After You Graduate - Guide to Repaying (eBook)
Transcript of After You Graduate - Guide to Repaying (eBook)
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This publication focuses on repayment of federal loans and is intended to supplement the information you
receive in exit counseling conducted by your school. Its not intended to replace the exit counseling program
offered by the school you attend. The information presented in this publication also should be helpful in
planning for and managing repayment of all your student loans. The information in this publication is current
as of March 2012.
Borrower ReminderYoure required to repay your loans along with any interest and fees that are assessed according to the terms
of the promissory note and repayment schedule. Full repayment is required even if you dont complete your
program of study, dont complete the program within the regular completion time for that program, dont
obtain employment upon completion of your degree, are dissatisfied with the education or other services you
received from your school, or dont receive a monthly billing statement from your loan servicer.
Table of ContentsRepaying Your Student Loans ................................................................................................2
Understanding Loan Repayment Terms ................................................................................................ 4Repayment Plans ...................................................................................................................................... 10Loan Prepayment ...................................................................................................................................... 15Borrower Benefits ...................................................................................................................................... 15Identifying Your Financial Goals .............................................................................................................. 16Establishing Your Spending Plan ............................................................................................................ 18Picking the Repayment Plan Thats Best for You .................................................................................
21Understanding Your Rights and Responsibilities................................................................................... 26Keeping Good Financial Records ............................................................................................................ 32Summary .................................................................................................................................................... 34Office of the Ombudsman U.S. Department of Education ................................................................. 35Tips for Managing Loan Repayment ...................................................................................................... 35Terms You Should Know ........................................................................................................................... 36Your Borrower Rights and Responsibilities ........................................................................................... 40Helpful Online Resources ......................................................................................................................... 42
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After You Graduate: A Guide to Repaying Your Student Loans
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Repaying Your Student Loans:A Guide to Picking the Repayment Plan Thats Right for You
The thrill of graduating and a bit of reality about whats next
Congratulations on completing your degree. You studied hard, worked long hours
and survived. Of course, you still have a few things on your plate and one of those
is the reality of repaying your student loans. Youve already proven youre up to the
challenge of graduate and professional school, so youll get through this as well.
Whats more, your loans are an investment in your future. A good investment. And
as youre about to learn, there are ways to manage repayment without becoming
overwhelmed. Thats what this workbook is about.
Take time out to plan
Soon enough youre going to have to make decisions, but you have time to breathe and
work out a few things. You should start by sitting down and identifying some goals. What
is it you want to do over the next couple of years? The next 10 or 20? You dont have to
have all of the answers now, but it will be helpful to have an idea. Theres a worksheet
provided in this workbook that can help. It will have you look at things such as your
expected lifestyle and when you hope to reach different financial milestones. Theres
also a worksheet thats intended to get you thinking about your personal spending plan.
We suggest you go through the worksheet before you celebrate your degree by buying a
new car or giant screen television. Creating a personal spending plan will help you to
focus on the real cost of things, how quickly those costs add up, and how your student
loans fit into the mix. This doesnt have to be overwhelming, but it does require planning,
discipline AND picking the right loan repayment plan.
Its not so much juggling as prioritizing
Just as you have things you own, there are others that you owe. Of course, this includes
your student loans. You may also have credit card debt, a car loan, maybe even a
mortgage. Eventually youll want to eliminate all (or at least the majority) of your debt,
but for most people at this stage of their lives that isnt possible. Instead what you want
to do is leverage your debt. For example, federal student loans come with relatively low
interest rates. So one possibility is to lower your monthly payments on your federal
student loans by extending your repayment period and using the money available each
month to pay off the debt on loans with higher interest rates. That way you pay off themore expensive debt sooner. Even if you only have federal student loan debt, you might
still consider extending the repayment period on Federal Subsidized and Unsubsidized
Loans in order to prepay higher cost Grad PLUS loans. It is these tricks of the trade
that this workbook can help you discover. Most importantly, remember that choosing the
right repayment plan can make a difference in your future financial situation.
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After You Graduate: A Guide to Repaying Your Student Loans
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Stay with the program
Okay, this might not be exciting, but it is very important. Stick with this workbook and
youll gain valuable insight into how you can successfully repay your student loans and
achieve your other financial goals. Youve worked too hard in school to ease up now.
To help you decide on the best repayment plan for you, this book will focus on the
following six elements:1. Understanding the repayment terms of your federal loans
2. Identifying your short- and long-term goals
3. Establishing your personal spending plan
4. Picking the repayment plan thats right for you
5. Understanding your rights and responsibilities as a borrower
6. Keeping good financial records
On each page theres room to write down any questionsyou have while reading this workbook. If these questions arent
answered by the time you finish, contact your schools financialaid office and/or your loan holder/servicer for clarification. Itsimportant to understand all aspects of repayment if youre to
succeed in repaying your student loans.
Activity I Get It!Once youve completed this workbook, you should understand the following concepts related to loan
repayment. Put a check mark beside each item when you feel youve got it covered.
K Master Promissory Note K Borrower rights and responsibilities
K Interest rates K Loan discharge, forgivenessK Who you must repay K Role of spending plans in repayment
K When loan repayment begins K Importance of identifying financial goals
K Available repayment plans K Tools to help in repayment
K Deferment/forbearance options K Picking your repayment plan
K Loan prepayment K Keeping good financial records
K Default and its consequences
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Understanding Loan Repayment TermsBeginning repayment of your student loans can often seem like a confusing and complex
process. Successful repayment requires that you understand the basics of your loans
and the repayment plans available to you.
Changes, Changes, Changes
Federal education loans are low-cost loans that are
guaranteed by the federal government. Prior to July 1, 2010,
two federal loan programs existed: the Federal Family
Education Loan (FFEL) Program and the Federal Direct Loan
(FDL) Program. Institutions decided which program to
participate in and students either borrowed from the
commercial lenders in the FFEL Program or directly from the
federal government in the FDL Program. As of July 1, 2010,
federal education loans can only be originated through theFederal Direct Loan Program. This means you may have loans
in both programs. The terms and conditions of the two
programs are very similar; however, there are some
differences. This guide will make every effort to document
when a particular detail is specific to a particular program.
Available loans for graduate students in the Federal Family Education Loan
Program were:
Federal Subsidized Stafford Loans;
Federal Unsubsidized Stafford Loans; and
Federal Graduate PLUS Loans.
Often these Federal Subsidized and Unsubsidized Loans, are referred to as the Federal
Stafford Loan Program.
Loans that were and still are available for graduate students in the Federal Direct Loan
Program are:
Federal Direct Subsidized Loans;
Federal Direct Unsubsidized Loans; and
Federal Direct Graduate PLUS Loans.
The Master Promissory Note
You completed a Federal Loan Master Promissory Note (MPN) in order to borrow from
the Federal Stafford Loan Program and/or the Federal Direct Loan Program, as well as a
Federal PLUS Loan Application and MPN to borrow a Federal PLUS Loan. The MPNs are
the legally binding contracts between you and the lender of your loans. In signing these
documents, you agreed to repay the funds you borrowed along with any interest that
accrued and fees that were charged.
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Federal Stafford and Federal Direct Subsidizedand Unsubsidized Loans
The subsidized and unsubsidized loans in both programs are very similar.
A subsidized federal loan is a need-based loan on which interest is paid by the federal
government while youre in school, during the grace period, and during approveddeferment periods. Conversely, interest on an unsubsidized federal loan begins accruing
as soon as the funds are disbursed by the lender. Youre responsible for paying all
interest that accrues on an unsubsidized loan. You may either pay the interest during in-
school, grace, and approved periods of deferment and forbearance, or the interest will
be deferred and capitalized (added to the principal balance) prior to repayment.
