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1 Federal Direct Loan Repayment Relief Presented by USA Funds University Agenda Overview. Repayment. Deferment. Forbearance. Discharge and Forgiveness. Federal Consolidation Loans. Federal Direct Loans Repayment Relief Overview Repayment Deferment Forbearance Discharge Forgiveness Consolidation Offers flexible options for repaying loans. Postpones repayment. Adjusts repayment. Eliminates any further repayment. Reduces any remaining repayment. Creates a new loan with new terms United Student Aid Funds, Inc. All rights reserved. 1

2 Agenda Overview. Repayment. Deferment. Forbearance. Discharge and Forgiveness. Federal Consolidation Loans. Repayment Borrowers promise to repay the loan amount plus interest. Repayment begins: Subsidized and unsubsidized student loans: six months after no longer enrolled half time, unless the grace period previously used in full. PLUS: once loan is fully disbursed. Consolidation: date of disbursement. 1 Repayment Options Standard. Graduated. Extended. Alternative. Income-Driven: Income-Sensitive. Income-Contingent. Income-Based. Pay As You Earn United Student Aid Funds, Inc. All rights reserved. 2

3 Repayment Options Standard Fixed amount. Minimum repayment amount of $50 per month. Maximum 10-year repayment period, excluding periods of deferment and forbearance. Generally results in lowest interest cost. 2 Case Study Marlena Independent student. Completing her program. $10,000 unsubsidized loan debt percent fixed interest. 2 Case Study Answer Marlena Use the Repayment Charts in the Appendix to provide the following estimates: 1. Monthly payment amount: $ per month. 2. Total repayment period: years. 3. Estimated total interest she will pay: $. 2, United Student Aid Funds, Inc. All rights reserved. 3

4 Repayment Options Graduated Payments increase over time. No payment will exceed three times any other payment. Maximum 10-year repayment period, excluding periods of deferment and forbearance. Marlena s Unsubsidized Loan Loan Principal at Repayment Starting Monthly Payment Ending Monthly Payment Length of Repayment Period Interest Charges Standard $10,000 $123 $ years $4,718 Graduated $10,000 $86 $ years $5,659 2 Repayment Options Extended Borrowers with $30,000 or more in FFELP or DL student loans. Totals from FFELP and DL may not be combined to equal $30,000. Maximum repayment period of 25 years. Longer repayment period: Helps reduce monthly payment amount. Increases interest costs. 3 Repayment Options Alternative ED may offer DL borrowers an alternative plan. Maximum repayment period of 30 years United Student Aid Funds, Inc. All rights reserved. 4

5 Repayment Options Income-Sensitive Payments relate to FFELP borrower s annual income. Repayment period may exceed 10 years, depending on borrower s income and amount borrowed. Borrowers must re-apply each year. 3 Repayment Options Income-Contingent Payments relate to DL borrower s annual income and family size. Minimum payment of $5. Any remaining balance due after 25 years will be forgiven. Borrowers must re-apply each year. 3 Repayment Options Income-Based FFELP and DL borrowers have partial financial hardship if annual payments exceed discretionary income. Most borrowers: 15 percent. New borrowers: 10 percent. Payment amount may be reduced or eliminated. If loan payment is less than accruing interest, ED covers interest on subsidized loans for up to three consecutive years United Student Aid Funds, Inc. All rights reserved. 5

6 Repayment Options Income-Based Married borrowers: Combined income considered. Repayment amounts combined. Prorated payments based on percentage of total debt. Remaining amount may be forgiven after: Most borrowers: 300 qualifying payments over 25 years. New borrowers: 240 qualifying payments over 20 years. Once qualify: Applies to all of borrower s loans. Eligible for forgiveness by continuously making payments on time, even if no longer qualify for reduced IBR payment amount. Borrowers in default do not qualify. ED requires some defaulted borrowers to repay under IBR. 3 4 Repayment Options Pay As You Earn New borrowers on or after Oct. 1, 2007, with DL disbursement on or after Oct. 1, Excludes parent PLUS loans. Payment amount may be reduced or eliminated. Spouse s loans and income is considered. Excludes FFELP borrowers. Monthly payment may be zero. Interest capitalization is limited. Remaining amount after 20 years may be forgiven. Agenda Overview. Repayment. Deferment. Forbearance. Discharge and Forgiveness. Federal Consolidation Loans United Student Aid Funds, Inc. All rights reserved. 6

7 Loan Deferments Postpone repayment for borrowers who qualify. Entitlement for eligible borrowers. Suspend payment of principal and interest: Interest subsidy resumes. Interest accrues on unsubsidized portion. Some deferments must be updated at least annually. Can apply retroactively. Borrowers must request deferment. Once repayment resumes, first payment usually due within 60 days. 5 Loan Deferments The Consolidated Appropriations Act of 2012 eliminated the interest subsidy: During the six-month grace period. For borrowers of subsidized loans first disbursed between July 1, 2012, and June 30, Unpaid accrued interest will be capitalized. Subsidy during authorized periods of deferment is still available. 5 Deferment Types Lenders review available options. Based on borrower s status when first application was made. Applies to all of a qualifying borrower s loans. Borrowers of FFELP loans prior to July 1, 1993 may qualify for different deferment options: Prior to July 1, 1987 July 1, 1987 to June 30, 1993 July 1, 1993 to present United Student Aid Funds, Inc. All rights reserved. 7

