Ins and Outs of Student Loan Repayment Webinar provided on March 15, 2012

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1 Ins and Outs of Student Loan Repayment Webinar provided on March 15, 2012 Questions from attendees: Q1. Does the NSLDS list ALL government loans? A1. Yes. NSLDS shows all federal loans borrowed. Q2. For graduate students, does NSLDS list all loans, even those in deferment? A2. Yes. NSLDS shows all federal loans borrowed and also indicates the status of each loan (e.g. inschool, deferment, etc.). Q3. Does the $30,000 debt threshold for the extended repayment plan include interest? A3. Yes. The extended repayment schedule is available to new borrowers on or after October 7, 1998, with an outstanding balance of principal and interest in FFELP loans totaling more than $30,000. The lender may schedule the borrower for a repayment period not to exceed 25 years. Q4. Is there a huge difference between the monthly payment amounts when comparing the income sensitive plan versus an income-based repayment plan? A4. It will depend of an individual borrower s situation to determine the monthly payment difference between these two plans. However, because the income-based repayment plan takes into account more individual criteria (i.e., family size) and also permits a $0 payment amount in some cases, it will generally be the more favorable plan for a borrower having continued difficulty repaying his student loan(s). Q5. A student obtained all Direct Loans for his undergraduate program at one school. The student obtained Direct Loans to attend law school from another school. The student has not consolidated his loans. When the student enters repayment, will he receive one loan bill or two? A5. That will depend. The Department (ED) intends to have all of a borrower s Direct Loans serviced by one ED-servicer which would result in the borrower receiving one loan bill. However, there may be instances where a borrower has Direct Loans serviced by more than one ED-servicer (resulting in more than one bill). If this occurs, the borrower should contact one of the servicers and request that his loans be combined with that servicer. This would make is easier for the borrower to manage his repayment for having all loans with one servicer one monthly loan bill and one monthly loan payment. Q6. A student obtained Direct Loans as a senior. He borrowed $5,500 in Direct subsidized and $2,000 in Direct unsubsidized. Is this one loan or two? Can the student consolidate only the unsubsidized part with Perkins Loans and leave out the subsidized part as a separate loan? A6. The subsidized and unsubsidized loans will show up as two separate loans in NSLDS even though the borrower may have signed one master promissory note for them. Specific to consolidation, the borrower may consolidate the unsubsidized and Perkins loans while leaving out the subsidized loan. The online application process can be found at It allows the borrower to indicate which loans he or she wishes to consolidate. Finally, the borrower should carefully weigh the benefits and considerations of consolidating a Perkins loan. 1

2 Q7. Is a borrower that is incarcerated eligible for the income-based repayment plan? A7. Yes. According to guidance from the Department, an incarcerated borrower is eligible for IBR if he otherwise qualifies. Q8. If a borrower makes a payment when in forbearance how is that applied to the loan? A8. Regarding payment application, except in the case of payments made under an income-based repayment (IBR) plan, the lender may credit the entire payment amount first to any accrued late charges or permissible collection costs, then to any outstanding interest, and finally to outstanding principal. Under IBR, the loan holder must apply a payment first to accrued interest, then to collection costs and late charges, and finally to outstanding principal. Q9. What about the interest that isn't covered by the IBR payment? How long can that be capitalized? Q9. If a borrower s monthly partial financial hardship (PFH) payment amount is not sufficient to pay the interest accruing on a subsidized loan, the Department pays the accrued interest that exceeds the scheduled monthly PFH payment amount during a consecutive 3-year period beginning with the repayment period start date when each loan enters IBR. This 3-year period excludes any period during which the borrower receives an economic hardship deferment. If the loan is an unsubsidized loan, the borrower is responsible for payment all interest that accrues on the loan from the first disbursement date including interest that accrues during deferment periods. Under the IBR plan, accrued interest is capitalized at the time the borrower chooses to leave the IBR plan or no longer has a partial financial hardship. Q10. Is there a Web site for FAAs to look up private loan amounts a student may have? A10. There is not a single site that lists private education loans. We encourage the student to pull their credit report which will list all education loans (federal and private) that the borrower has obtained. Q11. Where do students obtain information on state loans? A11. For state loans the student previously received, the school may be able to provide contact information on the applicable state agency. As noted in A10, the credit report may also contain some information on state loans. Q12. Does the IBR plan cover both FFELP and Direct Loans? A12. Yes. Q13. If the borrower consolidates loans from different schools and then defaults on the consolidation loan, how is the school s default rate affected? A13. For purposes of calculating a cohort default rate (CDR), if a borrower defaults on a Federal Consolidation loan within the fiscal year for which the rate is calculated, the default is counted on the applicable underlying loans that entered repayment during the cohort year. For example, if a borrower obtained loans from two different schools and defaults on those loans, both of the schools CDRs would be affected for that applicable cohort year. 2

