Repayment Realities: Preparing Your Students to Succeed. Objectives

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1 Repayment Realities: Preparing Your Students to Succeed Objectives Understand the realities students entering repayment are facing Learn three simple steps to help your students successfully address these realities Learn different ways to reach your students Discover resources available to you and your students 1

2 Realities Borrowers are Facing Today s Realities Reality #1 Borrowers have loans with multiple lenders/servicers and Are confused Don t know where all of their loans are Are not applying for deferments or repayment plans with all of their lenders 2

3 Today s Realities Reality #2 Borrowers need our help now more than ever Approximately 40-50% of deferment and income-based repayment applications are incomplete Borrowers are having a difficult time managing their payments Today s Realities Reality #3 Schools could see increases in default rates Forgotten loans could translate into loan default Students with unaffordable payment plans could become frustrated and stop paying on their loans 3

4 What You Can Do to Help Explain Who s Who Lender bank or credit union that provides the funding for students Servicer Organization hired to help administer the student loan process and assist borrowers during repayment Department of Education Government agency that provides support to students and money for college through grants and loans 4

5 Eliminate the Confusion Explain that: Their loans may have been sold to other lenders or to the Department of Education They ll receive a letter by mail if their loans are sold Letter will state: Change of servicing from Great Lakes to ED/servicer Future payments will need to be made to ED They may have other loans with Great Lakes that may not be transferred Borrower Communication Great Lakes serviced loan is put to ED and then assigned back to Great Lakes Hometown Bank has elected to sell your Academic Year 2008/2009 Stafford student loan(s) to the U.S. Department of Education. Effective mm-dd-yyyy, Great Lakes will service this Stafford loan account on behalf of the U.S. Department of Education. 5

6 Borrower Communication Non-Great Lakes serviced loan is put to ED and then assigned to Great Lakes Hometown Bank has elected to sell your Academic Year 2008/2009 Stafford student loan(s) currently serviced by National Servicer to the U.S. Department of Education. Effective mm-dd-yyyy, Great Lakes will service this Stafford loan account on behalf of the U.S. Department of Education. Simple Steps to Successful Repayment Provide your students with a three-step approach to ensure successful repayment Step 1 Help borrowers to know who they owe and how much Step 2 Help borrowers determine the right repayment plan Step 3 Stress to borrowers the importance of staying on top of their loans 6

7 Step One: Know Who They Owe and How Much Start with NSLDS 7

8 NSLDS - Summary Page NSLDS - Loan Detail 8

9 Tracking Non-Federal Loans All loans are reported to the credit bureaus Students can obtain a listing of their non-federal loans on their credit report Free credit reports are available at annualcreditreport.com Obtaining a Credit Report 9

10 Obtaining a Credit Report What s needed Name Address Social Security number Personal information check Questions based on information in the credit file Lender for a particular credit or loan account Loan payment amount Previous address Sample Credit Report 10

11 Step Two: Help Borrowers Determine the Right Repayment Plan Counseling Borrowers Remind students that they have options What is in their immediate future? Are they going to graduate school? Do they have a job? What other expenses will they have? Help borrowers determine their goals for repaying their loans Defer monthly payment Pay off quickly Lower monthly payment 11

12 Counseling Borrowers Next, have borrowers calculate their student loan debt through the various repayment plans Finally, have them look at their budget Student loan payment shouldn t exceed more than 10-15% of monthly income Borrower s Budget Housing 30% Transportation 15% Food 14% Student Loan Payments 10-15% Savings 10% Household 7% Everything Else 7-14% 12

13 Standard Repayment Equal monthly payments of at least $50 (depending on their loan balance) for up to 10 years Borrowers will automatically be enrolled in the standard repayment plan Option for borrowers who want to repay loans off in the shortest time with the lowest amount of interest accrued Standard Repayment Chart Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) $25,000 $287 $9,524 $34,524 1 An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan 13

14 Graduated Repayment Monthly payments start lower and gradually increase over time for up to 10 years More interest will be paid over 10 years Option for borrowers who have cash flow problems early on, but expect that their income will increase steadily over time Graduated Repayment Loan Amount Monthly Payment Years 1-2 Years 3-10 Total Interest Paid Total Paid 1 (LOAN + INTEREST) $25,000 $141 $338 $10,882 $35,882 1 An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan. 14

