Loan Consolidation. Mark Riggs

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1 Loan Consolidation Mark Riggs Bedford Springs, October 12-14, 2015

2 Introduction Today's students are graduating with loan balances as large as a home mortgage, but unlike a mortgage, student debt is typically made up of multiple loans with individual interest rates, monthly payments and even different lenders. Managing each of these loans can be difficult, and the variation in rates and balances can make student loan repayment a bit unclear. Student loan Refinancing can be beneficial to borrowers by simplifying monthly loan payments and interest rates into one loan, which also has the potential to reduce monthly payments.

3 Student Debt The Impact Total Student Debt - $1.2T Key Differences Federal Private 92% 8% Default Rates FICO Limits 23% 1.9% None Typically 660 Parent Cosigned? Typically No 90%+ Private Federal

4 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Think Different: Refinance Loan 10,000 8,000 6,000 4,000 2, App Volume Average Savings: $ % Loans that include a Federal Loan: 60%

5 With college costs on the rise, former college students now have an average of $30,000 in student loan debt. The INFORMED Index is a nationwide study, sponsored by Citizens Bank, of 1,562 students,...former students, and parents that's designed to help us all get smarter on student loans so we can move on to the good stuff in life.

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7 Needs Better Planning

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9 Options for Consolidation Federal Debt Private Debt Federal and Private The Federal Direct Consolidation Loan Program offers borrowers the opportunity to consolidate existing Federal loans at a weighted average of their current interest rates, rounded to the nearest 1/8 th percent. This program is not credit based, and continues to offer the federal loan benefits. Private Debt can be consolidated with a number of banks, local credit unions, peer lending networks and by utilizing collateral such as a Home Equity loan. Private loan consolidation may offer more attractive rates for well qualified borrowers. Applications are typically credit based and you may be charged origination or applications fees. Few options currently exist for combining BOTH federal and private debt. Some banks and credit unions may offer some ability to consolidate debt, though may be limited by degree type, school attended or other criteria. Citizens Bank is the first Nationally Chartered bank to offer an all inclusive refinance loan.

10 Refinancing Student Loans Factors to Consider Advantages Convenience one monthly payment Simplification one interest rate rather than many Possible lower rate, better benefits Lower monthly payment as a result of a longer repayment term can help DTI calculation Move from variable rate to fixed rate No application fees (based on lender) No prepayment penalties (based on lender) Select your own term options (based on lender) Borrower benefits (rate reductions) Cosigner release (varied terms based on lender) Deferment options Electronic application Disadvantages Longer repayment term could mean higher total cost Loss of borrower benefits from original loan (if applicable) Possible loss of subsidy or forgiveness

11 Federal and Private Student Loan Consolidation Federal Student Loan Consolidation Can only consolidate Federal student loans Fixed interest rate calculated using the weighted average of consolidated loans rounded up to the next 1/8% year repayment Standard, Graduated, Extended, Income Based, Income Contingent and Pay As You Earn options Public Service Loan Forgiveness No credit approval needed Private Student Loan Consolidation Credit approval required Choice of fixed or variable interest rates (varies by lender) Extend repayment Option for multiple loans both private student loans (including Bar Study) and Federal loans

12 Federal Repayment Types Pay As You Earn Based on income* Factors in location, income and family size Generally offers lowest monthly payment Income Contingent Repayment Based on income, family size, Considers total Direct Loan debt No income maximum to qualify Income Based Repayment Based on discretionary income Income Sensitive Repayment Available on loans obtained through the FFELP Payments tied to a fixed percentage of gross income, set by customer Minimum payment must cover accruing interest. Standard Repayment 10 year term Lowest overall cost of repayment Usually default payment type Extended Repayment For larger debt loans Amounts greater than $30,000 Extends the term to 25 years Graduated Repayment Gradually increases payments over a period of time

13 How to Prepare Students for Private Loan Consolidation First they will want to choose what loans and where they would like to consolidate Next have them compare current student loan terms with all available options What is usually needed to apply: Social Security Number Gross monthly income Employer name, phone number and length of employment (if applicable) Monthly rent or mortgage payment (if applicable) The current lender/servicer of existing student loans, full account number of those loans, current loan balances, monthly payment, next payment due date, payment address and the interest rate and type Please make sure they continue making payments until they receive confirmation that their loans are consolidated as it can take up to 2 billing cycles before the process is complete.

14 Private Loan Approval Factors Credit Score acts like a minimum threshold for approvals generally and/or tiered interest rates. Credit History lenders may look at both the usage and length of credit history as well as derogatory items Trade lines individual credit accounts (installment loans this includes student loans, credit cards); balance, account status, date opened, credit limit, delinquencies, etc. Credit inquiries a list of everyone who has accessed your credit in the last two years, both voluntarily and involuntarily Public record items collection accounts, liens, judgments, bankruptcies and wage garnishments Debt-to-income Ratio income documents may be required to verify debt-to-income ratio.

15 Helpful Resources Federal Student Aid Information: Federal Student Aid, Account Management: Federal Loan Consolidation Information: StudentLoans.gov Loan Consolidation Information Call Center Public Service Loan Forgiveness Information: National Student Loan Data System (NSLDS): Student Services and tools: Education Refinance Loan overview and resources: