Student Loans Know Your Options

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1 Student Loans Know Your Options Sam Hewitt Director, Political & Grassroots Advocacy, GRPP

2 Samuel J. Hewitt Sam Hewitt is the director of political and grassroots advocacy at the American Speech-Language-Hearing Association (ASHA). He lobbies members of Congress on behalf of ASHA focusing on health care issues in audiology and speech-language pathology and runs ASHA s political action committee. Before coming to ASHA, Sam was a legislative aide for Rep. Allyson Y. Schwartz (D-PA) working on health care policy. Previously, he was the manager of political affairs for the American Academy of Dermatology and spent a year on a Congressional race as the chief fundraiser. Sam graduated from University of Florida and resides in Washington, D.C.

3 Disclosure Sam Hewitt, Director Political Advocacy Neil Snyder, Director of Federal Advocacy Financial: We are paid employees of ASHA Non-Financial: Sam and Neil support ASHA s Public Policy Agenda which includes the advocacy initiatives that the association supports; Sam is the ex-officio of ASHA s Political Action Committee which Neil advocates for federal education policy and funding issues.

4 Session Outcomes Get tips for getting though your graduate education with as little student loan debt as possible. This session will review the federal student loan types (Perkins, FFEL, Direct, private) Repayment options(ibr, ICR, consolidation) Forgiveness options (Perkins, Teacher, Teacher Shortage, Public Service).

5 What is a student loan? A student loan is money that banks or the federal government lend to students or parents to pay for higher education. Student loans can be used to pay tuition, fees and room and board, and they can also be used for living expenses and books. Student debt refers to the total amount of outstanding student loans from students, graduates, and dropouts.

6 What is a student loan? The majority of students more than 70 percent of all bachelor's degree recipients now borrow money to pay for college, a higher proportion than ever. Those students owe $29,400 on average at graduation. Student debt drew public attention and concern as the recession hit and graduates fell behind on their loans. There's now a growing consensus among economists that student debt is a drag on the economy, too, because indebted graduates and dropouts have less money to spend on other things.

7 What is a student loan? The federal government has by far the largest share of the student loan market. Until 2010, the federal government lent money to students by guaranteeing and subsidizing loans from banks like Sallie Mae. In 2010, the Education Department cut out the middleman and became the sole student lender.

8 How much student debt is out there? The Consumer Financial Protection Bureau, a federal agency, estimated in May, 2014, that total student debt is nearly $1.2 trillion, and that federal student loans alone make up more than $1 trillion in outstanding debt. (Private loans make up the remaining $165 billion.) But actual debt from paying for college is probably higher. Some students or parents use credit cards, loans from retirement plans, or home equity lines of credit to pay tuition, fees, and living expenses. Those financial products aren't included in the $1.2 trillion estimate.

9 How much debt does the average student have? o The average undergraduate who took out loans (and 7 out of 10 do) and graduated in 2012 borrowed $29,400 for a bachelor's degree. That's a monthly payment of $312 on a standard, 10-year repayment plan. For an associate degree, it's $17,158, or a monthly payment of $182. o Average debt varies greatly by state and by the type of college students attend. Students at for-profit colleges borrow the most, and students at public colleges borrow the least. Average debt for students with a bachelor's degree ranges from just under $18,000 in New Mexico to more than $33,000 in Delaware. o It's not just students who graduate who end up with debt. Among college students who enrolled in 2003, 36 percent hadn't earned a degree or certificate by The majority of dropouts at all colleges, except for community colleges, had at least some debt: $10,400 among students who borrowed at private nonprofit colleges, $9,300 at public colleges and $7,500 at for-profit colleges.

10 SLP Median Student Debt For school-based SLPs, a median (50th percentile) of $20,000. See Question 42 here: SLP-Frequency-Report.pdf

11 Why has student debt increased so much? The total amount of student debt in the US has more than tripled in the past 10 years, from $363 billion in 2005 to more than $1.2 trillion today. It's increasing for a few reasons: More students are going to college than they used to A higher proportion are taking out loans, and They're borrowing more than students did in the past.

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13 Why has student debt increased so much? Lots of factors go into why tuition prices are rising much faster than inflation. Students are paying a greater share of the costs at public universities than they used to because states are subsidizing public education less; and Tuition prices are rising at private colleges and universities, too, for a variety of reasons.