Federal PLUS Loans
Graduate and professional students are eligible to borrow a Federal PLUS Loan,
commonly referred to as the Grad PLUS Loan. Also available to the parents of
dependent undergraduate students as the Parent PLUS Loan, this is an unsubsidizededucation loan that has no grace period, and thus goes into repayment as soon as
funds are disbursed to the borrower. However, the Grad PLUS Loan has deferment and
forbearance options similar to those of the Federal Unsubsidized Loan. As such,
graduate and professional students can postpone repayment using the In-School
Deferment while enrolled at least half-time in an eligible program of study. You also may
be eligible to postpone repayment once youre no longer enrolled as a student. For
example, Grad PLUS Loans first disbursed on or after July 1, 2008, are eligible for an
automatic six-month post-enrollment deferment.
This will allow you to begin repaying your Grad PLUS loans at the same time as your
unsubsidized or subsidized loans. You can request forbearance from your loan servicer
on Grad PLUS loans first disbursed prior to July 1, 2008, for the same purpose.
During any period of deferment or forbearance, interest can accrue and be added to the
principal loan balance (capitalized) at the end of the deferment or forbearance period if it
is not paid by the borrower as it accrues. More information about deferment and
forbearance is provided later in this workbook.
Interest Rates
The interest rate is the percentage youre charged by the lender to borrow the loan
funds. As noted earlier, in the case of federal subsidized loans, the federal government
pays the interest that accrues during in-school, grace and approved deferment periods.For federal unsubsidized loans and the Federal PLUS Loans, you must pay all of the
interest that accrues. You may choose to delay payment of this interest until repayment
begins; however, the accrued interest will be capitalized (added to the principal balance)
before repayment begins and at the end of any deferment or forbearance period.
Whatever the case, youre responsible for paying the interest that accrues during the
repayment period.
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Federal Stafford and Federal Direct Subsidized and Unsubsidized Loans
(borrowed by graduate and professional students)
Loans with a first disbursement on or after July 1, 2006:
Fixed rate of 6.8%
Loans with a first disbursement on or after July 1, 1998, but before
July 1, 20061 have a variable interest rate:
Subsidized:
During in-school, grace, and deferment periods: interest paid by the
federal government
During repayment and forbearance: 91-day U.S. Treasury Bill
(T-bill) + 2.3%
Unsubsidized:
During in-school, grace, and deferment periods:
91-day T-bill + 1.7%
During repayment and forbearance: 91-day T-bill + 2.3%
1Contact your current loan servicer for information on the interest rate of any Federal Stafford Loanborrowed prior to July 1, 1998.
An important note about the variable interest rate on federal loans: As you can see,
the interest rate is variable for federal loans with a first disbursement on or after July 1,
1998, but before July 1, 2006. This variable rate is reset each year on July 1. Its based
on an index the bond equivalent rate of the 91-day T-bill auctioned at the final
auction before June 1 of each year plus a per annum percentage margin (i.e., thespread). The variable rate also can change because the status of the loan changes
from an in-school to an in-repayment status, for example, as shown above.
The interest rate on these loans is capped at 8.25%. Youll be notified of interest rate
changes throughout the life of your loan by your loan servicer.
Federal PLUS Loans
The interest rate on Federal PLUS Loans in the FFEL Program with a first disbursement
on or after July 1, 2006 is fixed and equal to 8.5%. (Loans first disbursed prior to July 1,
2006 have variable rates.)
The interest rate on Federal Direct PLUS Loans with a first disbursement on or after July
1, 2006 is fixed and equal to 7.9%. (Loans first disbursed prior to July 1, 2006 have
variable rates.)
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Partners in Loan Repayment
The following organizations may be involved with your student loan repayment:
U.S. Department of Education the federal agency that administers several
major student aid programs, including the Federal Direct Loan Program.
It produces, distributes, and processes the Free Application for FederalStudent Aid (FAFSA), which was used to determine your eligibility for federal
funds. Also performs the function of lender for the Direct Loan Program.
Lender the bank, savings and loan company, credit union or other
approved organization from which you borrowed the loan.
Holder the party that currently owns the loan and holds its legal title.
Guarantor a state agency or private, nonprofit organization that insures
lenders against losses due to a borrowers default, death, disability or
bankruptcy.
Secondary Market an organization that buys loans from lenders. Selling
loans is a common practice among lenders, so the institution ororganization you make your payments to may change during the life of the
loan. The terms and conditions of your loan dont change when its sold to a
secondary market holder.
Servicer a company that specializes in handling loan repayment activities
such as billing, collections and deferments. Many lenders hire servicers to
manage student loan repayment activities. This typically is the first
organization to contact if you need assistance during loan repayment.
Who You Repay
Federal Family Education Loan Program
You repay the holder of your loans promissory note. This may be the original lender or a
subsequent lender or secondary market to which your loan was sold. In addition, the
holder may contract with a servicer to manage some or all of the transactions
associated with repayment. If a servicer is being used, you first should contact the
servicer with any questions or concerns you have about your loan(s). Remember, if your
loan was sold, the current holder will not be the original lender. Youll be notified in
writing if your loan is sold or if there is a change in servicer. If you want to identify your
loan servicer you can access your loan information at www.nslds.ed.gov.
Federal Direct Loan ProgramThe Department of Education contracts with third party companies to service loans in
the Federal Direct Loan Program. To determine who is servicing your loans you can
access your loan information at www.nslds.ed.gov.
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National Student Loan Data System (NSLDS)
You can obtain information about your Federal Title IV loans and
grants from the National Student Loan Data System (NSLDS) at:
Toll-free telephone: 800-4FED-AID (1-800-433-3243)
Website: www.nslds.ed.gov
The National Student Loan Data System (NSLDS) is a confidential database that is
maintained by the U.S. Department of Education. Its an excellent source of information
about who currently holds/services your federal student loans, how much you owe, and
the current status of each loan.
Youll need your PIN to access your information on NSLDS. This is the PIN that was
assigned to you when you completed the FAFSA or Renewal FAFSA. If you dont know
your PIN, theres information on the NSLDS website on how to obtain a new one or you
can apply for a new PIN online at www.PIN.ed.gov.
When Repayment Begins
Some student loans enter repayment following a grace period. Other loans enter
repayment as soon as they are fully disbursed. In most cases, federal loans are placed
immediately in an in-school deferment as long as youre enrolled at least half time as a
student. The in-school deferment ends when you drop below half-time enrollment. If the
loan has a grace period, it begins when your enrollment status drops below half time
and ends when the loan enters repayment. Typically, your first payment on a federal loan
is due within 60 days after entering repayment.
Interest continues to be paid by the federal government on federal subsidized loans
during the grace period. Federal unsubsidized loans continue to accrue interest during
the grace period, but the accrued interest does not have to be paid at that time; it can
be capitalized (i.e., added to the principal balance) when repayment begins.
The length of the grace period varies by loan type and should be specified in the loan
promissory note. The current grace periods for the following student loans are:
Federal Stafford Loans 6 months
Federal Direct Subsidized and Unsubsidized Loans 6 months
Federal PLUS Loans No grace period
Federal Direct PLUS Loans No grace period
Federal Consolidation Loans No grace period
Federal Perkins Loans 9 months
Private Loans Check promissory note
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The purpose of the grace period is to give you time to get on your feet financially and
prepare for repayment. Its important to remember, however, that you should not base
your monthly spending plan on the amount of discretionary income youll have during the
grace period. Because youre not required to make loan payments during the grace
period, you probably will have more discretionary income than youll have oncerepayment begins. This can give you a false sense of wealth and might lead to financial
choices that cant be sustained once you start repaying
your student loans.
Make sure you create your spending plan to
accommodate your monthly loan payments after all
grace periods have ended and repayment has begun
on all loans.
