1/26/2014. Learning objectives. Taking inventory. The Ins and Outs of Student Loan Repayment: Understanding Your Options

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1 Thresa Tyus TG Default Aversion Consultant The Ins and Outs of Student Loan Repayment: Understanding Your Options Learning objectives You will learn about: Taking inventory of your federal student loans Choosing a repayment plan that works for you The basics of loan consolidation Deferment, forbearance, discharge, and forgiveness options Consequences of student loan default Taking inventory 1

2 Taking inventory Where can I obtain information on my federal loans? National Student Loan Data System (NSLDS) Provides federal student loan amounts, loan holders, and loan servicers May have multiple loan types (FFEL, Direct, Perkins, Grad PLUS, and Consolidation) and multiple servicers Where can I obtain information on private education loans? Refer to promissory note or credit report Focus today will be on Direct (unsubsidized and subsidized) and Grad PLUS loans During the grace period What happens to my loans when I leave school? A FFEL or Direct loan will either: Enter a 6 month grace period, or In some cases, enter repayment A Perkins loan willeither: Enter a 9 month grace period, or In some cases, enter a 6 month post deferment grace period During the grace period What happens to my loans when I leave school? A Grad PLUS loan will either: Enter a 6 month deferment (for Direct PLUS Loans first disbursed on or after July 1, 2008) or In some cases, enter repayment py A federal Consolidation loan will enter repayment For a private education loan, contact the lender 2

3 During the grace period What should I expect from my loan holder/servicer? Repayment disclosure notices Outlines the terms of the loans borrowed Provides the repayment options available Establishesthefirst the payment due date During the grace period What does my loan holder/servicer expect from me? To select a repayment plan To provide updated contact information whenever it changes To contact the loan holder whenever you are having difficulty managing repayment During the grace period Can I prepay on a loan? Yes If sending in a prepayment, make sure you inform the lender to apply the prepayment to the principal of the loan balance There isno prepayment penalty 3

4 Overview of repayment plans What repayment plans are available? Standard Graduated Extended Income Driven Plans: Income Sensitive Income Based Income Contingent Pay As You Earn Repayment plan comparison NEW repayment plan comparison calculator available at inredirect.action sign in with your FSA PIN Visit the repayment estimator before you make decisions about your repayment options Once you know which plan(s) you re eligible for, spend some time researching the details of each plan and thinking about how the various options will fit within your short and long term financial goals 4

5 Repayment estimator: overview screen Repayment estimator: Your Loans pop up screen Repayment estimator: repayment plans 5

6 Repayment plans overview Standard 120 equal monthly payments/10 years Least expensive way to repay a student loan Graduated Payments increase over time Maximum 10 year repayment term Repayment plans overview Extended For borrowers with over $30,000 in debt Up to 25 years to repay loan Income sensitive (FFEL only) Based on expected gross monthly income Adjusted annually Repayment plans overview Income driven repayment plans with a forgiveness component Income based (IBR) Income contingent (ICR) Pay As You Earn (PAYE) 6

7 Borrower eligibility Criteria IBR Pay As You Earn ICR Who qualifies FFELP and Direct Loan borrowers who have a partial financial hardship Direct Loan New borrowers who have a partial financial hardship Direct Loan borrowers Borrower eligibility For purposes of PAYE, you are a new borrower if you: Had no outstanding balance on a Direct or FFELP loan as of 10/1/2007 (or had no outstanding balance on a Direct or FFELP loan when you obtained a new loan on/after 10/1/2007) AND Received a disbursement of a Direct Subsidized or Unsubsidized Stafford, or Grad PLUS loan on or after 10/1/2011 (or received a Direct Consolidation Loan based on an application received on/after 10/1/2011) The repayment estimator will help you determine if you meet this eligibility requirement. Partial financial hardship IBR and PAYE both have a partial financial hardship requirement: Your annual payment amount using the standard 10 year repayment plan / 12 15% (for IBR) or 10% (for PAYE) of your (Adjusted Gross Income 150% of poverty guideline amount) / 12 Based on income and family size 7

8 Partial financial hardship What does PFH mean in plain English? You have a large amount of federal student loan debt compared to your income and the expenses that go along with supporting you and your family. The repayment estimator will help you determine if you have a PFH. IBR and PAYE payment amounts IBR payment amount: Capped at 15% of discretionary income PAYE payment amount: Capped at 10% of discretionary income What is discretionary income? Your income minus the poverty guideline for your family size. The repayment estimator will calculate this for you. ICR eligibility criteria ICR has no partial financial hardship requirement: Under ICR, your monthly payment is the lesser of: 20% of discretionary income OR 12 year standard repayment schedule multiplied by income percentage factor 8

