Extended Exit:Now More Than Ever

ANZFAA – Sydney 2010

Tony Glad

Debt Management

8 Strategies for Managing Student Loan Debt

1. Know your rights and responsibilities2. Know your loan portfolio – loan types and relative costs3. Know your grace, deferment and forbearance options4. Know your decision dates and keep a calendar5. Know the cost before choosing your repayment plan6. Keep good records7. Understand the consequences of delinquency and

default8. Know your resources

Rights and Responsibilities

Borrower Rights:

◦ Disclosure statement◦ Copy of Promissory Note and actual note when paid in full.◦ Repayment schedule◦ Interest benefits, if eligible◦ Grace period◦ Prepayment without penalty◦ Notice of loan sale or transfer (if payments sent to a new

location)◦ Deferments, when eligible◦ Forbearance requests

Rights and Responsibilities

Borrower Responsibilities:

Notify lender/servicer of addresses changes

Notify servicer of other demographic changes (change of name)

Repay loan on schedule (including interest and fees)

Attend Exit Counseling

The Master Promissory Note (MPN) you signed is a legally binding agreement where you promised to repay all federal loans you received.

Loans must be repaid in full even if you: Do not finish school.

Are not satisfied with your school or program.

Do not find a job after graduation.

You must repay your loan—even if you don’t receive a bill—so make sure your servicer has your current contact information.

Rights and Responsibilities Repayment

Each loan will begin in Standard Repayment - you may change your repayment plan once per year, or once you qualify for income related plans).

You can pay loans on a shorter schedule—there’s no penalty for prepaying your federal student loans.

If you’re having trouble repaying, call your servicer to discuss option

Rights and Responsibilities Repayment

Loan Types Direct /Stafford◦ Subsidized Loan:

• Based on a borrower’s need (per FAFSA).• Interest is paid by the government while at university,

during grace period, and during deferments.

◦ Unsubsidized Stafford Loan:• Available regardless of a borrower’s financial need.• Interest accrues from disbursement, and you are

responsible for paying it.• Interest payment may be deferred while you’re at

university, in grace or deferment.• Interest is capitalized (added to the loan principal) at

repayment

• All Stafford Loans disbursed between July 1, 1998, and June 30, 2006, have a

variable rate based on a 91-day T-bill + 1.7% in-school, grace and deferment and

91-day T-bill + 2.3% in repayment, capped at 8.25%. Currently 1.87% and

2.47%, respectively.

• All Stafford Loans disbursed after July 1, 2006, and before June 30 , 2012, have a

fixed interest rate of 6.8 percent, with the following exception:

• The College Cost Reduction and Access Act of 2007 cut the fixed rates on new

sub Stafford loans for undergrad students to 6.0% (2008-09), 5.6% (2009-10),

4.5% (2010-11) and 3.4% (2011-12), with a return to 6.8% in 2012-13. These cuts

are available only to undergrad students and only for subsidized loans.

Direct Stafford Loan: Interest Rates

PLUS Loan Interest Rates

Direct PLUS Loans disbursed after 1 July 2006 are fixed at a rate of 7.9%.

FFEL PLUS Loans disbursed after July 1, 2006 have a fixed interest rate of 8.5% for loans

PLUS Loans disbursed from 7/1/1998 through 6/30/2006 : 91-day T-bill + 3.1, capped at 9%, currently 3.27%.

Grace periods begin the day a student withdraws, graduates, or drops below half-time enrollment.

Payments are not required during grace periods.

Direct Stafford Loans have a 6-month grace period.

Direct Subsidized Stafford stays subsidized in grace.

Grace Period

Deferment allows you to postpone payments on your federal student loans.

If you’re approved for a deferment, the federal government will pay the interest on a subsidized Stafford Loan for a specified period; however, interest on unsubsidized loans will be added to your principal balance.

If you meet any of the following conditions, you may qualify for a deferment: Economic hardship Unemployment Enrollment in school Graduate fellowship Rehabilitation training Military

If you borrowed any of your outstanding federal student loans before July 1, 1993, you may be eligible for additional types of deferments, check with servicer.

Deferment

Forbearance is similar to deferment because it’s a temporary postponement to your repayment schedule—usually from 6 months to 12 months in length.

During forbearance, interest accrues on both subsidized and unsubsidized loans and you must repay it eventually.

There are several types of forbearances, including the following: Economic hardship Internship or residency Excessive debt Disaster Military mobilization National and community service Temporary disability

Contact your loan servicer for exact forbearance eligibility requirements and to apply.

Forbearance

Repayment Options

Standard

Graduated

Extended

Income-Sensitive (FFELP loans only)

Income-Contingent (Direct Loans only)

Income-Based

Consolidation

10 year (120 months) repayment term

Minimum monthly payment is $50.

Monthly payment will typically be more than $50 to ensure your loan is repaid within 10 years.

Keeps finance charges to minimum.

Most cost-effective repayment option—you pay the least interest.

Standard Repayment

Payments start smaller—$30 is the minimum monthly

payment—and gradually increase throughout repayment.