If the loan doesnt have a grace period, you may be able
to request a deferment or forbearance (if one is not provided automatically by
your loan holder/servicer) in order to postpone repayment of the loan and/or alignrepayment with the repayment on loans you borrowed that do have a grace period.
Prior to the start of repayment, youll receive a repayment schedule for each student
loan you borrowed while in school. Among other things, it will list:
the total amount you owe;
your estimated monthly payment amount (based on the Standard 10-year
fixed Repayment Plan);
the date your first payment is due;
information about the different repayment plans and how to select the best
plan for you; and where payments should be mailed.
If you dont receive this schedule at least one month prior to the start of repayment,
contact your loan servicer.
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Pay close attention to your graceperiod when creating your
spending plan.
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Repayment PlansThere are various federal loan repayment plans available. Specifically, there are five
repayment plans available for repaying Federal Stafford and Federal PLUS Loans and five
repayment plans offered for repaying Federal Direct Subsidized and Unsubsidized and
Federal Direct PLUS Loans. Four of the repayment plans crossover both programs.
You can choose the repayment plan that best meets your needs based on your financial
goals and what you can afford to pay each month. You can change your repayment plan
as frequently as every 12 months, if necessary.
FFEL
Program
Only
Income-
Sensitive
FDL
Program
Only
Income-
Contingent
Both
Standard
Graduated
Extended
Income-Based
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The following chart provides a brief summary of each plan. It highlights the differences in
payment structure (fixed payments or payments that can change over time) and the
maximum length of the repayment period (10 25 years).
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Maximum
Repayment
Options Payment Structure Period Additional Features
Standard* Fixed 10 years - Highest initial payment
- Lowest total interest
- No negative amortization
Graduated* Changes incrementally 10 years - Interest only payments initially
over time - Payments increase incrementally
- No negative amortization
- Monthly payments cant be more
than three times greater than any
other payment (3 times rule)
Extended* Fixed or graduated 25 years - Lowest initial payment without
considering income
- No negative amortization
- To qualify:
- Debt must be > $30,000
- First borrowed on or after 10/7/98
Income- Can change annually 15 years - Subject to 3 times rule
Sensitive** based on total gross - No negative amortization
income - Eligibility/payment amount
re-evaluated annually
Income-Based Can change annually 25 years - Payment is 15% of disposable
Repayment (IBR)* based on: income if experiencing partial- Household AGI financial hardship
- Household size - Eligibility/payment amount
- Poverty guideline re-evaluated annually
- State of residence - Negative amortization allowed
Income- Can change annually 25 years - Payment is lesser of repayment
Contingent*** based on: amount if repaid in 12 years
- Household AGI multiplied by an income
- Household size percentage factor that varies with
- Poverty guidelines your annual income or 20% of your
- State of residence monthly discretionary income
- Payment amount re-evaluated
annually
- Negative amortization allowed
Repayment options available for:
*Federal Family Education Loan Program or Federal Direct Loan Program
**Federal Family Education Loan Program only
***Federal Direct Loan Program onlyTo qualify, borrowers must have a total loan debt in excess of $30,000 in one or both federal loan programs, independently.
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Standard Repayment (FFEL and FDL)
In this plan, you pay an equal (fixed) amount each month for up to 10 years. The monthly
payment on a Federal Stafford Loan and/or a Federal Direct Subsidized or Unsubsidized
Loan with a variable interest rate will be adjusted whenever the variable rate changes
(once a year on July 1). Each payment includes both interest and principal. The minimummonthly payment is $50, but your actual payment amount and repayment period will
depend on the total amount owed. If for one reason or another you neglect to choose a
repayment plan, your loan servicer will place your loan(s) in this plan. This plan has the
highest initial monthly payment, since payments include both interest and principal, but
it also has the lowest cost in total interest paid over the life of the loan. This may be the
right option for those who wish to be debt-free as quickly as possible.
Graduated Repayment (FFEL and FDL)
Under this plan, the minimum monthly payment amount increases at specific intervals
over time. Initial payments are lower than under the Standard Repayment Plan becauseearly payments typically cover only the accrued interest each month. As principal is
included in the payment the minimum monthly payment amount increases. In addition,
no payment can be three times greater than any other payment. The total interest cost is
higher over the length of repayment with this plan than with the Standard plan. The
repayment period with this plan is 10 years.
Since the monthly payment can increase significantly at the specified intervals, the
Graduated plan is generally best suited for those who expect large salary increases at
predictable points in time. Before selecting this plan, be sure that youll be able to afford
the increased monthly payments at the higher levels. All lenders are required to offer at
least one graduated repayment plan; they may offer multiple graduated options.
Extended Repayment (FFEL and FDL)
Eligible borrowers can extend their maximum repayment period to 25 years using either
fixed or graduated monthly payments. The cost in interest is greater over the life of the
loan with this plan, but the money youre not paying each month on your loan(s) gives
you flexibility to pay other expenses, including paying off higher cost debts such as those
you might have on your credit cards, or to invest for the future (provided youre able to do
so at an average rate of return that you expect to be higher than the interest rate youre
paying on your student loans). Plus, there is no penalty for prepaying your loans, so you
can pay more during the months you have extra money, if you choose to do so.
This plan is available to borrowers whose total program specific debt exceeds $30,000
and whose first federal loan was borrowed on or after October 7, 1998 (or who, on the
date a post-October 7, 1998 federal loan was obtained had no outstanding federal
balance on a loan obtained prior to October 7, 1998).
For example, if you have loans in both the FFEL and FDL Programs, the extended
repayment option is only available if you have in excess of $30,000 in both programs
separately.
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Income-Contingent Repayment (ICR) (FDL only)
Borrowers with Federal Direct Subsidized, Federal Direct Unsubsidized and Federal Direct
Grad PLUS Loans are eligible for this repayment plan. Monthly payments are
determined annually based on income (and spouses income, if married), family size,
and the total amount of Federal Direct Loans. Any remaining loan balance is forgivenafter 25 years of repayment. Under current IRS regulations, the amount forgiven is
considered taxable income.
Income-Sensitive Repayment (ISR) (FFEL only)
With this plan, available to borrowers with Federal Stafford and Federal Grad PLUS
Loans, your monthly payments are based on your anticipated total monthly gross
income and student loan debt, and are reviewed and adjusted, if necessary, annually.
The monthly payment can be no less than the amount of accrued interest and no more
than three times greater than any other payment. You must provide any requested
income documentation to qualify for this plan. This documentation allows the loanservicer to determine a reasonable monthly payment amount. If the loan servicer
considers the reported income to be insufficient to repay the loan within 10 years, the
repayment period may be extended up to an additional five years. This plan results in
higher total finance charges than under the Standard plan because loan principal is not
repaid at the same rate as in that plan. Youll need to reapply for this plan each year and
must provide requested income documentation.
Income-Based Repayment (IBR) (FFEL and FDL)
This plan is available to repay a Federal Stafford Loan, Federal Direct Subsidized and
Unsubsidized Loan, Federal Grad PLUS Loan, Federal Direct Grad PLUS Loan, Federal
Consolidation Loan or Federal Direct Consolidation Loan (not including consolidationloans that included the payoff of a Parent PLUS Loan). To qualify for this plan, you must
be experiencing partial financial hardship at the time you enter the plan. Partial
financial hardship exists when the annual amount youd be required to pay under the
Standard Repayment Plan exceeds 15% of your disposable adjusted gross income.
Disposable adjusted gross income is defined as that portion of your household
adjusted gross income that exceeds 150% of the poverty guideline for your household
size and state of residence. As such, the monthly IBR payment is based on your
households adjusted gross income, your household size, and the poverty guideline for
your household size and state of residence. Payments change as these factors change.