9 Interest subsidies Temporary interest subsidy with IBR and PAYE only: Provided when your monthly payment does not cover accruing interest on subsidized loans Limited to first three consecutive years of repayment You must pay all interest on unsubsidized loans Interest capitalization Interest capitalizes: Under IBR when you: No longer have a partial financial hardship, or Leave IBR entirely Under PAYE when you: No longer have a partial financial hardship, or Leave PAYE entirely BUT Interest capitalizes only until principal balance is 10% greater than original principal amount when you entered plan Interest capitalization Interest capitalizes Under ICR: Annually when your payments do not cover accrued interest BUT Interest capitalizes only until principal balance is 10% greater than original principal when you entered repayment 9

10 How do the income-driven repayment plans work? Repayment can extend beyond 10 years regardless of your amount of loan debt Forgiveness after 25 years for ICR and IBR, 20 years for PAYE Payment amount can increase or decrease every year depending di on changes in income and/or family size You can stay in IBR or PAYE even if you no longer have a PFH Under current law, forgiven amount would be counted as taxable income Income driven plans example Example: If you are: Single with no dependents Live in one of the lower 48 states Have an Adjusted Gross Income (AGI) of $35,000, and Have $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 6.8% interest rate *Assumes a 5% increase in income each year and a 3% annual increase in the poverty guidelines. Source: Department of Education; 2012 FSA Conference Income driven plans example 10 year Standard Extended & Consolidation Payment $ $ Time in Repayment 10 years 25 years Total Paid $69, $104, For comparison: ICR IBR PAYE Initial Payment $ $ $ Final Payment $ $ $ Time in Repayment 13 years, 20 years, 20 years 8 months 2 months Total Paid $78, $101, $70, Forgiveness $0 $0 $44, Source: 2012 FSA Conference 10

11 Income driven plans example: With forgiveness With PSLF (forgiveness after 10 years): ICR IBR Pay As You Earn Time in 10 years 10 years 10 years Repayment Total Paid $55, $37, $24, PSLF Amount $19, $45, $57, Source: Department of Education; 2012 FSA Conference Income-driven plans application process You may apply by completing either: Electronic IBR/Pay As You Earn/ICR application on studentloans.gov website (recommended) OR Paper application available from the loan holder The basics of consolidation 11

12 Consolidation overview Consolidation enables you to bundle one or more federal student loans into a single new loan The consolidating loan holder pays off the outstanding balances of the loans included in the consolidation Same repayment plan options (except ISR) No fees Consolidation eligibility Who can consolidate? Any federal student loan borrower, including: Borrowers with student loans Borrowers with student and parent loans Consolidation eligibility How do I qualify? You must be in your grace period or in repayment on each loan being consolidated You can still obtain a Consolidation loan if you are delinquent or in default on one or more of your existing loans 12

13 Consolidation eligibility What loans may be consolidated? Federal Family Education Loans Federal Direct Loans FederalPerkins Loans Health Professions Student Loans Nursing Student Loans Health Education Assistance Loans Consolidation eligibility What loans may not be consolidated? Private or state education loans Other consumer debt Private consolidation loans Don t offer the same advantages (i.e., repayment options, deferments, etc) as a federal consolidation loan Interest rate will be credit based and likely higher than a federal consolidation loan Consolidation eligibility Can I ever reconsolidate? Generally, no Exceptions for: Consolidating an existing Consolidation loan with another loan outside the Consolidation loan, and Public Service Loan Forgiveness 13

14 Consolidation interest rate How is the interest rate calculated? It is the weighted average of interest rates on loans being consolidated, rounded up to nearest 1/8 of a percent, capped at 8.25% Factors to consider Convenience of one payment by bringing together loans with multiple loan holders *May* be able to lock in a more favorable interest rate if you have older loans with a variable interest rate Lower loan payments by lengthening repayment period Maximum repayment periods for Consolidation loans Sum of Consolidation loan balance plus balances of other education loans Maximum repayment period Less than $7, years $7,500 or more, but less than $10, years $10,000 or more, but less than $20, years $20,000 or more, but less than $40, years $40,000 or more, but less than $60, years $60,000 or more 30 years 14

15 Factors to consider May lose some or all of grace period May lose certain borrower benefits Federal Perkins Loans lose their deferment subsidy andcancellation eligibility when consolidated May increase total cost of loan: If you lengthen your repayment period, you will pay more interest in the long run Total loan costs based on repayment length A $35,000 Consolidation 6.0% interest rate Repaid over Monthly payment Total amount paid Total interest paid 10 years $ $46, $11, years $ $53, $18, years $ $60, $25, Total loan costs based on repayment length A $100,000 Consolidation 6.0% interest rate Repaid over Monthly payment Total amount paid Total interest paid 10 years $1, $133, $33, years $ $151, $51, years $ $171, $71, years $ $215, $115,