3 Q14. I need clarification if a student/borrower is married and passes away, the student's spouse will not have to repay federal loan debt because it is waived, correct? Additionally, if a student/borrower is married and passes away, the student's spouse is responsible to repay private/alternative loan debt (unless the borrower paid insurance to waive the debt), correct? A14. Regarding federal student loans, the loans for a borrower who dies are discharged; the spouse has no obligation to repay the debt. For private/alternative loans, each loan holder has its own policies. In this case, the spouse should contact the loan holder to determine if any obligation to repay the debt remains upon the death of the borrower. Q15. Aren't the lenders contacting the borrowers that are eligible for the Special Consolidation Loan Program? Q15. Yes. From January 17 through June 30, 2012, the four Department servicers (Sallie Mae, Nelnet, Great Lakes, and FedLoan Servicing/PHEAA) will contact each borrower that is considered eligible for this program. These borrowers will be provided information on how to apply for this program via an online process. Note: By consolidating loans into a Special Direct Consolidation Loan, the borrower is securing a new loan. This requires a new promissory note. If an eligible borrower is not contacted, the borrower can call the Department servicer currently servicing his or her federally-held loan(s) for assistance. Q16. Regarding the income-based repayment plan if a borrower has been approved for a reduced payment (or zero payment), does the monthly payment get deferred, or does the government "forgive" the monthly payment? A16. If a borrower s monthly partial financial hardship (PFH) payment amount is not sufficient to pay the interest accruing on a subsidized loan, the Department pays the accrued interest that exceeds the scheduled monthly PFH payment amount during a consecutive 3-year period beginning with the repayment period start date when each loan enters IBR. This 3-year period excludes any period during which the borrower receives an economic hardship deferment. If the loan is an unsubsidized loan, the borrower is responsible for payment all interest that accrues on the loan from the first disbursement date including interest that accrues during deferment periods. A borrower is considered current if he makes the monthly calculated payment (even if that payment does not cover accrued interest). If the borrower has a calculated $0 payment under the IBR plan, he is not required to make a payment and is also considered current. The borrower will be re-evaluated each year Q17. Is there any assurance that the public service forgiveness program will remain funded for students who have entered repayment and working towards this? A17. It is not possible to gauge whether congress will continue to provide funding for the Public Service Loan Forgiveness Program. However, it is important to note that this program is a priority with both the Administration and Congress. Q18. Is there a limit to the times a borrower can enter deferment or forbearance? Also will a borrower "automatically" be put into default if they request a deferment/forbearance a certain number of times? A18. There is not a specific number of times that a borrower can request deferment; however, except for the in-school deferment (which has no cap), most deferments have a 3-year maximum timeframe. Regarding forbearance, there are various types of forbearance mandatory, administrative, and 3

4 discretionary. There is no limit to mandatory or administrative forbearance, which is based on specific borrower eligibility criteria. Discretionary forbearance varies depending on each loan holder s policy. A borrower is never automatically put into default based on the number of requests for deferment or forbearance. Default is defined as the failure of a borrower (or endorser or comaker, if any) to make loan payments when due for a period of 270 days. Q19. Regarding discharge, can you define false certification by school? A19. A borrower qualifies for a false certification loan discharge of the loan, in full or in part, if the borrower or the student for whom a parent obtained a PLUS loan received any part of the proceeds of a federal loan to attend a school that did any one of the following: Admitted the student on the basis of his or her ability to benefit from its training, even though the student did not meet the applicable requirements for admission on the basis of ability to benefit. Signed the borrower s name on the application and/or promissory note without his or her authorization, unless the borrower intended to obtain the loan and the student for whom the loan was made benefited from the proceeds of the loan. Endorsed the borrower s name on the loan check or signed the authorization for electronic funds transfer (EFT) or master check without the borrower s authorization unless the student for whom the loan was made received the proceeds of the loan either by actual delivery of the loan funds or by a credit in the amount of the contested disbursement to charges owed to the school for the portion of the educational program completed by the student. Q20. With AmeriCorps service, is it better for students to take the $5,000 forgiveness or the cash payment? A20. That may vary student-by-student depending on an individual student s situation. Q21. Under what repayment plan is the payment "a secure monthly payment that never changes"? A21. The standard repayment plan provides a 10-year repayment term that has the same amount for each monthly payment, except that the borrower s final payment may be slightly more or less than the other payments. Q22. Private consolidation loan question could Institutional loans be included? A22. If a borrower obtained private/alternative loans from a lender to attend school, generally only those loans would be eligible for a private consolidation loan; however, each lender has its own policy regarding which loans can be included. We encourage the borrower to contact his private education loan holder for information regarding this issue. Q23. Under what circumstances can you require a borrower to pay interest on their loan during forbearance? A23. By granting forbearance, a lender permits a temporary cessation of payments, allows an extension of time for making payments, or temporarily accepts smaller payments than were previously scheduled. Generally no payments are due during a period of forbearance. However, the terms of a forbearance agreement between a lender and borrower may require the borrower to make reduced payments during the forbearance, for example, to pay at least the accrued interest. In this case, the borrower would have agreed to these terms. 4