15 Income-Based Repayment Reduced monthly payments for borrowers who demonstrate a partial financial hardship (based on loan debt, income, and family size) Eligibility is re-evaluated each year At the end of 25 years of repayment and 300 payments, any remaining balance may be forgiven Option for borrowers who need an affordable payment adjusted based on their income Income-Based Repayment Monthly payment is 15 percent of X X = monthly AGI (adjusted gross income) 150 percent of monthly poverty level 15

16 Income-Based Repayment If monthly payment is amount not enough to pay accrued interest SUBSIDIZED STAFFORD LOANS The Department of Education will pay the remaining interest for up to three years UNSUBSIDIZED STAFFORD LOANS The interest will accrue and be capitalized at the end of the incomebased repayment plan Income-Based Repayment Borrower 1 Borrower 2 Borrower 3 Borrower 4 Family Size Monthly AGI $3,000 $3,000 $6,000 $6, % of Poverty Level $1,353 $1,821 $2,288 $2,756 X $1,647 $1,179 $3,712 $3,244 15% of X $247 $176 $556 $486 Loan Amount $25,000 Standard Monthly Payment $287 Borrowers who Qualify for IBR Borrower 1 & 2 16

17 Maximum Qualifying Income Examples The examples assume an interest rate of 6.8% and poverty line for 48 contiguous states or DC. Family Size = 1 Family Size = 3 LOAN DEBT AGI LOAN DEBT AGI $10,000 $25,450 $10,000 $36,670 $15,000 $30,053 $15,000 $41,273 $25,000 $39,360 $25,000 $50,480 $35,000 $48,466 $35,000 $59,686 $50,000 $62,276 $50,000 $73,496 $100,000 $108,308 $100,000 $119,528 IBR Roadblocks Qualifying for a reduced payment can be a challenge for some borrowers because their financial situation changes frequently 40-50% of IBR applications are returned Supporting documentation not included Incomplete application Tax returns not signed 17

18 Income-Sensitive Repayment* Reduced monthly payments based on income and total loan amount for up to 10 years Lender must grant a forbearance for up to 5 years if the loan cannot be repaid within 10 years Borrowers need to reapply every year Option for borrowers who need their monthly payment to fluctuate with their income over a period of 10 years *For FFELP loans only Income-Sensitive Repayment Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) $25,000 $120 (Year 1) $313 (Year 2-10) $10,293 $35,293 1 Example assumes an annual salary of $36,

19 Income-Contingent Repayment* Reduced monthly payments based on income, family size, and total loan amount, and for up to 25 years After 25 years, any remaining debt will be discharged Option for Direct loan borrowers who plan to pursue careers with lower salaries *For Federal Direct loans only Income-Contingent Repayment Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) $25,000 $219 (Initial Payments) $251 (Final Payments) $14,271 $39,271 1 Example assumes an annual salary of $36,

20 Extended Repayment Payments that are fixed or gradually increase over 25 years for loan debt that exceeds $30,000 More interest is paid over the life of the loan Can be used as an alternative to consolidation Option for borrowers who have larger loan debt and need lower monthly payment Extended Repayment Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) $30,000 $208 $32,466 $62,466 1 An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan. 20

21 OPTIONS FOR PAYING BACK $40,000 IN DEBT, $36,000 SALARY $ $ (Years 1 2) $ (Years 3 10) $ (First Year) $ (Tenth Year) $ (Maximum) $ (Year 1) $ (Years 2 10) $15, $17, $31, $16, $55, $57, $71, $56, $ (Initial) $ (Final) $ $22, $62, $43, $83, Consolidation Loans Will give borrowers a single payment for their federal loans May give borrowers a lower monthly payment Option for borrowers with multiple servicers and who want to make one payment each month 21

