Counseling Courier. Financial Aid

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1 Financial Aid As you continue to hear back from colleges and universities and evaluate your options, we wanted you to have some additional information on how to help finance this investment. This information is sponsored by College Funding Services and Invite Education software with whom we have a partnership this school year. Overview: Loan Programs to Finance Education Last year, families borrowed $110 billion to finance college from two primary sources: Federal Government: Parental Loans and Student Loans Private Lenders: Loans for those with established credit history Don't be fooled: Colleges offer federal student loans as part of the financial aid package. This is not free money, such as a grant or scholarship. Loans, even those made by the federal government, must be repaid. Four Keys To Understanding Loans What you need to know Who s the lender? Federal government, State Agency, bank, credit union, finance company or the college. In order to be eligible for a federal grant or loan, a student must file the FAFSA. What are the terms? How will interest be charged: A fixed or variable rate? What is the interest rate now? How long does the borrower have to repay the loan? Who s the borrower? The one legally obligated to repay: Sometime it is the student. Sometimes a parent. Sometimes it is both. The federal government has loan programs for both parents (the PLUS Loan) and students (the Federal Loan Program). There are also loans from banks and credit unions that have nothing to do with the government. In 2013, more than 85% of loans made by banks, credit unions and finance companies to undergraduates were co-signed by a parent or other adult with a good credit rating this means that the co-signer is legally obligated to pay off the loan if the student is unable to make the payments. In this case, the borrower is both the parent and the student. Non-dischargeable: The debt cannot be discharged in bankruptcy unless a court rules that there is undue financial hardship. This means if a student or a parent declare a bankruptcy, the loan will not go away or be reduced like a credit card debt might be.

2 Financial Aid STUDENT LOANS The Federal Government provided $83 Billion in loans last year; 60% of undergraduates borrowed. The average amount borrowed: $6,760. This is not free money but it is often the cheapest with the most borrower-friendly terms! Program Rate Term Max Perkins 5.00% $5,500/yr Subsidized* 4.66% 10 yrs Unsubsidized 4.66% 10 yrs ** * The federal government uses the student s FAFSA to determine if the student is eligible for a subsidized loan. If the student qualifies for a subsidized loan, the government will pay the interest on the loan while the student is in school. The student s obligation to repay the loan will begin 6 months after the student separates from the college. Separating means graduating or dropping out before graduation. * * Borrower pays interest while in school. You must file a FAFSA form to be eligible for these loan programs. PARENTAL LOANS The government and private lenders lent $25 Billion to parents last year. Federal loans PLUS loans: ($17 Billion) are paid back to the government. 7.21% interest + 4% fee Credit check required FAFSA form + Promissory Note required Private Loans: ($8 Billion) $3,500 - $5,500 $5,500 - $20,500 Eligibility Requireme Lender nt Exceptional Financial School Need Financial Government Need All Students Eligible Government Interest rates and terms vary significantly Borrowers with excellent credit may qualify for lower interest rates than the PLUS program The repayment terms are often less flexible than under the PLUS program

3 Overview This section provides a few simple examples to illustrate why it is important to: Borrow as little as possible: It currently costs borrowers in the federal loan programs approximately $1,248 per year for every $10,000 borrowed If the government is not paying interest on the loan while the student is in school, someone should try to. Otherwise, that interest amount is added to the loan amount approximately $1,260 more for freshman and interest is calculated on the larger amount. Know the options for repaying federal loans Save Money Over Time By Borrowing Less Now In , the average undergraduate borrowed $26,500 to finance a four-year education. Assuming the money was borrowed from the federal government Loan Program, the following chart shows that for each $10,000 borrowed, the monthly payment increases by approximately $104 for each month of the 120 month repayment period. That s $1,248 per year or $12,480 over the life of the loan. Amount Borrowed Monthly Payment $16,500 $172 $26,500 $277 $36,500 $381

4 PAY INTEREST WHILE STUDENT IS IN COLLEGE For those who qualify, the government pays interest on federal loans while the student is in school. Everyone else either pays the interest while in school or elects not to pay the interest and has it added to the loan amount, which is called capitalizing interest. In , the average undergraduate federal loan was $6,760. Program Loan Amount Interest/mo Subsidized (Sub) Unsubsidized (Unsub) Unsubsidized (Unsub) Who Pays In- School Interest $6,760 $26 Government $6,760 $6,760 $26 Parent/Student $6,760 $6,760 $26 No One $8,020 Loan Amount at Graduation In this example, the Unsubsidized borrower who paid $26/month while in school for four years avoided increasing the loan amount by $1,260.

5 Federal Loans provide the most options for repayment Monthly payment is a percentage of discretionary income but you must demonstrate Financial Hardship. Loans may be eligible for loan forgiveness, but you may have to pay tax on any amount forgiven. Repayment Options Eligible Loans Repayment Period More Info Standard (Sub $30/mo minimum monthly payment (Sub Graduated Extended (Sub For borrowers with less than $30K of loans Income-Based (Sub