Once in IBR, your monthly payment is the LESSER of: 15% of your disposal adjusted
gross income (as defined above), or the amount required under the Standard (10-yearfixed) Repayment Plan at the time you entered IBR. The maximum repayment period is
25 years. Any eligible debt remaining after 25 years of being in this plan will be forgiven
by the federal government. Under current IRS regulations, the amount forgiven may be
treated as taxable income in the year its forgiven.
Eligibility for and determination of a reduced payment amount must be re-evaluated and
adjusted, as needed, annually. You are required to provide verification of both your
household adjusted gross income and household size each year youre in IBR.
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A Quick Summary of Income-Based Repayment (IBR): Calculated payment is 15% of disposable income Disposable income is that portion of household adjusted gross
income that exceeds 150% of the U.S. Department of Health and
Human Services (HHS) Annual Poverty Guideline for your household size
and state of residence
Monthly payment can be less than accrued interest (in other words, it
allows for negative amortization)
Any unpaid interest that accrues on your federal subsidized loan debt
will continue to be subsidized (paid by the government) for the first 36
months of IBR
When using IBR, the repayment period can extend beyond 10 years
regardless of the amount of your eligible debt
Any outstanding eligible loan balance is cancelled after 25 years of
being economically challenged
You are economically challenged during any month when one of the
following three situations is true:
(1) you made a payment using IBR,
(2) the amount of your monthly payment was at least equal to the
amount that would have been required under the Standard
Repayment Plan at the time you entered IBR, or
(3) you were in an Economic Hardship deferment.
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Loan PrepaymentWhen considering the length of repayment, remember that you have the right to prepay
any of your student loans without penalty. In other words, you can pay more than the
required minimum payment on a loan at any time or make a loan payment when one is
not required (during the grace period, for example). By doing so, youll save the interest
that would have accrued on that amount if you had not made the prepayment.
When prepaying a loan, you should:
Prepay the highest-cost loan first. When you have a choice of which loans to
prepay, you generally should first direct the money to the loans with the
highest interest rates. This usually means private loans first, followed by your
federal student loan debt.
Contact your loan servicer before you make the first prepayment to find out
where to send it and what instructions you need to provide so that it will be
processed according to your wishes.
Borrower BenefitsSave where you can! Your loan holder may offer either an interest rate reduction or a
principal reduction for certain repayment activities. The most common benefit offered is
for auto-debit payments (this is when you authorize your loan servicer to automatically
debit your monthly loan payment from a checking or savings account). These benefits
typically do not depend on the repayment plan you choose. Take advantage of the
benefits offered by your loan holder. Contact them for more information.
Ive contacted my loan holder andI qualify for these Borrower Benefits:
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__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
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Federal Loan Consolidation
You can refinance your eligible federal student loans via federal loan consolidation. A
Federal Consolidation Loan is a federally guaranteed education loan that you can borrow
to pay off some or all of your existing federal student loans that are in their grace period
or are in repayment. This refinancing option is primarily beneficial to those borrowerswho have student loan debt that currently has a variable interest rate, those who have
multiple loan holders of their current federal student loans and want to have a single
loan to repay each month, or for borrowers who are hoping to qualify for Public Service
Loan Forgiveness and currently have loans in the FFEL Program. The Federal
Consolidation Loan has a fixed interest rate that is equal to the weighted average of the
interest rates of the loans being consolidated, rounded up to the nearest 1/8th percent,
capped at 8.25%. These loans have a repayment period of up to 30 years, depending on
your total student loan debt (which includes any of your outstanding private/institutional
student loans).
Consolidating your eligible federal student loan debt usually will cause you to lose anyborrower benefits that may be offered by the current holder of your loans and may result
in a higher interest rate on that debt. You also may lose other benefits by consolidating
your loan(s). For more information about federal loan consolidation, go to the U.S.
Department of Education website for consolidation at loanconsolidation.ed.gov.
Special Direct Consolidation Loans
This is a short term consolidation program available from January 2012 June 2012.
Only certain borrowers are eligible for this program. Federal Direct Loan servicers are
contacting eligible borrowers. For more information contact your servicer.
Identifying Your Financial GoalsHow well you manage your student loans and other personal finances will influence how
quickly you achieve your financial goals. Its important to set realistic goals, keeping in
mind all of your financial responsibilities, and to think both about the short-term and the
long-term when identifying your financial goals. Be honest with yourself about your goals
and your habits. Ask yourself the questions on the next page to get a good sense of
your financial situation as it is and as you hope for it to be.
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Activity Assessing Financial Goals and HabitsGoals
What is your most immediate financial need? ______________________________
Where do you intend to live, and whats the average
cost of living there? _____________________________________________________
Do you need or want to buy a new car? ____________________________________
What kind of career trajectory do you hope for/anticipate? ___________________
When do you want to buy a house? _______________________________________
Do you have or intend to have a family? When? How large? __________________
Do you want the flexibility to invest or reinvest in an
entrepreneurial endeavor? _______________________________________________
When do you hope to retire? _____________________________________________
What lifestyle do you hope to have in retirement? ___________________________
What will it cost for you to achieve your goals? _____________________________
Habits
How do you distinguish between what you need and what
you want? ___________________________________________________________
Are you a spender or a saver? ________________________________________
How many credit cards do you have? ______________________________________Do you pay your credit card bill(s) in full every month? _______________________
If not, do you pay more than the minimum monthly payment every month? _________
How many nights a week do you typically dine out? __________________________
When, where and how often do you hope to travel for recreation? ______________
Are your hobbies expensive? _____________________________________________
What will it cost to satisfy your habits? ____________________________________
Use the answers to these questions to help you form a strategy to manage repaying
your student loans within the context of your spending plan and the repayment plans
that are available. Your ability to repay your student loans is directly tied to your lifestyle
and financial habits. If your answers above indicate youll need more cash in hand, youll
need a way to stretch your resources. Thats why its good to keep in mind that choosing
a repayment plan that requires a smaller payment each month gives you the flexibility to
use the surplus funds to pay for other things that may be important to you.
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If financial flexibility will help you reach your goals, then either the Extended Repayment
Plan or the Income-Based Repayment (IBR) Plan may be the right option for you. Of
course, lower payments also come at the cost of more interest paid over the entire
repayment period, so its important to weigh the benefits of doing so. Regardless of the
repayment plan you choose, its important to develop a monthly spending plan and stickto it. Be smart with your money. And remember, you always have the option to pay more
on your student loan debt during those months you have the money to do so, regardless
of the repayment plan you choose.
Establishing Your Spending Plan
Your Financial Road Map
Your personal spending plan is like a road map. It tells you who you are financially, where
you are currently, and where you want to be.
A personal spending plan is an important component of any financial strategy. In fact,
the first step that a financial planner typically would take in advising you about your
investments and finances is to help you develop a comprehensive personal spending
plan. Taking time to carefully estimate your income and track your expenses will help you
determine which repayment plan is best for you.
There are four basic steps involved in developing your spending plan once you know your
financial goals:
1. Calculate your monthly income and other financial resources
2. Estimate your expenses including savings and investment needs3. Do the math (subtract your expenses from your resources)
4. Make adjustments as necessary to eliminate any surplus or deficit
You can use the spending plan worksheet on the next page to help get you started.
It also will help you determine what you can afford to pay each month on your student
loan debt.
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Where Are You Headed?