A good alternative if you anticipate your income will increase in the future.

Maximum repayment term is 10 years; however, the lender/holder may extend the term up to 4 additional years in certain cases.

Remember: increased interest cost.

Graduated Repayment

For borrowers with more than $30,000 in loan debt.

Payment amounts can be either fixed or graduated.

Extends your repayment term.

Maximum repayment term is 25 years.

Minimum monthly payment is $50.

More expensive because extending your term increases the time you pay interest.

Available to borrowers whose oldest loan was originated on or after October 7, 1998.

Extended Repayment

FFELP loans only

Monthly payment is adjusted annually so payment is between 4 percent and 25 percent of your gross monthly income (must be greater than the accruing interest).

Maximum repayment period is 10 years; however, the lender/holder may extend the term up to 5 additional years in certain cases.

Again, smaller up-front payments mean higher back-end payments and more interest.

Income-Sensitive Repayment

Income-Contingent Repayment

Direct Loans Only

Payments are based on the borrower's income and the total amount of debt.

Monthly payments are adjusted each year as the borrower's income changes.

The loan term is up to 25 years. At the end of 25 years, any remaining balance on the loan will be discharged.

The write-off of the remaining balance at the end of 25 years is taxable under current law.

Available beginning July 1, 2009.

Monthly payments are capped at no more than 15 percent of your discretionary income, which is based on your income, family size, and total amount borrowed.

Maximum repayment period is 25 years.

Any remaining debt after 25 years is forgiven.

Must display partial financial hardship to qualify.

Income-Based Repayment

Consolidation

Multiple loans combined to make one new loan

Underlying loans are paid in full

New, usually longer term of payment

Fixed interest rate

No fees associated with consolidating

Cannot “un-consolidate”

Direct Sub, Unsub & PLUS Loans (DL)

Sub, Unsub Stafford & PLUS Loans (FFELP)

Direct and Federal Consolidation Loans (prior to 7/1/06)

Guaranteed Student Loans (GSL)

Supplemental Loans for Students (SLS)

Federal Perkins Loans

National Defense Student Loans

Health Education Assistance Loans

Health Professions Student Loans

Loans for Disadvantaged Students

Nursing Student Loan

ConsolidationEligible Loans -

Ineligible Loans

Any loans made by individuals, states or private alternative lenders that are not guaranteed by the federal government, for example:◦ Primary Care Loans – due to work requirements◦ State loans

Defaulted Loans – unless the borrower has made satisfactory repayment arrangements

Credit card debt, home mortgages, car loans etc.

When can you consolidate?

After you graduate

Things to consider:◦ Impact on grace◦ Higher loan costs due to interest rate and/or longer

repayment term

How is it calculated? Weighted average of interest rates rounded up to

nearest 1/8 point and capped at 8.25%

Example:

$8,500 * 7% = $595$10,000 * 5% = $500$8,500 * 9% = $765$27,000 $1860

$1860 ÷ $27,000 = 6.888 (.0688)

So 6.888% , nearest 1/8% (.125) = 7.00%

Repayment Length Amount of Loan Repayment Length

Less than $7,500 10 years $7500 - $9,999 12 years $10,000 - $19,9999 15 years $20,000 - $39,9999 20 years $40,000 - $59,999 25 years Over $60,000 30 years

Consolidation Pros Convenience of one monthly loan payment

Single point of contact for all customer service needs

Lower monthly payment amount

Long-term payment relief – up to 30 years to repay

Fixed interest rate – ability to lock in fixed rate and protected against future rate increases

You’ll retain the option of choosing different repayment plans.

You can still prepay your loan at any time -keep in mind that payments above your billed amount will help pay down your principal.

Consolidation Cons Loss of borrower benefits tied to underlying loans

Accrued interest will capitalize when you consolidate

May adversely affect grace, deferments, discharges (particularly Perkins), and interest subsidies

Likely increase in total repayment amount – the longer you take to pay off the loan, the more interest you will ultimately pay

Reconsolidation only possible in certain circumstances

Applying

How to choose? Easy – Direct Consolidation is only game in town!!

http://www.loanconsolidation.ed.gov

Monthly payments on underlying loans are still due – keep loans current until consolidation is complete

Make sure you receive “Paid in Full” stamped promissory notes from underlying loans when consolidation process is completeKeep forever!!

How to get started

Expect process to take 30-90 days – start early!

Gather information about underlying loans

www.nslds.ed.gov will have info on all your Federal Loans• Current balance• Interest rates• Holders• Original balance

University must provide student with average indebtedness figures and estimated payment examples based either on student’s actual debt or average indebtedness of students at the university or in the student’s program

Average Indebtedness

Estimated Standard Repayment Schedule

Total amount includes principal and interest. This schedule assumes a 6.8 percent interest rate and a standard repayment term of 10 years.