22 Consolidation Loans Borrowers should consider the trade-offs Interest rate may increase slightly when the weighted average of consolidated loans is rounded to the nearest eighth percent May pay more in accrued interest Perkins loan loses interest subsidy and some cancellation options 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 Teach five, consecutive years (one year after ) No outstanding balance on 10/1/98 Teach at a school included on ED s Teacher Cancellation Low-Income Directory 22

23 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 120 qualifying monthly payments on or after 10/1/07 Option for borrowers who pursue public service careers, have high debt and lower income What Should Borrowers Expect During Grace The lender must offer the borrower a choice of repayment schedules, no more than six months before the first payment is due The borrower must select a repayment schedule within 45 days of the lender s notification If the borrower does not select a schedule, the lender must establish the standard repayment schedule Before the grace period ends, borrowers will receive a coupon book and repayment schedule 23

24 What Should Borrowers Do During Grace Contact their lender/servicer if they had a change in their name, address, or phone number Many borrowers move after graduation so it s important that they inform the lender/servicer of these changes Use calculators Determine their monthly payment Find the plan to meet their goal Step 3 Stay on Top of Their Loans 24

25 Keeping in Touch with Their Lenders Stress importance of informing each lender/ servicer of changes to Name Address Telephone number 50-60% of all borrowers who default are in skip on the date of default Readjust Their Plan Borrowers can change their Payment due date Repayment plan If the student encounters difficulty paying, remind them of their options Deferment Forbearance 25

26 Deferment Postponement of loan payments that a borrower is entitled to as long as he/she meets eligibility requirements Borrower s eligibility depends on him/her meeting specific criteria; the loan type; and the date the borrower received his/her first loan In most cases, borrowers must request a deferment and provide documentation necessary to support eligibility. Some deferments are automatic (e.g., in-school deferment) Deferment The federal government pays the accruing interest on subsidized loans All deferments are borrower-specific Time limits are enforced for each borrower Borrowers are entitled to a deferment if they meet eligibility requirements Today, economic hardship and unemployment are the most used deferments 26

27 Deferment Criteria Types of Deferment In-school Graduate Fellowship Rehabilitation Training Program Unemployment Economic Hardship Military Length of Deferment No time limit No time limit No time limit Up to 36 months Up to 36 months No time limit Deferment Roadblocks Changes to eligibility requirements for economic hardship deferment Borrowers who had an HRD deferment, now do not qualify even though their financial situation is the same 40-45% of deferment applications are rejected Supporting documentation not included Incomplete application Borrowers do not know to apply for a deferment with all of their lenders 27

28 Forbearance Temporary postponement, reduction, or repayment extension of loan payments Interest accrues on all loans during the forbearance Borrower s first payment is due no later than 60 days after the date the forbearance expires Offered at the discretion of the lender (except mandatory forbearance) Forbearance Generally granted for up to 12-month intervals, but lenders set the maximum amount of forbearance time allowed and it varies from lender to lender Four types of forbearance: Administrative forbearance Discretionary forbearance Mandatory forbearance Mandatory administrative forbearance 28

29 How to Reach Your Borrowers Offer Supplemental Counseling Consider offering additional counseling to reach students One-on-one exit counseling Group or in-person exit counseling NSLDS training for students Benefits of conducting in-person counseling Assures high risk populations get the information they need to be successful Can gauge student s level of understanding Questions can be answered 29

30 What Else Can You Do? Add these links to your school s website mygreatlakes.org nslds.ed.gov annualcreditreport.com Send mailings or messages on how to access NSLDS and find cumulative loan indebtedness How Great Lakes Can Help 30

31 Schedule a Student Seminar Schedule a free student seminar Student Loan Repayment: Everything You Need to Know Contact us at 31

32 Order Brochures Order Student Loan Repayment: Making It Happen brochure Send with exit letters Share Online Resources Tools available on mygreatlakes.org Account Payment Plan Estimator Federal Loan Consolidation Calculator Forbearance Calculator Budget Calculator Financial IQ 32

33 Conclusion Reality 1 Students entering repayment are facing new challenges Reality 2 Students have options to help them successfully repay their student loans Reality 3 You have tools and resources available to help students face these new realities Questions? 33

34 Thank You! Great Lakes Higher Education Guaranty Corporation 34

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