8 Deferment Types * For Direct Loan borrowers and FFELP loans first disbursed from July 1, 1993, to present. ** Unlimited duration while continuing to serve on active duty. Extended periods of deferment are available to borrowers after demobilization. 6-7 Poll: Case Study Repayment Relief Toney recently graduated. He can t find a job and has enrolled half time in graduate school. Which deferments may pertain to Toney's situation? a.in-school. b.graduate fellowship. c. Rehabilitation training. d.unemployment. e.economic hardship. f. Military service. g.post-active duty student. 7 Agenda Overview. Repayment. Deferment. Forbearance. Discharge and Forgiveness. Federal Consolidation Loans United Student Aid Funds, Inc. All rights reserved. 8

9 Forbearance Temporary reduction or suspension of payments. Can be applied retroactively for up to 12 months. Generally granted at the discretion of the lender. Payment options: No monthly payment. Interest-only payments. Lower payment. Other arrangements. Interest subsidy is not available. Any unpaid interest may be capitalized. Lender required to inform borrower of status, obligations and associated costs. 8 Forbearance Types 9 Forbearance Types United Student Aid Funds, Inc. All rights reserved. 9

10 Forbearance Types 9 Forbearance Types 9 Case Study Forbearance Julia is unable to make payments on her Direct Subsidized loan. She does not qualify for deferment so she requests a forbearance from the holder of her loan United Student Aid Funds, Inc. All rights reserved. 10

11 Poll: Case Study Forbearance Which of the following statements will be true for Julia? The holder of her loan is required to grant forbearance to her, regardless of the circumstances. Repayment is suspended while the holder of her loan considers her request. She will not qualify for the interest subsidy during authorized periods of forbearance. She must re-apply for forbearance every 60 days. 10 Agenda Overview. Repayment. Deferment. Forbearance. Discharge and Forgiveness. Federal Consolidation Loans. Discharge and Forgiveness Relieves borrower from obligation to repay. Does not prevent borrower from receiving Title IV aid. Includes defaults prior to discharge United Student Aid Funds, Inc. All rights reserved. 11

12 Discharge Total and Permanent Disability Inability to earn sufficient income due to illness or injury expected to continue indefinitely or result in death. Physician s certification is required unless: VA declares borrower unemployable due to serviceconnected disability. Borrower receives SSDI or SSI benefits. Next disability review must be scheduled to occur within five to seven years. 11 Discharge Total and Permanent Disability After TPD discharge, to borrow another loan or receive TEACH Grant: During first three years, borrower must either: Resume repayment on previously-discharged loans. Acknowledge reinstatement of TEACH Agreement to Serve. After first three years, borrower must provide both: Physician certification of ability to engage in substantial gainful activity. Acknowledgement that the new loan will not again qualify for discharge for existing impairment Discharge Additional Conditions Death of the student. Remaining principal due is discharged. Original death certificate, a certified copy or a complete and accurate photocopy United Student Aid Funds, Inc. All rights reserved. 12

13 Discharge Additional Conditions Student unable to complete program due to closure. False certification resulting from: Identity theft. School actions. Bankruptcy does not usually include discharging federal education loans. Unpaid refund. 12 Forgiveness 13 Poll: Case Study While hospitalized, Dustin made no payments on his loan. He is more than 180 days delinquent and will not be able to return to work for the foreseeable future. Which of the following actions is the loan servicer most likely to take? Place the loan in retroactive administrative forbearance while he files an application for a total and permanent disability discharge. Recommend that Dustin enroll at least half time in an eligible program of study in order to qualify for in-school deferment. Warn Dustin that his loan will be considered in default in less than 90 days unless he resumes making on-time payments. Declare Dustin in default on his loan immediately and refer his account to ED's Default Resolution Group United Student Aid Funds, Inc. All rights reserved. 13

14 Agenda Overview. Repayment. Deferment. Forbearance. Discharge and Forgiveness. Federal Consolidation Loans. Federal Consolidation Loans Eligible Loans FFELP and Direct Subsidized and Unsubsidized loans. FFELP and Direct PLUS loans. Consolidation loans. Federal Perkins loans. Federal Nursing Student Loans. Health Professions Student Loans. Health Education Assistance Loans. Certain other education loans. 15 Federal Consolidation Loans Borrower Eligibility United Student Aid Funds, Inc. All rights reserved. 14

15 Federal Consolidation Loans Consolidation Loan Limits No minimum. No maximum. 16 Federal Consolidation Loans Consolidation Loan Interest Rates Fixed interest rate based on loans being consolidated. Weighted average, rounded up to nearest one-eighth of one percent. No longer capped at 8.25 percent, for new applications filed on or after July 1, Federal Consolidation Loans Consolidation Loan Fees No application fees. No origination fees. No prepayment penalties United Student Aid Funds, Inc. All rights reserved. 15

16 Agenda Overview. Repayment. Deferment. Forbearance. Discharge and Forgiveness. Federal Consolidation Loans. Tools and Solutions USA Funds Borrower Connect. USA Funds Borrower Connect InTouch SM. USA Funds Life Skills. A nonprofit corporation, USA Funds works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services United Student Aid Funds, Inc. All rights reserved. 16