Loans: Understanding the Basics. NeASFAA Support Professionals Workshop November 1, 2013 Mahoney State Park

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1 Loans: Understanding the Basics NeASFAA Support Professionals Workshop November 1, 2013 Mahoney State Park

2 Objectives Discuss the types of loans and their of their basic terms Review some of the changes to Title IV loans Just the basics: entrance/exit counseling, repayment, forgiveness, cancellation, forbearance, deferment, servicers

3 Title IV Loans

4 Types of Title IV Loans Direct Subsidized loan Direct Unsubsidized loan Direct PLUS loan Parent Graduate and Professional Federal Perkins loan

5 Title IV Loan Details

6 Loan Program Changes Direct subsidized loan eligibility is limited to 150% of program length (effective July 1, 2013) Increased loan fee for Direct subsidized and unsubsidized loans and Direct PLUS loans Two trigger dates due to Sequestration: 7/1/13 and 12/1/13 Interest Rate Changes index rate (10 year Treasury note) plus add-on (statutorily varies by loan type)

7 Loan Interest Rate Changes Loan Program New Interest Rate Direct Subsidized (undergraduate) 3.86% Direct Unsubsidized (undergraduate) 3.86% Direct Unsubsidized (graduate or professional) Direct PLUS (parent & graduate or professional) 5.41% 6.41%

8 Subsidized Loan Limitations Program Length 4-year bachelor s degree 2-year associate degree 1-year certificate program 10-week certificate program Limitation on Subsidized Loan Eligibility 6 years 3 years 1 ½ years 15 weeks

9 Title IV Loan Details Direct Subsidized Direct Unsubsidized Graduate PLUS Parent PLUS Perkins Type of borrower Financial need required Undergrad -Dependent -Independent Undergrad Graduate -Dependent (whose parents are denied a PLUS loan) Independent Graduate Professional Parent of Undergrad, Dependent student Yes No* No* No* Yes Undergrad Graduate -Dependent -Independent *Loan can replace (cover) the Expected Family Contribution (EFC)

10 Title IV Loan Details Direct Subsidized Direct Unsubsidized Graduate PLUS Parent PLUS Perkins Credit check required Interest rate Interest accrual Fees No No Yes Yes No 3.86% undergrad 3.86% undergrad 5.41% graduate Deferred while in school at least half time and during periods of deferment 1.051% of the loan amount NEW 1.072% for 1 st disb on/after 12/1/13 Begins to accrue from first disbursement date 1.051% of the loan amount NEW 1.072% for 1 st disb on/after 12/1/ % 6.41% 5% Begins to accrue from first disbursement date 4.204% of the loan amount NEW 4.288% for 1 st disb on/after 12/1/13 Begins to accrue from first disbursement date 4.204% of the loan amount NEW 4.288% for 1 st disb on/after 12/1/13 Deferred while in school at least half time, in grace period, and during periods of deferment None

11 Title IV Loan Details Annual Direct Subsidized loan limits 1 st year undergraduates $3,500 2 nd year undergraduates $4,500 Remaining undergraduate years $5,500 Prep work needed to enroll as undergrad $2,625 Prep work needed to enroll in graduate/professional studies, if student has bachelor s degree $5,500 Teacher Certification, if student has bachelor s degree $5,500 Graduate/professional students $0 as of 7/1/2012

12 Title IV Loan Details Annual Direct Unsubsidized loan limits Dependent undergraduates whose parents can borrow PLUS $2,000 1 st and 2 nd year undergraduates whose parents cannot borrow PLUS and independent students $6,000 Remaining undergraduate years for dependent students whose parents cannot borrow PLUS and independent students $7,000 Preparatory work needed to enroll as undergraduate $6,000 Preparatory work needed to enroll in graduate/professional program, if student has bachelor s degree $7,000 Teacher Certification, if student has a bachelor s degree $7,000 Graduate/professional students $20,500

13 Title IV Loan Details Annual PLUS loan limits Up to the cost of education Annual Perkins loan limits Undergraduates $5,500 Graduates $8,000

14 Title IV Loan Details Direct Subsidized Direct Unsubsidized Graduate PLUS Parent PLUS Perkins Aggregate limit Undergrad $23,000 Undergrad/ Dependent $31,000* Undergrad/ Independent $57,500* No limit No limit Undergrad $27,500 Graduate $60,000** Graduate $138,500 Certain Health Professions $224,000 *No more than $23,000 in subsidized Direct loans **Includes amount $27,500 borrowed for undergraduate

15 Title IV Loan Details Direct Subsidized Direct Unsubsidized Graduate PLUS Parent PLUS Perkins Grace period 6 months from last date of attendance or drop below half-time attendance 6 months from last date of attendance or drop below half-time attendance 6 months from last date of attendance or drop below half-time attendance (for loans disbursed on or after July 1, 2008) None 9 months from last date of attendance or drop below half-time attendance