Where is the next stage of your life taking you? Its important to have a handle on what
you can reasonably expect for a starting salary and to understand the typical increases
that come with each level of experience. If you dont already know your starting salary,
there are some general websites that provide estimates for entry-level salaries across abroad range of professions, including:
Salary.com
Monster.com
Jobweb.com
Payscale.com
Careerbuilder.com
There are also websites geared more toward specific professions:
Dentistry adea.org
ada.org
Law
abanet.org
nalp.org
equaljusticeworks.org
careers.findlaw.com
lawjobs.com
legalemploy.com
Medicine
aamc.org
ama-assn.org
physicianrecruiting.com
healthjobusa.com
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Check out thespending planner
tools atAccessGroup.Org/
Calculators
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Remember, your spending plan needs to balance income must equal all your
expenses including your investment and savings needs. You dont want a surplus or a
deficit. If you have a surplus, you have funds to allocate (perhaps paying off debt more
quickly and/or investing more for the future). On the other hand, if you have a deficit, you
need to find a way to eliminate it.
Activity _Your Out-of-School Spending Plan Worksheet
Household Income (after taxes)
Your Monthly Salar y/Wages ____________Spouses Monthly Salary/Wages ____________
Other Monthly Income ____________
Total Monthly Income ____________
Student Loan Payments (per month)
Your Student Loan Payments ____________
Spouses Student Loan Payments ____________
Total Monthly Loan Payments ____________
Living Expenses (per month)
Housing
Rent or Mortgage ____________
Utilities
Electric/Gas/Oil/Water/Sewer ____________
Telephone ____________
Cable ____________
Internet Service ____________
Other ____________
Food
Groceries ____________
Dining Out ____________
Other ____________
Transportation
Car Payment ____________
Car Maintenance/Repair ____________
Gas for Car ____________
Parking ____________
Public Transportation ____________
Taxis ____________
Other ____________
Insurance
Auto ____________
Medical/Dental ____________
Disability ____________
Home/Apartment ____________
Life ____________
Other ____________
Other Living Expenses
Clothing ____________Dry Cleaning ____________
Laundry ____________
Personal Care (Hair Cuts, Cosmetics, etc.) ____________
Recreation ____________
Entertainment ____________
Subscriptions ____________
Books ____________
Music ____________
Household Goods/Furnishings ____________
Gifts/Donations ____________
Credit Card Payments ____________
_______________________ ____________
_______________________ ____________
Other Loan Payments ____________
_______________________ ____________
_______________________ ____________
Dependent Care Expenses ____________
Travel/Vacation ____________
Other Expenses ____________
Total Living Expenses per Month ____________
Investments/Savings
Retirement Contributions ____________
Childrens Education ____________
Savings ____________
Other ____________
Total Investments per Month ____________
Total Spending Plan Summary
Monthly
Tota l Monthly Income ______________
Total Monthly Loan Payments ______________
Total Living Expenses/Month ______________
Total Investments/Month ______________
Balance = ______________
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Eliminating a Spending Plan Deficit
What can you do?
If you have a spending plan deficit once youve done the math, you need to spend less
(or earn more) each month; there is no more financial aid once youre out of school.
If you dont eliminate the deficit, your total debt will only increase.
You can:
Reduce the spending on your lifestyle.
Is this realistic? You may consider your lifestyle to be bare bones already.
Reduce your investment/savings contributions.
Doing so may make it more difficult to achieve your short- and long-term
financial goals.
Reduce the amount you pay each month on student loans by switching to
a different repayment plan.
Picking the Repayment Plan
Thats Best for YouOnce youve identified your financial goals and worked out your personal spending plan,
its time to ask what you can afford to pay each month and which repayment plan fits
your habits and meets your goals.
One way to put your student loan debt in perspective is to consider that a basic tenet of
personal finance and the American lifestyle is that consumers should always match thelife expectancy of an asset with the attending liability associated with that asset.
For example, its reasonable to extend the term of a mortgage to 30 years because its
expected that a home will outlast the debt. Conversely, one would not extend the loan
term of a car to 30 years because youd likely still be repaying that debt long after the
car no longer worked. A five- to seven-year term on an auto loan is more reasonable
given the current life span of most automobiles.
Although the debt you incurred to acquire an education is more difficult to quantify,
education provides benefits throughout a lifetime at least a professional lifetime. And
that can be expected to last at least 30 to 40 years following graduation. As such,
repayment of education debt can be viewed as being more akin to that of the mortgageon a home. Therefore, it may not be unreasonable for a borrower to consider taking 25
to 30 years to repay that debt if he or she so chooses.
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Below is an example of how extending repayment beyond the Standard Repayment
Plans 10-year term may be beneficial in managing your student loans. It demonstrates
how you can increase your monthly cash flow for other purposes.
Affordable Monthly Loan PaymentStudent loan indebtedness is growing faster than average starting salaries for many
graduates. As such, many borrowers may find repaying their student loan debt
unaffordable using the Standard Repayment Plan. Although this plan results in the
lowest amount of interest paid, it also requires the highest initial monthly loan payment:
a payment that many borrowers may not be able to afford given their other monthly living
expenses/needs. Extending repayment to 25 years using the Extended Repayment Plan
can reduce the monthly payment by as much as 40% or more on Federal Stafford Loans
or Federal Direct Subsidized and Unsubsidized Loans having a fixed interest rate of
6.8%, as demonstrated in the chart below. The reduction in monthly payment could be
even larger, at least initially, using the IBR plan, depending on your households adjusted
gross income and household size.
For example, a borrower owing $60,000 in Federal Stafford Loans or Federal Direct
Subsidized and Unsubsidized Loans would be required to pay $690.48 per month for
10 years using the Standard Repayment Plan (see shaded line in chart shown above).
The minimum monthly loan payment would be reduced to $416.44 using the Extended
Repayment Plan over 25 years. This is a decrease of $274.04 per month and might
mean the difference between this borrower being able to afford his or her basic living
expenses or not, being able to live alone versus having to live with a roommate, paying
for gas and other utilities or not, or paying for health insurance or being uninsured.
$10,000 $115.08 $69.41 $45.67 40%
$25,000 $287.70 $173.52 $114.18 40%
$50,000 $575.40 $347.04 $228.37 40%
$60,000 $690.48 $416.44 $274.04 40%
$75,000 $863.10 $520.55 $342.55 40%
$100,000 $1,150.80 $694.07 $456.73 40%
$125,000 $1,438.50 $867.59 $570.91 40%
$150,000 $1,726.20 $1,041.11 $685.10 40%
$175,000 $2,013.91 $1,214.63 $799.28 40%
$200,000 $2,301.61 $1,388.14 $913.46 40%
Loan Principal
Standard Plan
10 Years
Extended Plan
25 Years Difference ($) Difference (%)
Monthly Payment
6.80%
Federal Stafford Loan, Federal Direct Subsidized Loanand/or Federal Direct Unsubsidized Loan
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In general, extending repayment of a loan will increase the amount of interest paid on
that debt. And on the face of it, paying more interest would appear to be a negative
financial outcome. However, the increase in interest paid does not necessarily mean an
equal loss of purchasing power over time due to the time value of money. Over time, the
purchasing power of a dollar declines due to inflation. The higher the rate of inflation,the faster that rate of decline. In fact, if the rate of inflation is high enough, the loss of
purchasing power may actually be less for a stream of payments made over a longer
period of time than when the rate of inflation is low, even if more total interest is paid.
Ability to Invest
You also may benefit financially by choosing Extended Repayment even though you could
afford to make payments under the Standard 10-year fixed plan. With lower monthly
payments under the Extended Repayment plan, you would have more money for
investments, such as the purchase of a home or investing in a tax-deferred retirement
account. With the purchase of a home (assuming you could not otherwise afford this
purchase without the added cash flow created by extending repayment), you likely couldreduce your federal income tax liability because the mortgage interest could be itemized
as a tax deduction. The home also represents an asset that hopefully would gain in
value over time.
