Federal Stafford, Direct, & Grad/Professional PLUS Loan Exit Loan Counseling

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1 Federal Stafford, Direct, & Grad/Professional PLUS Loan Exit Loan Counseling

2 Your Promise By signing your Master Promissory Note (MPN) you promised to: Read all forms and documents carefully Understand your rights and responsibilities Ask questions 2

3 Your Promise The Master Promissory Note: Is a legally binding document Specifies your rights and responsibilities Must be signed to receive loan funds Borrower s Rights and Responsibilities Notice of Guarantee and Disclosure 3

4 Your Promise Master Promissory Note multi-year feature: Sign once Authorizes future loan funds upon your request Some schools do not use this feature You can opt out and sign a new MPN for each loan Expect a Plain Language Disclosure for any subsequent loans 4

5 Your Promise You promised to repay your loan, even if you: Don t complete your program of study Are unable to secure employment Are dissatisfied with service from the school Don t receive payment coupons or reminders from your lender 5

6 Your Promise Need specific information? Master Promissory Note Notice of Guarantee and Disclosure School records InsideND Lender, guarantor and servicer National Student Loan Data System: U.S. Department of Education: 6

7 Your Loan Terms Know your student loan partners Understand terms of student loan Types of federal student loans Interest rates and loan fees Repayment timing and options Document phone conversations and retain copies of correspondence Manage your money Ask for help 7

8 Your Loan Terms Student Loan Partners Borrower School Lender Guarantor Servicer Secondary market U.S. Department of Education: Know who owns your loan Many lenders/servicers may sell loans to the Dept. of Education You will be notified if this happens 8

9 Your Loan Terms Federal Stafford/Direct loans Subsidized Government pays interest during time in school Government pays interest during grace periods for loans disbursed prior to July 1, 2012 Borrower responsible for interest payments during repayment Unsubsidized Borrower always responsible for interest payments Federal Grad/Professional PLUS loans Interest begins accruing with the first disbursement No grace period 9

10 Your Loan Terms Grace period Stafford/Direct loan provides one 6 month period during which no payment is expected Interest subsidy applies for loans disbursed prior to July 1, 2012 First loan payment due within days after grace period ends No penalty for early repayment Grad/Professional PLUS loan does not offer a grace period 10

11 Your Loan Terms Interest that accrues is capitalized Paying interest while in school saves money Borrower 1 Borrower 2 $3,500 unsubsidized loan at 6.8% fixed. Interest paid during three-year in school period at $19.83 per month $3,500 unsubsidized loan at 6.8 % fixed. No interest paid during three-year in school period. Interest capitalized at repayment Total paid while enrolled $714 Total paid while enrolled $0 Amount capitalized $0 Amount capitalized $714 Monthly payment $50 Monthly payment $50 Length of repayment 7.5 years Length of repayment 9.6 years Total cost $4,450 Total cost $5,700 Interest until repaid $950 Interest charges $1,486 Source: Cost of Interest Capitalization Calculator. 11

12 Method of Payment Options available Coupon books Online payments Auto-debit from bank account Your payment method could affect borrower benefits offered by your lender. Possible interest rate reduction for: Payments made via auto-debit On-time payments 12

13 Keep Copies of Loan Related Information Establish a file for loan related information Copies of written correspondence Notes of phone conversations with lender or servicer Contact information Copies of your MPN Copies of repayment schedules Copies of deferment forms 13

14 Successful Repayment Repayment plans Manageable payments Forgiveness and cancellation Money management Debt management strategies 14

15 Successful Repayment When does repayment begin? Stafford/Direct loans offer a 6 month grace period after you graduate, leave school, or drop below half-time enrollment Interest will not be charged on subsidized Stafford/Direct loans during the grace period for loans disbursed prior to July 1, 2012 Interest will accumulate on unsubsidized Stafford/Direct loans during the grace period Grad/Professional PLUS loans do not offer a grace period 15

16 Repayment Plans Four Repayment Plan Types Standard Graduated Extended Income Based 16

17 Repayment Plans Standard Repayment Standard repayment Most common option, also default option Payments of equal, monthly installments Repayment period cannot exceed 10 years Minimum payment of $50, usually much more Advantages and disadvantages Well-suited for borrowers with balances less than $10,000 or with higher balances and higher income Monthly payments may be too high for some borrowers, although deferment/forbearance options may alleviate problem 17

18 Repayment Plans Graduated Repayment Graduated repayment. Tiered plan in which monthly payment amount changes during repayment term, increasing gradually Most are three- or four-tiered Repayment term cannot exceed 10 years Monthly payment amount must cover accruing interest, and no single payment can be more than three times amount of another Advantages and disadvantages Combines low initial payments and predictable structures Interest cost will be more than standard repayment Lower payments result in higher interest costs 18

19 Repayment Plans Extended Repayment Extended repayment Up to a 25-year repayment term for eligible borrowers Available if you have more than $30,000 in student loan debt Length of repayment is tied to the amount borrowed Advantages and disadvantages Provides a lower monthly payment for the entire repayment term Borrower must meet certain criteria Longer repayment term typically results is higher overall interest costs Most useful to borrowers who need long-term relief 19

20 Repayment Plans Income Based Repayment There are a few options in this area Discuss these options with your servicer 20

