Oh no! Student Loans 5/16/2016. LSS Financial Counseling HOCMN ADVISORS CONFERENCE May 13, 2016

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1 Shannon Doyle Certified Financial Counselor LSS Financial Counseling HOCMN ADVISORS CONFERENCE May 13, 2016 Oh no! Student Loans WHAT YOU NEED TO KNOW ABOUT STUDENT LOANS AND REPAYMENT PLANS TO MOVE CLIENTS TOWARDS HOMEOWNERSHIP 1

2 Servicers: Who are they? A loan servicer is a company that handles the billing and other services on federal student loans and sometimes alternative/private student loans as well. They are assigned, not selected and borrowers can only request a new servicer when consolidating loans. They are not lenders. Top 4 Servicers Navient Sallie Mae s new company that services Federal and Private Student Loans Great Lakes Educational Loan Services (GLELS/GHELC/ACS/AES): Federal & Private FedLoan Servicing Track Public Service Loan Forgiveness payments: only Federal Nelnet: Usually older Federal Loans LOANS/UNDERSTAND/SERVICERS 2

3 Current Federal Loan Programs DIRECT LOANS Direct Loans made to the student Subsidized Interest paid Unsubsidized Interest accrues right away Fixed rate interest set by congress annually Grace Period: 6 months from date of graduation or drop below ½ time Low origination fee: 1% GRAD PLUS AND PARENT PLUS LOANS Involve Credit Check Interest starts accruing right away Fixed interest set by congress; higher than Direct Deferred payments for Grad students while enrolled at least half time Payments start right away for Parent PLUS Loans Parent PLUS Loans can t be transferred to the student Very limited repayment plans for Parent PLUS borrowers Other Federal Loan Programs Family Federal Educational Loans (subsidized and unsubsidized) Stafford Loans (subsidized and unsubsidized) HEAL Loans TEACH Grant Loans Perkins Loans 3

4 Private/Alternative Loans PRIVATE LOANS Usually require a credit check and possible cosigner Variable or fixed rate interest set by market Unregulated origination fees and terms Payments may be deferred while in school, or may require a payment after certain period of time Some have grace periods; some don t Very limited, if any, repayment plan options SELF LOANS (AND OTHER STATE LOANS) Requires credit check and possible co signer Interest fixed or variable Interest payments made 90 days from distribution and every three months after that while in school Term of loan based on amount borrowed (15 20 years) No grace periods; one time forbearance option Standard or Extended Interest repayment plans 4

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6 Repayment Plans: Non income driven THE ORIGINALS STANDARD REPAYMENT GRADUATED REPAYMENT EXTENDED REPAYMENT 10 YEARS (UP TO 30 YEARS FOR CONSOLIDATION LOANS) ALL LOANS ELIGIBLE 10 YEARS (UP TO 30 YEARS FOR CONSOLIDATION LOANS) ALL LOANS ELIGIBLE EXTENDS REPAYMENT TO 25 YEARS CAN BE FIXED OR GRADUATED PAYMENT ALL LOANS ELIGIBLE 6

7 Income Driven Repayment Plans KEY TERMS AND COMMONALITIES DISCRETIONARY INCOME: THE DIFFERENCE BETWEEN THE ADJUSTED GROSS INCOME AND THE AMOUNT OF THE FEDERAL POVERTY GUIDELINE BASED ON FAMILY SIZE PARTIAL FINANCIAL HARDSHIP: A CIRCUMSTANCE IN WHICH THE ANNUAL AMOUNT DUE ON ELIGIBLE LOANS, AS CALCULATED UNDER A 10 YEAR STANDARD REPAYMENT PLAN, EXCEEDS 10% (PAYE) OR 15% (IBR) OF DISCRETIONARY INCOME PUBLIC SERVICE LOAN FORGIVENESS: LOAN FORGIVENESS GRANTED AFTER 120 ON TIME QUALIFYING PAYMENTS WHILE WORKING FOR A QUALIFYING EMPLOYER. FORGIVENESS DOES NOT RECEIVE A 1099 C AND IS NOT CONSIDERED TAXABLE INCOME ONLY ONE REPAYMENT PLAN AVAILABLE FOR PARENT PLUS LOANS OR CONSOLIDATION LOANS INCLUDING PARENT PLUS LOANS: INCOME CONTINGENT REPAYMENT PLAN INCOME AND FAMILY SIZE MUST BE RECERTIFIED ANNUALLY OR PAYMENT WILL RETURN TO STANDARD PAYMENT AND INTEREST WILL CAPITALIZE 1099 C WILL BE ISSUED FOR AMOUNT OF FORGIVEN LOANS 7