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23
Payments 1 120(First 10 Years)
Standard Repayment Plan Extended Repayment Plan
Total months in repayment 120 300
Total loan amount owed $60,000 $60,000
Loan interest rate 6.8% 6.8%
Monthly loan payment $690 $416
Monthly investment
contribution $0 $274
Annual rate of return on
investment 8% 8%
Total assets earned at
end of 120 months $0 $43,136
Payments 121 300(Years 10 25)
Monthly loan payment $0 $416
Monthly investmentcontribution $690 $274
Total assets earned at
end of 300 months @ 8% $212,536 $237,461
Total cash flow out
($690 x 300 months) $207,000 $207,000
Net gain $5,536 $37,461
Net benefit of Extended
Repayment Plan $31,925
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Federal Student Loan Debt $60,000 $100,000 $150,000
In the case of investing for retirement, you would be better off financially extending loan
repayment over 25 years as long as the average annual rate of return on the retirement
account was greater than the interest rate of the loans being repaid more slowly using
Extended Repayment. The example shown on the previous page illustrates the potential
financial benefit of choosing the Extended Repayment plan over the Standard 10-yearplan in repaying your eligible federal loans (with a fixed interest rate of 6.8%) and
investing the difference in monthly loan payments required under the two plans.
As the example illustrates, youd have $31,925 more in assets (in 25 years) if you used
the Extended plan and the $274 difference in monthly loan payments was invested
every month from the beginning of loan repayment. Had you paid off the $60,000 loan
debt using the Standard plan, youd be debt-free sooner, but would have less invested for
the future. The option thats best for you will depend on your financial goals and what
you can afford to pay each month.
The following chart provides an example of what your estimated monthly payments
would be under the Standard 10-year, Extended (fixed), and IBR plans.
Monthly Payment Comparisons
You should create your own version of the spreadsheet illustrated above to help you
decide which repayment plan will work best for you.
IBR RepaymentFixed payment @ 6.8% up to 25 yrs.
Adjusted gross income = $60,000,
Household size = 1 in 2012 $541 $541 $541
Standard Repayment
Fixed payment @ 6.8% for 10 yrs. $690 $1,151 $1,726
Extended Repayment
Fixed payment @ 6.8% for 25 yrs. $416 $694 $1,041
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Activity Comparing PaymentsThe following activity provides a sample worksheet you can use to compare your monthly
loan payments based on the various repayment plans.
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Monthly Loan Payment
Standard Graduated Extended Income- Income- Income-
Loan Type Repayment Repayment Repayment Sensitive Based Contingent
Plan* Plan* Plan* Repayment Repayment Repayment
(fixed payment option) Plan** Plan* Plan***
Stafford $ $ $ $ $ $$
Grad PLUS $ $ $ $ $ $$
Other $ $ $ $ $ $
$Other $ $ $ $ $ $
$
TOTAL $ $ $ $ $ $
Monthly
Payment
Repayment
Period years years years years years years
TOTAL $ $ $ $ $ $
Interest Paid
TOTAL $ $ $ $ $ $
Paid
___________________________________________________________
___________________________________________________________
The best repayment plan for me is:
Repayment options available for:
*Federal Family Education Loan Program or Federal Direct Loan Program
**Federal Family Education Loan Program only
***Federal Direct Loan Program only
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Understanding Your Rights
and ResponsibilitiesAs a borrower, you have both rights and responsibilities. Among them are the
responsibility to repay your loan and the right to postpone repayment, if needed. Thefollowing section explores this topic more fully, beginning with deferment and
forbearance.
Deferment and Forbearance
There are circumstances for which you can request smaller payments or even a
temporary cessation of payments. For instance, you may be in a medical residency or
perhaps you are suddenly unemployed; in cases such as those, you may be granted
either a deferment or forbearance.
Federal Loan Deferment
A deferment is a temporary period during which no payments are made. While you are in
deferment, the government pays the interest on your Federal Subsidized Stafford Loans
and/or your Federal Direct Subsidized Loans, but interest accrues on your Federal
Unsubsidized Stafford Loans, your Federal Direct Unsubsidized Loans and your Federal
PLUS Loans. However, you do not have to pay the interest while in deferment; you can
allow the accrued interest to be capitalized (added to the principal balance of your loan)
when you leave deferment. The time period during which a loan is in a federal deferment
extends the repayment period by the number of months in deferment.
The following five types of deferments are available for individuals who first borrowed a
FFEL Program loan on or after July 1, 1993. More details on each is provided followingthe listing.
Education-Related Military Service
Economic Hardship Post-Active Duty
Unemployment
Contact your loan servicer to apply fora deferment or forbearance.
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Education-Related Deferments
Graduate Fellowship Deferment This deferment covers study under an
eligible graduate fellowship program. You must provide a written statement
from an authorized official in the fellowship program. This statement must
indicate your anticipated completion date in the program and certify, amongother points, that you will be engaged in full-time study.
In-School Deferment This deferment covers both full-time and half-time
study at a school eligible to participate in a Title IV program. Deferment is
granted through the anticipated graduation date. To qualify for an In-School
Deferment, you must be one of the following:
Enrolled at least half-time and you dont have an outstanding balance on a
FFEL Program loan disbursed before July 1, 1987.
Enrolled as a full-time student and you have an outstanding balance from a
FFEL Program loan disbursed before July 1, 1987.
Parent PLUS Loan Deferment Effective October 1, 2007, parentborrowers can request to defer repayment on Parent PLUS loans until sixmonths after their child fails to carryat least one-half the normal full-time course load.
Grad PLUS Loan Deferment and Forbearance Although Grad PLUS Loans
enter repayment as soon as they are fully disbursed, your loan servicermayautomatically place your Grad PLUS Loan in an In-School Defermentprovided you are enrolled at least half-time in an eligible program ofstudy. This will allow you to postpone repayment of the Grad PLUS Loan
while you are enrolled in school at least half-time. Once your enrollmentstatus drops below half-time status, youmay be eligible to receive a
deferment or forbearance on your Grad PLUS Loan(s) if you need tocontinue to postpone repayment. Grad PLUS Loans first disbursed on or
after July1, 2008, are eligible for an automatic 6-month post-enrollment deferment. You must contact your loan servicer to opt-out ofthis automatic deferment. For Grad PLUS Loans first disbursed prior to
July1, 2008, you may request a forbearance that allows you topostpone repayment for six months. The post-enrollment deferment andforbearance options allow you to begin repaying your Grad PLUS Loan(s)at the same time as your Federal Stafford Loan(s).
Rehabilitation Training Program Deferment This deferment coversparticipation in a rehabilitation training program. To qualify, you must
provide written certification from a recognized rehabilitation agency thatyou are receiving (or are scheduled to receive) rehabilitation trainingservices and that the training program will, among other things, require asubstantial commitment of time and effort that would normallypreventyou from engaging in full-time employment.
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Economic Hardship Deferment
This deferment allows borrowers to defer payments on their federal loans for up to one
year at a time for up to three years. Eligibility typically is based on your households
adjusted gross income, household size, and the poverty guideline for your household
size and state of residence. You may be required to provide verification of your AGI andhousehold size.
Unemployment Deferment
This deferment is available if you are conscientiously seeking, but are unable to find, full-
time employment in the U.S. defined as at least 30 hours/week for at least three
months. You are eligible for this deferment regardless of whether you were previously
employed and regardless of the circumstances under which any prior employment
ended. However, you are not eligible if youre unwilling to consider positions for which
you feel overqualified. If you obtain an unemployment deferment, you are expected to
notify your lender promptly when you obtain full-time employment. An unemployment
deferment can be granted in periods of six months each, with a three-year maximum.
Military Service Deferment
The deferment applies only to periods during which you are serving on active duty or
performing qualifying National Guard duty during a war, other military operation or
national emergency. As a result, not all active duty military personnel are eligible.