14 Why has student debt increased so much? With more people attending colleges charging ever-higher tuition, the number of borrowers has increased 70 percent in 10 years. So has the amount that the average student borrows. In 2004, 23 million people had student loans, and the average balance was $15,651. By 2013, 39 million people had student loans, and the average balance was nearly $25,000.

15 What kinds of student loans are there? There are two general types of loans: Federal loans and private loans. Federal loans are issued by the Education Department. Federal loans have some protection that private loans don't, including more flexible repayment options and the possibility of eventual loan forgiveness. Private loans come from banks. Neither kind is dischargeable in bankruptcy. The Education Department makes the vast majority of student loans itself, directly to students, so they're called Direct Loans. Since 2013, interest rates have been based on the 10-year Treasury bond rate, so they fluctuate from year to year. Students are limited in how much they can borrow in federal loans. Dependent students can borrow no more than $31,000 during their college careers in Direct Loans, and no more than $23,000 of that amount can be subsidized. Independent students are limited to $57,500 total.

16 What kinds of federal student loans are there? Direct Subsidized Loans for undergraduates. These loans are offered based on financial need and don't accumulate interest while the borrower is enrolled in college. Interest rate for : 4.66 percent. Direct Unsubsidized Loans for undergraduates. These loans are available to undergraduates regardless of financial need, but interest accumulates while borrowers are in college, making the loan more expensive in the long run. Most subsidized loan borrowers also have unsubsidized loans. Interest rate for : 4.66 percent. Direct Unsubsidized Loans for graduate students. Same deal as for undergrads, but at a higher interest rate. For : 6.21 percent. Graduate students can borrow up to $20,500 per year. Direct PLUS loans. Graduate students and parents of undergraduate students can borrow up to the cost of attendance, which includes living expenses, at a higher interest rate. For : 7.21 percent.

17 What kinds of federal student loans are there? Perkins loans. These loans for undergraduates are based on financial need and are administered by colleges. Interest doesn't accumulate while borrowers are in school. Interest rate for : 5 percent. Full-time speech pathologist with a master's degree working in a Title I-eligible elementary or secondary school (for service that includes August 14, 2008, or began on or after that date) can receive up to 100 percent of their Perkins loans forgiven!

18 What colleges have the most student debt? Among undergraduates, students at private nonprofit colleges borrow more than students at public colleges. Students at for-profit colleges borrow the most. This is partly a reflection of tuition, which are higher at private non-profit and for-profit colleges. And it's partly a reflection of students' own resources: students at nonprofit colleges are in general much less likely to come from lowincome families than students at for-profit colleges.

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20 What happens if you don t pay back a student loan? Defaulting on a student loan which happens if you don't make a payment for more than nine months is a very, very bad idea, particularly if it's a federal student loan. Getting rid of a student loan by declaring bankruptcy is nearly impossible, and most people don't try. A student needs to sue the lender themselves, and prove in court that there's no way they can repay the loans. When the federal government is the lender, this is particularly tough. The federal government can confiscate wages, tax refunds and even Social Security checks until the loan is repaid. Defaulting can also ruin a borrower's credit for years.

21 What happens if you don t pay back a student loan? There are ways out of default. Borrowers can pay the full balance, of course, but that's rarely a realistic possibility. The federal government does allow borrowers to rehabilitate their loans. In that case, the borrower and the Education Department must agree on a reasonable and affordable payment plan, and then the borrower has to make nine on-time payments. Collection costs of up to 18.5 percent of the principle and interest can also be added on to the outstanding loan balance so no matter what, defaulting on a loan is expensive. Another way out is consolidating all of a borrower's student loans at one interest rate after making a few on-time, voluntary payments. The best way out of default, though, is not getting there in the first place.

22 How many people aren't paying back their student loans? When a loan is in default, a borrower hasn't made a required payment in at least 270 days and hasn't arranged for a deferment or forbearance. The entire balance is due immediately, and if it's a federal loan, the government can take wages, Social Security payments, or tax refunds. As of August 2014, 8 percent of Direct Loan borrowers and 21 percent of borrowers from the now-discontinued Federal Family Education Loan program are in default. The Federal Reserve Bank of New York, which issues quarterly reports on household debt that include both private and federal student loans, estimates that about 11 percent of the balance of outstanding student loans is at least 90 days delinquent. And unlike delinquencies on other forms of household debt, delinquencies on student loans are still rising.