5 Q24. Are students allowed to keep borrowing Direct Loans after having multiple discharges? A24. A prior discharge does not affect a borrower s eligibility if he is otherwise eligible to obtain a Direct Loan. Q25. Does going into forbearance negatively affect an individual's credit? A25. No, the debt is considered deferred for purposes of credit reporting. Although a borrower in forbearance is not considered past due, each lender will have its own criteria for determining how a deferred payment will be considered for purposes of obtaining a new line of credit. Q26. When switching repayment plans without consolidating, is the maximum length of time (10 yrs, 25 yrs) based on the day the borrower enters the new plan or the original start of repayment? A26. In adjusting the borrower s repayment terms, the lender generally has two options: Keep the number of payments the same and change the borrower s monthly payment amount. Keep the payment amount the same and change the borrower s repayment period. With the repayment period, generally, a borrower is allowed at least 5 but no more than 10 years to repay federal loans. Depending upon the type of plan the borrower selects, the repayment period on a federal loan may be greater than 10 years such as income-based repayment (IBR), income-contingent repayment (ICR), or extended. In addition, if the borrower is not able to pay the debt in full within the maximum repayment period, a period of forbearance can be used to permit the borrower to make loan payments beyond the maximum repayment period. Q27. When do you suggest students consolidate? Once they are able to actually start paying? A27. To qualify for a Direct Consolidation loan, a borrower must be in the grace period or have entered repayment on each loan chosen for consolidation. Choosing consolidation as a repayment option, as well as the timing of consolidation, varies from borrower to borrower depending on individual circumstances. For example, a borrower with older Stafford loans that have variable interest rates may choose to wait until the new variable rate is announced each May. If the rate is scheduled to increase on July 1, the borrower may choose consolidation as a way to lock in the current, lower interest rate. However, if the rate is scheduled to decrease, the borrower may choose to wait until after July 1 to consider consolidation. Q28. Do you have a list of private lenders that consolidate? Possibly a website? A28. Currently, a borrower who wishes to consolidate his FFELP or Direct loans can only obtain a Direct Consolidation loan. FFELP lenders are no longer able to offer Consolidation loans. Q29. Who do you advise students to go to in order to be walked through all of these repayment options and make the plan that's best for them? A29. Prospective and currently enrolled students are strongly encouraged to utilize repayment calculators to estimate their monthly payments under various repayment plans. Students can access a college loan calculator at: 5

6 For current borrowers, they can go to NSLDS access a list of all of their loans and current loan holders. Students can also contact the lender or servicer of their current federal loans for more information on repayment options. Q30. I am a relatively young Admissions Counselor, and I am trying to obtain a better grasp of the financial aid process. As I understand it, the aggregate loan limit for a student is $31,000 over four years. For those students you hear about that graduate with $100,000+ in loan debt, where does the remainder of these loans come from? A30. You are correct that a dependent undergraduate student borrower is eligible to borrow up to a combined subsidized and unsubsidized base Stafford aggregate loan limit of $31,000 (no more than $23,000 of subsidized loan funds). An independent undergraduate student borrower or a dependent student borrower whose parent is unable to obtain a PLUS loan is eligible to borrow up to a combined subsidized and unsubsidized Stafford aggregate loan limit of $57,500 (no more than $23,000 of subsidized loan funds). A graduate or professional student is eligible to borrow a combined subsidized and unsubsidized Stafford aggregate loan amount of up to $138,500 (no more than $65,500 of subsidized loan funds). In some cases, the school may certify loan amounts that exceed the standard annual and aggregate loan limits. These instances are limited to loans for certain health profession students who may be eligible to borrow increased unsubsidized Stafford loan limits that exceed the annual and aggregate limits. And remember that interest continues to accrue for all unsubsidized loans while the student is enrolled on at least a half-time basis. That interest is capitalized and added to the principal balance when the student drops below half-time enrollment status, graduates, or completely withdraws from school. Q31. Will this webinar provide credits? A31. No. There is no certification credit for this webinar. 6

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