Effective October 1, 2007 the military service deferment is available for most federal
loans. The deferment is also extended for 180 days following demobilization. This
deferment must be granted on each individual eligible loan.
Documentation establishing eligible active duty service may include a copy of yourmilitary orders or a written statement from your commanding officer or personnel officer
that you are serving on active duty.
Post-Active Duty Student Deferment
As of October 1, 2007, this deferment is allowed for the 13-month period after
completing military service. Eligible are National Guard or other Armed Forces reserve
(current or retired) members called to active duty. Active duty is defined as full-time duty
in the active military service of the U.S., including State duty for members of the National
Guard. This does not include active duty for training or attendance at a service school.
Contact your loan servicer to determine whether you qualify for any of these defermentsand for information on how to apply for them. You may also refer to the U.S. Department
of Educations Student Aid on the Web atstudentaid.ed.govfor the most current
information available about all federal loan deferments. If you have an outstanding FFEL
Program loan prior to July 1, 1993 or if you are a FDL Program borrower with an
outstanding balance on a FFEL Program loan first disbursed before July 1, 1993, when
you received your first FDL Program loan you should contract your servicer to determine
whether or not you are eligible for additional deferments.
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Federal Loan Forbearance
Forbearance can help you meet your loan repayment obligations by
allowing a temporary cessation of payments, an extension of the time
available for making payments, or smaller payments than previously
scheduled. There are several types of forbearance on federal loans.Some types of forbearance are mandatory (such as for medical or
dental residency) and your loan servicer must apply the forbearance
upon your request, but others are granted at the loan servicers
discretion. Your loan servicer may grant a forbearance only if they
believe that you intend to repay your federal loans, but that you are
currently unable to make payments due to poor health or other
acceptable reasons. A forbearance can be given for up to one year at
a time. Contact your loan servicer for more information and to obtain
any needed forms to apply for a forbearance.
Loan Repayment Assistance and LoanForgiveness Programs
A portion of your eligible federal student loan(s) may be forgiven under
certain conditions based on your employment, school of attendance,
or jurisdiction where you live. For example:
Public Service Loan Forgiveness (PSLF) allows for loan cancellation on
Federal Direct Loans after 120 months of working full-time in an eligible
public service position (typically federal, state, local or tribal government
position or working for a 501(c)(3) non-profit organization) in which qualifying
monthly payments have been made using either IBR, ICR, or the monthly
amount paid must at least equal the amount required initially under theStandard 10-year Repayment Plan. FFEL Program borrowers are permitted to
consolidate their eligible federal student loans in the FDL Program to take
advantage of this program. Borrowers who believe they are working in an
eligible position should complete the PSLF Employer Certification Package.
Full-time teachers working for five consecutive complete academic years in a
qualifying elementary or secondary school serving students from low-income
families may be eligible for partial loan forgiveness. Contact your loan
holder/servicer for more information.
Also be aware that loan forgiveness and repayment assistance programs may be
available based on your income level and/or employment. One of more of the followingtypically sponsors these programs: the school you attended, your employer, or the state
in which you reside.
PSLF Employment Certification Packagecan be found here:
Department of Education:studentaid.ed.gov/publicservice
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Will you be in amedical or dental residency?
If so, you may be eligible to
postpone loan repayment during
the entire residency period.
Contact your loan servicer
for more information.
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Tax Benefits Available to Borrowers
You may be eligible to deduct a portion of the student loan interest you pay on your
federal income tax return. Student loan interest is defined as the interest you paid
during the year on a qualified student loan. It includes both required and voluntary
interest payments. There is a maximum amount of interest paid each year that can bededucted and your eligibility for this deduction is based on your adjusted gross income
and that of your spouse, if married, and you file a joint federal tax return. Refer to IRS
Publication 970 for more detailed information about tax benefits for education or consult
a tax advisor.
Discharge of Your Loans
In most cases, Federal Stafford Loans, Federal Direct Subsidized and Unsubsidized
Loans and Federal PLUS Loans will be discharged in full if you die or become totally and
permanently disabled. In either case, documentation must be submitted to the loan
servicer. Discharge also will occur if: you cant complete your course of study becauseyour school closed, your school falsely certified your loan eligibility, or, effective July 1,
2006, if a loan was falsely certified in your name as a result of identity theft.
Discharge may not be available for private student loans youve borrowed. Check your
promissory note or contact the loan servicer for discharge provisions relative to other
loans you may have borrowed.
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Activity A Quick QuizDo You Know the Consequences of Default?(Circle the letter corresponding to the BEST answer)
1. Which of the following could occur if you default on your federal student loans?
a) The holder of your loan may declare the entire unpaid balance, including
interest, immediately due and payable
b) You could be required to pay all charges and other costs permitted by law
(including reasonable attorneys fees) for the collection of your loan
c) The holder of your loan and/or agency that guaranteed your loan may report thedefault to one or all three national authorized consumer reporting agencies
d) The holder of your loan and/or the federal government may take legal action
against you
e) The holder of your loan and/or agency that guaranteed your loan may report the
default to the school you attended when you received the loan
f) All of the above
2. Which of the following could also occur if you default on your federal
student loans?
a) You may be unable to receive future assistance from the federal student aidprograms, including PLUS Loans on behalf of your dependent children
b) You may become ineligible for various repayment options, deferments, and
other benefits
c) The holder of your loan may assign the promissory note to a guaranty agency,
at which time all amounts due will be payable to that agency
d) Your wages may be subject to garnishment
e) State and federal income tax refunds may be subject to IRS offset and withheld
by the federal government
f) All of the above
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Avoid Default!
The correct answers to the quiz on the previous page were: f) All of the above
in both cases.
Its important to remember that if youre late making a loan payment, it will be reportedto the national consumer reporting agencies and that information will remain on your
credit report for at least seven years. This will make borrowing money for other purposes
in the future difficult.
Default is avoidable. Taking the following steps will go a long way toward helping you
successfully repay your loans and avoid default:
Understand and comply with all terms and conditions of your loan(s).
Make certain that your loan payment(s) arrive at the loan servicer by
the due date.
Contact your loan servicer if:
youll have trouble making a payment by the due date;
your address, phone number or name changes;
your eligibility for a deferment or forbearance changes; or
anything else changes regarding your circumstances that affects repayment
of your student loans.
If you do default on a federal student loan, youll be subject to federal delinquent debt
collection procedures and possible litigation.
Keeping Good Financial RecordsAn important element of successful loan repayment is good record-keeping. Maintaining
accurate, well-organized records of your financial activities is an important part of
managing your loans and achieving your financial goals.
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Know Your Loans
Its important to know the following information about each loan youve borrowed:
Loan name (type)
Loan period (date borrowed/academic period) Original lender name, address and phone number
Guarantor name, address and phone number (if applicable)
Loan holder name, address and phone number (if different from
original lender)
Loan servicer name, address and phone number (if applicable)
Amount borrowed (including fees)
Interest rate
Monthly loan payment amount
Length ofrepayment period First scheduled loan payment due date
Final estimated loan payment date
Estimate of total finance charges
Set Up Your Record-Keeping System
Develop a system that will work for you. There are many books and software products on
personal finance to guide you in setting up a successful record- keeping system. You can
use individual file folders, portfolios, three-ring binders, manila envelopes, etc. Whatever
system you choose, however, remember the three Ss. Your system should be:
Simple make it simple to use
Sustainable make it a system youll maintain over the long term
Secure your records need to be safe from loss or damage dueto fire or theft
Documents to Keep
Keep copies of the following loan-related documents as part of your financial records:
Master Promissory Note
Disclosure statements
Notifications of loan transfer (lender change) and/or change in servicer
Repayment schedule
Lender/loan holder/servicer correspondence (including e-mails)
Deferment/forbearance requests
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Check out theLoan Ledger atAccessGroup.Org.It may be a usefultool for keepingtrack of yourloans.