Amount Borrowed Number of Months Monthly Payment Total Amount Repaid

$5,000 120 $58 $6,905

$15,000 120 $173 $20,714

$25,000 120 $288 $34,524

$35,000 120 $403 $48,334

$45,000 120 $518 $62,143

$55,000 120 $633 $75,953

$65,000 120 $748 $89,763

$75,000 120 $863 $103,572

$85,000 120 $978 $117,382

$95,000 120 $1,093 $131,192

$105,000 120 $1,208 $145,001

$115,000 120 $1,323 $158,881

$125,000 120 $1,439 $172,621

Comparison of Repayment Options

Repayment ScheduleNumber of Payments Monthly Payment Interest Rate

Total Interest Repayment Amount

Total Loan Repayment Amount (Principal and Interest)

Standard 120 $345 6.8% $11,429 $41,429

Graduated 120 $170 (first 4 years)$406 (remaining 6 years)

6.8% $13,059 $43,059

Income-Sensitive 120 $83 (first 5 years)$713 (remaining 5 years)

6.8% $17,771 $47,771

Extended 240 $229 6.8% $24,961 $54,961

Consolidation (Standard) 120 $346 6.875% $11,567 $41,567

Consolidation (Extended) 240 $230 6.875% $25,282 $55,284

Consolidation (Graduated) 240 $216 (average) 6.875% $21,925 $51,925

Source: American Student Assistance, 2009.

This chart is based on a student graduating with $30,000 in Stafford Loans at a fixed interest rate of 6.8 percent and earning a salary of $25,000 (note that Income-Sensitive and Graduated Repayment totals vary depending on the amount of time you make lower payments).

RepaymentHow will you know what to do?

During your grace period your servicer will send you a repayment or disclosure statement listing your:Monthly repaymentPayment due datesLength of repaymentCurrent interest rates

If you do not hear from your servicer, call and update them on your location. Even if you do not hear from them you are responsible for making timely loan repayments!

Forgiveness for Federal Student Loans

US Federal Student loans may be forgiven for the following reasons:

Public Service Loan Forgiveness (Direct Loans only)

Service in Areas of National Need Forgiveness

Teacher Loan Forgiveness

Loan Forgiveness for Civil Legal Assistance Attorneys

New public service loan forgiveness program will discharge

remaining debt after 10 years of full-time employment in public

service.

Unlike the 25-year forgiveness, the 10-year forgiveness is tax-free

due to a 2008 IRS ruling.

Borrower must make 120 payments as part of the Direct Loan

program.

Only payments made on or after October 1, 2007 count toward the

required 120 monthly payments.

Borrowers may consolidate into Direct Lending in order to qualify for

this loan forgiveness program.

Loan Forgiveness

You die or become totally and permanently disabled.

Your school closed before you could complete your program.

Your school forged your signature on a promissory note, or certified your loan even though you didn't have the ability to benefit from the coursework.

Identity theft.

You file for bankruptcy. (This cancellation is rare and occurs only if a bankruptcy court rules that repayment would cause undue hardship.)

Loan Cancellation

Not Making Repayment

Delinquency◦ Failure to make repayment when due◦ Reported to credit bureaus, affecting your credit history◦ After 270 - 360 days becomes…Default.

Default Consequences◦ After 270 - 360 days, servicer assumes you will not pay◦ Servicer will garnish wages and tax returns◦ Collection agencies take over and add15-18% to loan◦ Universities may withhold records◦ Licences pulled in growing numbers of US states◦ Student loans cannot (usually) be discharged in

bankruptcy

National Student Loan Data System (NSLDS)

NSLDS is the U.S. Department of Education’s central database for federal student aid records.

Visit www.nslds.ed.gov to view a list of all your federal student loans.

To access your account, select “Financial Aid Review” on the home page and enter your Social Security number, the first two letters of your last name, your date of birth, and your personal identification number (PIN).

If you forgot your PIN, wish to change it, or have to apply for a new one, visit www.pin.ed.gov.

NSLDS is the best resource for information on all the federal student loans

you have borrowed.

U.S. Department of EducationOmbudsman

830 First Street N.E., Fourth FloorWashington, D.C. 20202

877.557.2575www.fsahelp.ed.gov

The FSA Ombudsman is a neutral entity dedicated to helping students resolve disputes and other problems with federal student loans.

The FSA Ombudsman will research your problem in an impartial and objective manner and will try to develop a fair solution.

Be sure to have complete and accurate records, as your lenders, guarantors and servicers certainly will!!

Ombudsman

Resources

Your Financial Aid Office

Other Resourceso www.studentloans.govo www.nslds.ed.govo http://www.mapping-your-future.org

Pay your bills on time—1 day late can make a difference.

Don’t max out your credit cards—aim to carry balances no more than 25 percent of your available credit.

Keeping older accounts open and active can increase your credit history and debt-to-income ratio, but don’t open numerous credit cards as a short-term way to increase your credit score.

Establishing good credit now will benefit you later.

Review your credit report frequently and correct mistakes.

Consumer reporting agencies must offer you one free report per year: Equifax www.equifax.com Experian www.experian.com TransUnion www.transunion.com

Visit www.annualcreditreport.com for copies of all three.

Credit Advice

QUESTIONS?