8 INCOME BASED REPAYMENT PART 1 DIRECT, FFEL, STAFFORD, PLUS LOANS MADE TO STUDENTS, AND CONSOLIDATION LOANS, EXCEPT FOR CONSOLIDATION LOANS INCLUDING PARENT PLUS LOANS, ARE ELIGIBLE PAYMENT SET AT 15% OF DISCRETIONARY INCOME, BUT NOT MORE THAN 10 YEAR STANDARD INCOME USED TO DETERMINE DEPENDS ON HOW TAXES ARE FILED MUST HAVE PARTIAL FINANCIAL HARDSHIP LOAN FORGIVENESS AFTER 25 YEARS, OR 120 PAYMENTS UNDER PSLF PART 2 SAME LOAN ELIGIBILITY, BUT MUST BE A NEW BORROWER AS OF JULY 1, 2014 PAYMENT SET AT 10% OF DISCRETIONARY INCOME INCOME USED TO DETERMINE DEPENDS ON HOW TAXES ARE FILED MUST HAVE PARTIAL FINANCIAL HARDSHIP LOAN FORGIVENESS AFTER 20 YEARS, OR 120 PAYMENTS UNDER PSLF PAY AS YOU EARN (PAYE) ELIGIBLE LOANS ARE DIRECT LOANS, DIRECT GRAD PLUS LOANS, DIRECT CONSOLIDATION LOANS THAT DO NOT INCLUDE PLUS LOANS MADE TO PARENTS PAYMENT SET AT 10% OF DISCRETIONARY INCOME INCOME USED TO DETERMINE PAYMENT IS BASED ON HOW TAXES ARE FILED MUST HAVE PARTIAL FINANCIAL HARDSHIP FORGIVENESS AFTER 20 YEARS, OR 120 PAYMENTS UNDER PSLF MUST BE A NEW BORROWER AFTER OCTOBER 1, 2007 AND HAVE A LOAN DISBURSEMENT OF A DIRECT LOAN AFTER OCTOBER 1,

9 REPAYE (REVISED PAY AS YOU EARN) ALL TYPES OF DIRECT LOANS ELIGIBLE, EXCEPT FOR DIRECT CONSOLIDATION LOANS THAT INCLUDE A PARENT PLUS LOAN PAYMENT IS 10% OF DISCRETIONARY INCOME INCOME CONSIDERED IS HOUSEHOLD AGI REGARDLESS OF HOW TAXES ARE FILED (UNLESS LEGALLY SEPARATED OR CANNOT REASONABLY OBTAIN SPOUSE S INCOME INFORMATION) DOES NOT REQUIRE A PARTIAL FINANCIAL HARDSHIP FORGIVENESS AFTER 20 YEARS FOR UNDERGRAD DEBT AND AFTER 25 YEARS FOR GRADUATE DEBT, OR 120 PAYMENTS UNDER PSLF INCOME CONTINGENT REPAYMENT (ICR) DIRECT LOANS, DIRECT PLUS LOANS MADE TO STUDENTS, DIRECT CONSOLIDATION LOANS: INCLUDING THOSE THAT INCLUDE PLUS LOANS MADE TO PARENTS PAYMENT IS THE LESSER OF THE FOLLOWING: 20% OF DISCRETIONARY INCOME OR WHAT YOU WOULD PAY ON A REPAYMENT PLAN WITH A FIXED PAYMENT OVER THE COURSE OF 12 YEARS, ADJUSTED ACCORDING TO YOUR INCOME INCOME USED TO DETERMINE PAYMENT IS BASED ON HOUSEHOLD INCOME ONLY IF JOINT TAX RETURN IS FILED, OR SPOUSE S CHOOSE TO JOINTLY PAY UNDER THE PLAN DOES NOT REQUIRE A PARTIAL FINANCIAL HARDSHIP LOAN FORGIVENESS AFTER 25 YEARS OR 120 PAYMENTS UNDER PSLF 9

10 loans/understand/plans BUDGET EXERCISE 10

11 Web Resources : The Department of Education s official website. Describes all federal loan programs: the good, the bad, and the ugly The Department of Educations self serve website for borrowers. This is where you can use the Repayment Estimator, apply for income driven repayment plans, and apply for consolidation and/or Income Driven Repayment Plans. Must have FSA ID set up to log in; can be set up on this site Complete Financial Aid Reviews here. All loans are Federal and are list type of loan. Click on the loan number and you can get more details like interest rates, school attended, current servicer and status of loan. Must have FSA ID set up to log in; can be set up on this site This site is managed by the National Consumer Law Center and has in depth information on federal student loan programs and consumer rights when it comes to both federal and private loans Consumer Finance Protection Bureau s website where borrowers can file complaints against servicers of federal and private loans as well as collection agencies Questions? Student Loan Repayment Counseling LSS Financial Counseling