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24 Why can't student loans be discharged in bankruptcy? Student loans are almost never dischargeable in bankruptcy, unlike credit card debt, mortgages, car loans, and most other forms of consumer debt. But this is a relatively recent development. Restrictions on discharging student loans in bankruptcy have gradually tightened over the years. Until 1998, federal student loans that had been in repayment for at least seven years could be discharged in bankruptcy. Until 2005, some private student loans could also be discharged. But getting rid of student loans now entails suing the lender (often, the federal government) and proving to a judge that circumstances are so dire there's no way the loans will ever be repaid, even under incomebased repayment programs. Fewer than 1,000 people, out of more than 32 million student loan borrowers, try this each year.

25 Why can't student loans be discharged in bankruptcy? There are a couple of reasons for this: Some are concerned that college graduates could decide it's better to declare bankruptcy while they're young and take the hit to their credit for several years, rather than repay tens of thousands of dollars of student debt. Federal student loans also offer consumer protections and repayment flexibility that credit card bills and auto loans generally do not.

26 What is income-based repayment (IBR) of student loans? Usually, a student loan payment is like a car payment: borrowers pay the same amount every month for 10 years, until the loan is paid off. Under the income-based repayment program for federal loans, borrowers pay a percentage of their discretionary income every month, until the loan is paid back or forgiven. The idea is that payments are lower for borrowers who might not be able to afford the standard repayment plan. Income-based repayment, also known as IBR or Pay As You Earn, is only for federal loans. Some kind of income-based plan is available for all federal loans. Payments are based on a: A borrower s discretionary income, which is determined based on family size using the federal poverty guidelines. If a borrower has a household of one and an income of $25,000, discretionary income is determined by subtracting the 150 percent of the poverty guideline for that household size ($17,505). That borrower's discretionary income is $7,495.

27 IBR The exact repayment terms depend on when you took the loan out: Some borrowers pay 10 percent of their discretionary income, others pay 15 percent. If you work for a nonprofit or government agency, the loan is forgiven after 10 years. If you don't, you pay for either 20 or 25 years, or up until the loan is paid off. (But watch out if you don't work for the government or a nonprofit, the forgiven loan could eventually be taxed as income.) About 11 percent of borrowers are paying back their loans this way.

28 Why wouldn't people choose income-based repayment? For a couple of reasons: First, lower monthly payments mean that you could end up paying the Education Department much more in interest than you otherwise would. If you can afford to make higher payments, and if you don't plan to work at a nonprofit or government agency in order to be eligible for public service loan forgiveness, you probably should pay the loan off more quickly. Second, many borrowers complain that the enrollment process for income-based repayment is complicated. Borrowers must submit documentation every year, or otherwise will be put back on the standard repayment plan. You can choose to switch into or out of income-based repayment at any point.

29 What's the case in favor of student debt? Research is pretty clear on this: even people who go to college and end up with thousands of dollars of student debt are better off financially and in other ways than their peers who didn't go to college at all. That's because the value of a high school diploma has steadily declined. College graduates aged 25 to 32 are the most indebted ever, but they're also earning $17,500 more per year than people their age who didn't go to college at all. They're also much less likely to be unemployed, and 86 percent believe their degrees are or will be worth the debt they incurred. Economists generally argue that student loans are a good thing overall: they make it possible for students to afford college who wouldn't have been able to otherwise, and going to college has a range of positive effects, not just on how much people earn but on their health, happiness, and civic participation. Most students are not borrowing more than they can afford to pay back, they argue, but students need to take their likely future earnings, as well as their probability of graduating, into account when taking out a student loan.

30 Student Loan Repayment Resources Federal Student Loan Cancellation & Forgiveness: forgiveness-cancellation

31 Student Loan Repayment Resources Federal Consumer Financial Protection Bureau:

32 Student Loan Repayment Resources The Project On Student Debt, by The Institute for College Access & Success (TICAS):

33 ASHA Resources On Student Aid Finding Financial Aid, You're Not in This Alone: The Good News About Financial Aid

34 ASHA Content Experts Neil Snyder, CAE Director of Federal Advocacy ASHA 444 North Capitol Street, N.W. Suite 715 Washington, D.C P: (202)

35 Thank You! Questions?

36 Don t forget Fill out your session evaluations via this link: ence_survey nsslhaexp@asha.org for all session handouts THANK YOU SO MUCH AND ENJOY THE REST OF YOUR DAY!