16 Title IV Loan Details Direct Subsidized Direct Unsubsidized Graduate PLUS Parent PLUS Perkins Deferment No payment required as long as student is enrolled at least half time No payment required as long as student is enrolled at least half time Automatic in-school deferment while enrolled at least half time; Automatic 6 month post-deferral postponement May request in-school deferment; May request a 6 month postdeferral postponement No payment required as long as student is enrolled at least half time

17 Title IV Loan Details Direct Subsidized Direct Unsubsidized Graduate PLUS Parent PLUS Perkins Repayment terms Up to 10 years for standard and graduated; Up to 20 years for Pay As You Earn; Up to 25 years for incomebased, incomecontingent, and extended Up to 10 years for standard and graduated; Up to 20 years for Pay As You Earn; Up to 25 years for incomebased, incomecontingent, and extended Up to 10 years for standard and graduated; Up to 20 years for Pay As You Earn; Up to 25 years for incomebased, incomecontingent, and extended Up to 10 years for standard, and graduated; Up to 25 years for extended Up to 10 years

18 Loan Repayment Plans There are eight repayment plans available for Stafford and Graduate PLUS loans Standard Graduated Extended Income-Based Pay As You Earn Income-Contingent Income-Sensitive Alternative

19 Direct Consolidation Loan Combining federal loans into a single loan Existing loans are paid in full and replaced with a new loan New interest rate, repayment schedule, and terms Weighted average of underlying loans rounded up to the next 1/8 th percent Borrower must complete a Direct Consolidation Loan Application and Promissory Note loanconsolidation.ed.gov

20 Deferment Postponement of loan payments that a borrower is entitled to receive as long as he/she meets eligibility requirements The federal government pays the accruing interest on subsidized loans Borrower s eligibility depends on meeting specific criteria, the loan type, and the date the borrower received his/her first loan

21 Forbearance Temporary postponement, reduction, or repayment extension of loan payments Interest accrues on all loans during the forbearance Offered at the discretion of the lender (except mandatory forbearance) Maximum period of forbearance is 36 months

22 Loan Forgiveness Public Service Loan Forgiveness Borrowers who hold a public service job may be eligible to have a portion of their Direct Loan debt forgiven after making 120 qualifying monthly payments beginning on or after October 1, 2007

23 Loan Forgiveness Teacher Loan Forgiveness Borrowers who teach in an elementary or secondary school that is designated as low income may be eligible to have a portion of their Stafford loan debt forgiven

24 Counseling Students on Loans

25 Student Loan Borrowing Average student loan debt for 2011 graduating seniors $20,200 public schools $27,650 private schools $33,050 for-profit schools $24,287 Nebraska* 10% borrowed $39,300 or more 25% borrowed $30,500 or more

26 Student Loan Borrowing Increased debt means: Loan debt has increased 25% in the past few years Borrowers may struggle to meet their repayment responsibilities You may have higher cohort default rates

27 Student Loan Borrowing Increasing students understanding of their role as borrowers is needed before they finance their postsecondary education and when they are leaving school

28 Basic Requirements Entrance and exit counseling Required for Direct subsidized and unsubsidized and Graduate PLUS borrowers May be conducted one of three ways: In person By audiovisual presentation By interactive electronic means

29 Entrance and Exit Counseling U.S. Department of Education online counseling Entrance and exit counseling studentloans.gov Federal Student Aid PIN pin.ed.gov Supplemental counseling can help students better understand their borrowing obligations

30 Beyond the Basics Encourage students to: Exhaust all sources of free money first Utilize loans as the last resource Exhaust federal loan eligibility first Borrow only what s absolutely necessary

31 Beyond the Basics Help students to know: The difference between private and federal loans The cost of borrowing What to expect when it s time to repay

32 Beyond the Basics Capitalization interest accumulates on unsubsidized and Grad PLUS loans from the time funds are disbursed The borrower can choose to pay or let it accrue Accumulated interest is added to principal at repayment Example: 6.8% borrowed during their first year of college = $136 accrued interest after first year of college

33 Beyond the Basics Cost of borrowing Each additional $2,000 borrowed adds: Approximately $762 in interest Approximately $23 to the monthly payment *Assumes 10-year standard repayment period and 6.8% interest rate

34 Beyond the Basics Help students to know who s who Department of Education Government agency that provides support to students and money for college through grants and loans Federal Servicer Organizations hired to help administer the student loan program and assist borrowers during repayment Lender Banks or credit unions that provide private student loans to students

35 Beyond the Basics Encourage students to: Determine who and how much they owe Create a budget to determine affordability Determine their repayment goal and schedule Contact their servicer immediately, if they have questions or cannot pay

36 Conclusion

37 Conclusion Help your students become better informed consumers Explain loan details and obligations Encourage conservative borrowing Utilize available resources from servicers such as Great Lakes, and the U.S. Department of Education

38 Thanks for Attending Paula Kohles, Associate Director Financial Aid Creighton University Carol Swenson, Senior Marketing Associate Great Lakes Educational Loan Services

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