?
• May still want to consolidate the federal
student loans with variable interest rates
• Can consolidate only the variable rate loans as
a separate Federal Consolidation Loan
• Can retain fixed rate loans as separate loans
• May not want to include a prior consolidation
loan as part of a new consolidation so that any
prepayments can be targeted at the highest
cost debt
Consolidating Private Loans
Factors to Consider
• Interest rate may be higher
• Increasing repayment period increases
total costs
• Grace period may be lost
• Additional fees may be assessed
• Borrower benefits will be lost
Consolidating Private Loans
MORE Factors to Consider
• If you have good credit
• If you don’t have borrower benefits to lose
• If you have loans from multiple lenders
Graduation Time for a Budget Update
• How much will you earn?
• What are your new expenses?
• Education loan payments start soon.
• Build savings into your budget.
• Be prepared for emergency
expenses.
• Your money earns more money for you.
Taxpayer Relief Act of 1997
Highlights
• Interest Deductions:
– Potential education loan interest deduction if income
less than $40M single filers, $60M married filers.
• Tax Credits:
– Students and families may be eligible for either HOPE
($1500 maximum for 1st two years of post-secondary study) or
Lifetime Learning Credit ($1000 maximum annually); certain
income limitations apply.
• Contact a tax advisor to determine your personal
eligibility
Debt Management
Strategies
Create a spreadsheet showing the following:
type of credit
student loan
car loan
Visa
MasterCard
mortgage
balance
$87,000
$14,000
$ 7,200
$ 2,400
$95,000
mo pmt
$ 361
$ 350
$ 144
$ 48
$ 750
TOTALS
$292,000
$1653
APR
6.8%
8.9%
15.9%
18.9%
6.3%
Debt Management
Strategies
Now sort by APR - highest to lowest:
type of credit
MasterCard
Visa
car loan
mortgage
student loan
balance
$ 2,400
$ 7,200
$14,000
$95,000
$87,000
mo pmt
$ 48
$ 144
$ 350
$ 750
$ 361
TOTALS
$292,000
$1653
APR
18.9%
15.9%
8.9%
6.3%
6.8%
Credit
The only reason a great many American
families don’t own an elephant is that
they have never been offered an
elephant for a dollar down and easy
weekly payments.
-Mad Magazine
Credit Cards
Free t-shirts aren’t free.
Low rates won’t stay low.
Airline miles are paid for somehow.
Cash saved is better than cash back.
How bad is the current crisis?
Top Credit Card Interest Rate?
35.20%
Average Credit Card Debt?
$8,000
2003 Profits by Credit Card companies?
1.5 trillion globally / 60 billion nationally
– Elizabeth Warren, Harvard University School of Law
But Worse Yet…
• Fees have doubled.
• Income from over-limit charges,
calendar manipulation and returned
checks has far outpaced actual interest
rates.
Interest Rates
• One late payment can eliminate all low
teaser rates, raising interest from 3.9% to
over 20%.
• Cash advance interest rates may
capitalize daily, not monthly.
• Annual fees, points program fees,
authorized user fees all add up.
Lets talk about those rates . . .
There are no regulations which prevent
credit card companies from changing your
rate at any time for any reason
• Failing to make a timely payment to
another creditor
• Account balances deemed too high
(sufficiently obligated)
The lure of the
“minimum payment”
$2,500
At an interest rate of 24%, making only the
minimum payment:
• 304 payments over 25 years (to 2031)
• Interest payments of $7,625.48
• Increase the cost to $10,125.48
Why not the day to day?
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•
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Snacks at coffee shop ($5 x 4)
Gum or mints ($1.20 x 4)
Soda or bottled water ($1.25 x 4)
Movie & snacks ($12.00)
Occasional magazine ($4.50)
Gas
A music CD
$
$
$
$
$
$
$
20.00
4.80
5.00
12.00
4.50
25.00
15.00
The costs of the “Little Things”
$
86.30
Total over 52 weeks?
$ 4,487.60
Who looks at credit?
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Apartment managers
Employers
Car dealers
Retail creditors
Banks
All carefully tracked by
Fair Isaac Corporation
(FICO)
www.myfico.com
How is FICO Measured?