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Where to Find Information About Your Federal Loans
You can obtain information about most of your federal student loans from the National
Student Loan Data System (NSLDS) at:
Toll-free telephone: 800-4FEDAID (1-800-433-3243) Website: www.nslds.ed.gov
Summary
Got all that?
Weve covered a lot of information, but youre going to be better for it. To review, we
worked on six key elements that can go a long way in helping you to select the best
repayment plan for your financial situation:
1.Understanding the repayment terms of your federal loans
2. Identifying your short- and long-term goals
3. Establishing your personal spending plan
4. Picking the repayment plan thats right for you
5.Understanding your rights and responsibilities as a borrower
6.Keeping good financial records
Be sure to consider all of your financial and life responsibilities when choosing the
repayment plan that works best. Remember to think about your short- and long-term
goals, and dont forget the little things like staying on top of your monthly spending plan.Student loan repayment doesnt have to be overwhelming. Mix in some discipline with
good planning and youll be ahead of the game.
Now get out there and go after your dreams.
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Office of the Ombudsman
U.S. Department of EducationThis office acts as a mediator between you (the borrower) and the lender/loan
holder/servicer to settle disputes that arise regarding your loans. For assistance or formore information:
Visit: www.ombudsman.ed.gov
Call: 877-557-2575 (toll-free)
Fax: 202-275-0549
Write to:
U.S. Department of Education
FSA Ombudsman
830 First Street, NE, Fourth FloorWashington, DC 20202-5144
Tips for Managing Loan Repayment Plan for repayment.
Understand your loans.
Organize and maintain good loan records.
Develop and follow an affordable spending plan.
Select the repayment plan thats best for you.
Make your loan payments by the due date. Contact your loan servicer immediately if youre having trouble
making a payment.
Request deferments or forbearance as needed.
Read all mail from your loan holder/servicer.
Promptly report changes in name, address, phone number or eligibility
for deferment/forbearance.
Consume with cash, not credit cards.
Identify your financial goals and review/revise them as your
circumstances change.
Save something (even if only $20) every month for emergencies.
Pay all your bills on time every month.
Limit the number of credit cards you have.
Pay credit card balances in full every month. Charge only what you know you
can afford to repay when the bill arrives.
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Terms You Should Know
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Terms You Should KnowAccrued Interest Interest that accumulates on a loan and is payable by you or, in the case of federal subsidized loans, by
the federal government during in-school, grace and approved deferment periods.
Amortization Paying a loan over time through periodic payments calculated to pay off the debt at the end of a fixed period,including accrued interest.
Annual Percentage Rate (APR) A percentage calculation that reflects the total cost of a loan (interest plus all fees) on an
annual basis.
Capitalization The process of adding accrued interest and/or fees to the principal balance of a loan. Interest then accrues
on the new principal balance.
Consumer Reporting Agency An agency that compiles, maintains and distributes credit and personal information to
authorized parties. This information may include your payment habits, number of credit accounts, balances of those accounts,
place of employment, length of employment, and records of credit transactions. Lenders check with consumer reporting
agencies to learn whether a potential customer seeking a loan is likely to repay, based on the way other obligations have been
handled in the past.
Credit Report A summary of your credit history. It is maintained by an authorized consumer reporting agency and sent to
authorized parties, when requested. Credit reports include information such as current and recent addresses, employer
information, payment performance for at least the past seven years, type of debt you have and the lending institution for each
account, available credit and current balances.
Credit Scoring A quick and consistent method of determining the likelihood that you will repay a future debt on time. It is
an evaluation tool that predicts how well you will manage credit, relative to other borrowers, based on your past credit
performance. Some of the factors used to calculate your credit score include promptness in paying bills, the amount owed on
accounts, the percent utilization of your available credit card limit, the age of your accounts and the frequency of new accounts
opened in the past 12 months.
Default The failure to repay a loan as agreed or to meet other terms of the promissory note. Default will negativelyaffect your credit rating.
Deferment A period during which the repayment of the principal amount of the loan is suspended as a result of your
meeting one of the requirements established by law and/or contained in the promissory note. During this period, you may or
may not have to pay interest on the loan.
Deferred Interest Accrued interest that you do not have to pay until a later date. Such deferred (accrued) interest may be
capitalized.
Delinquency A period that begins on the day after the due date of a payment when you fail to make the equivalent of one
full payment.
Disclosure Statement A statement of the actual loan costs, including the interest rate and any additional fees, which is
presented to you at the time the loan is made (see also, Repayment Disclosure Statement).
Exit Counseling A mandatory session for federal student loan borrowers where information is presented prior to graduation
or following a drop in enrollment status to less than half time. Information presented includes loan repayment and debt
management strategies.
Extended Repayment A loan repayment option that allows you to repay your loans over a maximum of 25 years, with either
equal or graduated payments. Available only to those who first borrowed federal loans on or after October 7, 1998, and have a
total eligible federal loan debt exceeding $30,000.
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Federal Consolidation Loan A federal loan program that allows most federal education loans to be refinanced into a single
new loan, often with a longer repayment term and, thereby, a lower monthly payment. This will also increase the total amount
of interest paid.
Federal Direct Loan There are two types, subsidized and unsubsidized Federal Direct Subsidized Loans are based on need,
and the interest is paid by the federal government. As of July 1, 2012, graduate and professional students are only eligible forunsubsidized loans which are not based on need, and begin accruing interest at disbursement.
Federal Direct PLUS Loan It is an unsubsidized federal education loan. Parents of undergraduate students can borrow the
PLUS loan on behalf of their undergraduate child, while graduate and professional students can borrow it themselves. An
amount up to the cost of attendance less any other financial aid can be borrowed in a given academic year. There are no
aggregate borrowing limits in this program.
Federal Family Education Loan (FFEL) Program A federal program of education loans, including the Federal Stafford Loan,
the Federal PLUS Loan and the Federal Consolidation Loan. These loans are regulated and guaranteed by the U.S.
Department of Education but financed by private lenders/financial institutions.
Federal Perkins Loan A need-based federal student loan, which is issued and administered by a participating school.
Federal PLUS Loan The Federal PLUS Loan Program is an unsubsidized federal education loan that parents of dependent
undergraduate students can borrow on behalf of their undergraduate child. Effective for Federal PLUS Loans first disbursed on
or after July 1, 2006, graduate and professional students also are eligible borrowers.
An amount up to the cost of attendance less any other financial aid can be borrowed in a given academic year.
The Federal PLUS Loan has a fixed interest rate of 8.5% for loans with a first disbursement on or after July 1, 2006 in the
FFEL Program. The Federal Direct PLUS Loan has a fixed interest rate of 7.9% for loans with a first disbursement on or after
July 1, 2006. There are no aggregate borrowing limits in this program. You cannot have adverse credit in order to borrow a
Federal PLUS Loan. If you do have adverse credit, you can provide an endorser who does not have adverse credit in an effort
to obtain the loan.
Federal Stafford Loan A federal education loan issued by a participating lender. There are two types, subsidized and
unsubsidized. Federal Subsidized Stafford Loans are based on need, and the interest is paid by the federal government while
you are in school, during the grace period and during approved deferment periods. Federal Unsubsidized Stafford Loans are
not based on need, and you are responsible for paying all the interest that accrues as soon as funds are disbursed.
Financial Aid Office The office at your school that determines eligibility for financial aid (including federal student loans)
based on federal formulas and cost-of-attendance figures. The schools financial aid administrators can provide information
about which lender to choose, how to apply for loans and getting loan requests certified. They also are a good resource for
information about other financial aid matters such as scholarships and work study programs.
Forbearance An agreement between the loan servicer and you to accept