21 Repayment Example Compare the various plans listed below, noting the difference in the total interest of each Visit to review the loan repayment calculators Example: $15,000 at 6.8% fixed rate with $0 fees Repayment Option Estimated Monthly Payment Total Interest Total Principal and Interest Standard $173 $5,715 $20,715 Graduated (15 years) $86 to $239 $11,263 $26,263 Income-sensitive* $83 to $186 $6,125 $21,125 Source: loan repayment calculators. * Income-sensitive repayment based on one year exception at $25,000 annual salary. 21

22 Manageable Payments Deferments Payments postponed under certain conditions Enrolled at least ½ time Military Service Others Interest subsidy applies Length of time varies by type of deferment Application required (not automatic) 22

23 Manageable Payments Forbearance Temporarily postpone or reduce payments Extends the repayment period Typically granted for a period up to 12 months, at the discretion of the lender or servicer Interest subsidy is not available Any unpaid interest that accrues will be capitalized, increasing the total balance due 23

24 Manageable Payments Consolidation May reduce monthly payments rarely May reduce interest rates Only certain qualifying federal loans can be included Not right for everyone Discuss with servicer Advantages Combines several loans into one new loan One lower monthly payment Interest rate may be lower Interest subsidy still applies, but only to Stafford/Direct No fees or prepayment penalties Disadvantages Increases interest charges due to longer repayment period Reduced options for cancellation and forgiveness Interest rate may be higher May lose benefits. Lose remainder of grace period 24

25 Student Loan Forgiveness and Cancellation Special repayment and forgiveness options for some borrowers Military benefits National and community service jobs Child care providers Teacher loan forgiveness 25

26 Consequences of Breaking Your Promise Delinquency means the lender has not received payment by the stated due date. Late charges and fines may be assessed Negative mark on your credit record 26

27 Consequences of Breaking Your Promise Default means no loan payments for 270 consecutive days or more. Lose eligibility for future federal financial aid Lose eligibility for flexible loan repayment options Bad credit State-issued licenses can be withdrawn Income tax refunds can be withheld Wages can be garnished Interest continues to accumulate Ongoing collection activities including fees and fines Legal action 27

28 Student Loan Forgiveness and Cancellation Full cancellation Death of borrower School closure False certification by school Identity theft Full or partial discharge Total and permanent disability Some limited bankruptcy scenarios 28

29 Federal Perkins Loan University of Notre Dame is the lender University Accounting Services (UAS) Notre Dame s Perkins Loan Servicer Billing statements will come from UAS (800) Notre Dame Office of Financial Aid loans@nd.edu (574)

30 Federal Perkins Loan Grace Period = 9 months Compared to 6 months for Federal Stafford Loan Payments Quarterly is standard May 2014 graduates 9 month grace period ends March 1, 2015 First payment due June 1, 2015 Loan payments are reported to credit bureaus 30

31 Federal Perkins Loan Deferments Volunteer program Military service ACE Program Teacher cancellation Other occupations Law enforcement fields 31

32 Federal Perkins Loan Helpful Perkins Websites Online Federal Perkins Exit Counseling UAS Payments UAS Frequently Asked Questions 32

33 Manage Your Money Identify your financial goals Develop a realistic monthly budget Pay your bills by due date Keep accurate and wellorganized records Save for the future 33

34 Manage Your Money Find your spending leaks Eating out Entertainment and vacations Gifts and holidays Retail therapy Invisible cash $3 latte X 5 days $15 per week X 50 weeks = $750 per year! 34

35 Manage Your Money Use spending stoppers Leave credit cards at home Record purchases on back of ATM receipt Resist easy credit Eat out less 35

36 Manage Your Debt Debt should work for you not the other way around Don t take on unnecessary debt Know what you owe Develop a plan to get out of debt 36

37 Manage Your Debt Understand the debt pyramid High Cost/Stress Medium Cost/Stress Low Cost/Stress High interest credit cards. Payday loans. Debt past due or in collections. Affordable car loans. Manageable credit card balances. Home mortgages. Student loans. 37

38 Manage Your Debt Determine highest priority debt Once paid, increase payments on next highest priority Avoid the minimum payment trap Resolve to stay out of debt 38

39 Manage Your Debt Review your credit report annually to ensure accuracy Request a free credit report every 12 months: (877) Credit information is supplied by the three major reporting bureaus: Equifax Experian TransUnion (800) P.O. Box Atlanta, GA (888) EXPERIAN P.O. Box 2002 Allen, TX (800) P.O. Box 1000 Chester, PA

40 What If You Need Help? If you run into financial difficulty and can t make a student loan payment, contact: Your lender Your servicer Your guarantor Your school 40

41 What If You Need Help? U.S. Department of Education Student Loan Ombudsman: FSA Ombudsman 830 First Street, NE Fourth Floor Washington, DC Phone: (877) Fax: (202)

42 Resources

43 Contacts at Notre Dame Notre Dame Office of Student Financial Services Michael Riemke and Jessica Schiller Web: Phone: (574) Fax: (574) Online Exit Counseling: Please contact our office to allow us to assist you with any aspect of your student loan repayment. 43

44 Questions and Answers 44

45 USA Funds is the nation s leading education loan guarantor. A nonprofit corporation, USA Funds works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services. 45