16 Loan consolidation calculator and application At loanconsolidation.ed.gov For calculator, first visit NSLDS to determine loan types, amounts, and current interest rates If you are still in your grace period, provide grace end date; ED will put application on hold and start processing it within 45 days of the grace period end date Deferment, forbearance, discharge, and forgiveness options Deferment A period of time during repayment in which you, upon meeting certain conditions, are not required to make payments of loan principal Entitlements, but you must meet eligibility criteria and cannot exceed time limitations Interest subsidy for subsidized loans, but you are still liable for all interest that accrues on an unsubsidized loan There are many deferments available to borrowers of any loan type, such as in school, economic hardship, unemployment, military 16

17 Forbearance A period of time during which you are permitted to temporarily cease making payments or reduce the amount of the payments Generally not entitlements You are liable for all llinterest tthat t accrues on the loans, even subsidized loans May be the quickest and easiest option, but not a long term solution Loan discharge Discharge release you from all or a portion of your loan obligation Generally due to circumstances beyond your control Types of FFEL and Direct Loan discharges Total and Permanent Disability Death Unpaid Refund False certification by the school False certification due to identity theft Closed School Parents and spouses of September 11, 2001, victims Bankruptcy Loan forgiveness Forgiveness also releases you from all or a portion of your loan obligation Generally due to your employment in a public service field FFEL/Direct Loan forgiveness programs available for: Teachers Public service 17

18 Teacher Loan Forgiveness overview You must have been employed as a full time teacher for five complete, consecutive academic years at a low income eligible school or qualifying location. Forgiveness available for FFEL and Direct Loans: Up to $5,000 or Up to $17,500 for certain highly qualified secondary math and science teachers, and elementary and secondary special education teachers See for more information Public Service Loan Forgiveness (PSLF) Available for Direct Loans (including Grad PLUS and Consolidation) The following types of federal loans can be consolidated into the Direct Loan program to take advantage of Public Service Loan Forgiveness Federal Family Education Loans Subsidized and Unsubsidized Stafford loans Federal PLUS loans Federal Consolidation loans Federal Perkins Loans Certain Health Professional and Nursing Loans PSLF eligibility criteria Outstanding balance of principal and accrued interest forgiven after you make 120 monthly payments after 10/1/2007 under one of the following types of repayment plans: Standard (10 yr term)* Income Based Income Contingent Pay As You Earn 18

19 PSLF eligibility criteria You must be working full time for a public service organization, for example: Federal, state, or local government organization or agency Public child or family service agency Non profit organization under Section 501(c)(3) of IRS code A tribal college or university AmeriCorps and Peace Corps Other qualifying employment Private, non profit, non tax exempt organizations (those that are not under Section 501(c)(3) of IRS code) that provide certain specified public services such as: Emergency management Military service Public safety or law enforcement services Public health services Public education or public library services School library and other school based services Public interest law services Early childhood education Public service for individuals with disabilities and the elderly Common PSLF questions Q: What if I have a break in employment or change jobs? A: Your payments do not have to be consecutive or at the same employer, but you must be employed by a qualifying public service organization at the time you make each of the 120 qualifying payments and at the time you apply for and receive loan forgiveness. 19

20 Common PSLF questions Q: Does timing matter if I decide to get a Consolidation loan? A: Yes. Qualifying payments that you make on Direct Loans prior to consolidation do not count toward the 120 required payments py for PSLF. Common PSLF questions Q: Can I work at more than one job to meet the definition of full time? A: Yes. If you have more than one employer during the same period of time, full time employment is an annual average of at least 30 hours per week, determined by adding together the annual average number of hours per week for each employer. Application process At studentaid.ed.gov: Instructions for Completing Employment Certification for Public Service Loan Forgiveness Employment Certification for Public Service Loan Forgiveness Application is still under development; first forgiveness will not occur until after 10/1/

21 Consequences of student loan default What is default? Occurs after 270 days of delinquency During delinquency and even for a short time after default many entities (lender, servicer, guarantor, school) are attempting to contact you by phone, mail, , etc. to resolve the delinquency Many times a delinquent borrower cannot be located Consequences of default Acceleration Loss of Title IV aid eligibility Collection costs, attorney s fees Negative credit reporting Loss of deferment, forbearance, and traditional repayment plans Some schools may not release certain academic records 21

22 Consequences of default Forced collections: Administrative wage garnishment Treasury offset program (income tax refunds, Social Security benefits) Lossof of eligibility for other federal loans (VA, HUD/FHA) No statute of limitations for enforceability! Consequences of default Additional consequences for TG-held loans: State professional licenses may not be renewed Texas Lottery winnings withheld Texas State Bar attorney license may be suspended Reimbursements (warrants) from the Texas State Comptroller may be withheld How can you resolve a defaulted student loan? Pay the defaulted loan in full or over time Make satisfactory repayment arrangements One time option Restores Title IV eligibility Rhbili Rehabilitate the defaulted df dloan One time option Removes default from credit report Consolidate the defaulted loan Receive a discharge on the defaulted loan 22

23 2013 Texas Guaranteed Student Loan Corporation To order additional copies, or to request permission to reproduce any of the information provided, please call TG Communications at (800)