FICO measures your financial responsibility
based on your credit history calculated from
5 categories:
FICO Scores
• 75% of Americans have a recorded credit history
(225M)
• Median credit score – “good” – is 720
• Highest score is 850
• The riskiest population – those who will most
likely charge off debt or file bankruptcy – is
below 600
• According to USA Today, Texas is one of the
states with the lowest average scores - 649
Hits Against
Your FICO Score
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Late payments
Uncollected debt
High debt
High potential debt
Frequency of applications & inquiries
Effect of a FICO score
on a loan’s total cost
A $10,000 loan with no fees at a 15-year repayment term.
Prime rate @8.25%
FICO
Score
Interest
Rate
Formula
Interest
Rate
Monthly
Payment
Total Cost
of Loan
723
Prime –
0.25%
8.00%
$95.57
$17,201.74
619
Prime +
3.5%
11.75%
$118.41
$21,314.36
www.annualcreditreport.com
Review reports at least once a year.
Follow instructions to dispute any errors.
Ask creditors to reduce unnecessarily high limits.
Close unused accounts.
You don’t need a “credit repair” company!
Always Opt Out
1-888-567-8688
or
www.optoutprescreen.com
What is Identity Theft?
Wrongful use of your personal
identification to obtain services in your
name – can include credit, loans,
services, rentals or mortgages. Crimes
may be committed while impersonating
you.
Am I at Risk?
According to a national survey of
students, 49% discarded credit card
applications without destroying them
and rarely, if ever, reconciled their
credit card and bank statements.
Am I at risk?
• The FTC reports identity theft is the
fastest growing crime today
• Affected more than 9.9 million new
victims in 2003
• Losses to victims were estimated at more
than $5 billion in 2003
• Losses to business and financial
institutions were estimated at $50 billion
in 2003
Protect Yourself
• Never give any personal information over the telephone
• Never mail checks or personal information from your
home mail box
• Never put phone or social security numbers on personal
checks
• Never respond to E-mail spam telling you to click an
address if you don’t want to receive further e-mails
• Never carry social security cards or pin numbers in your
wallet
• Never use your SSN for your driver’s license or medical
cards
Always
• Cover your calling card and ATM pin numbers
• Update virus and firewall software
• Carry only the credit cards and ID that you need
• Shred credit card offers and any form on which
your signature can be forged
Protecting Yourself
• Obtain your credit report from each credit
bureau each year
• Guard your mail! Planning to be away?
Request a vacation hold or temporary
forwarding request from the USPS
• Shred charge receipts, ATM receipts, old
bank statements, obsolete insurance forms,
physician statements, expired charge cards
and credit card offers
If you are a victim of fraud
The responsibility lies with you to
right the wrong. Contact:
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Your local police and complete a police report
The Social Security Administration
Your bank
Your credit card companies
Each of the Credit Bureaus
If you are a victim of fraud
The responsibility lies with you to
right the wrong. Contact:
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–
–
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Your local police and complete a police report
The Social Security Administration
Your bank
Your credit card companies
Each of the Credit Bureaus
Tonight’s To-Do List
Get the beverage of your choice.
Order a copy of your credit report.
Ask your credit card companies what your current
Annual Percentage Rate is, and ask if they’ll lower it.
Create a monthly budget, using APR sorting.
Your Graduation
To-Do List
Consider consolidating all remaining education debts,
weighing how consolidation terms may have changed.
If you need to defer, request deferments from your
loan servicer while still in your grace period.
Enroll in auto-pay for all possible debts.
Enroll in overdraft protection.
Find a good accountant.
Resources
www.nslds.gov
National Student Loan Data System
www.finaid.org/calculators
Repayment calculators
www.ombudsman.ed.gov
Office of the Ombudsman
www.bankrate.com
For competitive credit card rates
www.donotcall.gov
1-888-382-1222
www.annualcreditreport.com
One free report from each bureau
www.optoutprescreen.com
1-888-567-8688
www.tgslc.org
TG (State Guarantor)
www.myfico.com
Fair Isaac Corporation
Sharon Gifford
Student Loan Xpress
[email protected]
Good Luck in All Your
Future Endeavors!