Types of Title IV Loans - Loan Modification Options

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1 Loans 101: Understanding the Basics Objectives The role of loans in financial aid Overview of the Title IV Loan Program Repayment options Counseling resources The Role of Student Loans in Financial Aid 1

2 The Role of Student Loans Are loans financial aid? The need analysis formula expects that families will pay for education from past, present, and future income Loans represent the portion of aid coming from future income 39% of all aid is student loans 7 out of 10 college seniors had loan debt in 2012 Average debt in 2012 ranged from $4,450 to $49,450 The Role of Student Loans Student loan facts of % of students who borrowed, graduated with less than $10,000 in total debt 30% owed between $10,000 and $25,000 4% owed $100,000 or more Most of the bad news stories: Borrow more than they need Replace EFC with private loans Don t graduate on time or at all The Role of Student Loans Increased debt means: From loan debt increased 6% each year Borrowers may struggle to meet their repayment responsibilities You may have higher cohort default rates Source: Project on Student Debt 2

3 The Impact of Default For students Ineligibility for future financial aid Damaged credit rating for at least seven years Federal tax refund revoked Collection fees assessed Possible wages garnished For schools Possible sanctions Loss of eligibility to participate in Title IV programs Financial Wellness The bottom line: Loans are a necessary part of most students aid packages and help schools meet the full financial need of the student Responsible and reasonable borrowing will result in manageable debt levels Student loan repayment history helps students build satisfactory credit history The Title IV Loan Programs 3

4 Types of Title IV Loans Direct Subsidized Loan Direct Unsubsidized Loan Direct PLUS Loan Graduate PLUS Loan Title IV Loan Similarities Student must: Submit the Free Application for Federal Student Aid (FAFSA) Be enrolled at least half-time Make satisfactory academic progress (SAP) Be eligible for Title IV funds Title IV Loan Differences Not all loans offer the same benefits: In school subsidy Interest rates and fees Annual amounts and aggregates Repayment options Not all are based on need Rates, fees, and terms may change from year to year Watch for changes announced by ED 4

5 Direct Subsidized Loans Funds provided directly by the federal government No credit check required Awarded to undergraduates only Student must demonstrate need for funds Part of the financial aid package Offers in-school subsidy and 6-month grace Direct Subsidized Loans Maximum Eligibility Period Guidelines Program Length 5-Year Bachelor s Degree 4-Year Bachelor s Degree 2-Year Bachelor s Degree 2-Year Certificate 1-Year Certificate 18-Week Certificate 10-Week Certificate Maximum Eligibility Period 7.50 Years 6.00 Years 3.00 Years 3.00 Years 1.50 Years 27 Weeks 15 Weeks Direct Unsubsidized Loan Funds provided by the federal government Available in addition to the need-based subsidized loan; no credit check required Student does not have to demonstrate need Can be used to replace the EFC No in-school subsidy; thus interest accrues Student may make interest payments while enrolled 5

6 Additional Unsubsidized Loans If parents are denied a PLUS loan due to adverse credit, additional amounts can be borrowed For undergraduates only Not based on need Not subsidized, thus interest accrues Amounts are determined by student s year in school Direct Graduate and Parent PLUS Loans For parents of undergraduate students or graduate and professional students Funds provided by the federal government Requires credit check (no adverse credit history) Maximum annual amount is COA less other aid received Direct Graduate and Parent PLUS Loans If parent is borrower, must complete the FAFSA Graduate/professional student loans will be placed in deferment while still in school Parent borrower loans will be placed in repayment status upon disbursement unless they request a deferment 6

7 Title IV Loan Fees, Rates, and Limits Loan Type1 Loan Fee Interest Rate Grace Period Annual Limit Lifetime Limit Direct Subsidized 1.068% (10/1/15 10/1/16) 4.29% (7/1/15 7/1/16) 6 months Year 1 $3,500 Year 2 $4,500 $23,000 Years 3 to 5 $5,500 Dep UG Year 1-5 $2,000 *$31,000 Direct Unsubsidized 1.068% (10/1/15 10/1/16) 4.29% (7/1/15 7/1/16) 6 months Ind UG Year 1-2 $6,000 Year 3-5 $7,000 *$57,500 Grad/Prof All $20,500 $138, 500 Direct Parent PLUS 4.272% (10/1/15 10/1/ % (7/1/15 7/1/16 None Up to the COA No limit Direct Graduate PLUS 4.272% (10/1/15 10/1/ % (7/1/15 7/1/16 None Up to the COA No limit *The maximum a UG student can receive in Sub and Unsub loans combined Test Your Knowledge Which of the following are true? A. Interest rates are subject to change each year B. Over the past 10 years annual aggregates have increased for borrowers C. A student does not have to complete a FAFSA application to receive a Parent PLUS loan Repayment Options 7

8 Loan Repayment Plans There are eight repayment plans available for Direct Subsidized, Unsubsidized, and Graduate PLUS loans Standard Graduated Extended Income-Based Pay As You Earn Income-Contingent Income-Sensitive Alternative Repayment Plans Non income-driven Standard Graduated Extended Alternative Income-driven Income-Based Pay As You Earn Income-Contingent Income-Sensitive Standard Repayment Direct and FFELP loan borrowers Equal monthly payments of at least $50 for up to 10 years Borrowers will automatically be enrolled in the standard repayment plan Best for borrowers who want to repay loans in the shortest time with the lowest amount of interest accrued 8

9 Graduated Repayment Direct and FFELP loan borrowers Monthly payments start lower and gradually increase over time for up to 10 years The monthly payment will never be less than the amount of interest that accrues between payments Option for borrowers who have less cash flow early on, but expect that their income will increase steadily over time Extended Repayment Direct and FFELP loan borrowers Payments that are fixed or gradually increase over 25 years for loan debt that exceeds $30,000 in Direct or FFELP loans More interest is paid over the life of the loan Option for borrowers who have larger loan debt and need a lower monthly payment Comparing Repayment Options Student who borrowed $35,000 in federal loans Standard repayment $48,333 Graduated repayment $50,944 Extended repayment $72,877 Extended graduated repayment $78,485 9

10 Alternative Repayment Direct loan borrowers Must demonstrate exceptional circumstances Minimum monthly payment of $5 Maximum 30-year repayment term Option for direct loan borrowers who cannot meet payment obligations with any of the other plans due to their exceptional circumstances True or False Students who fail to select a repayment FALSE. A plan student are can automatically change their placed repayment on the Standard plan at anytime Repayment if they meet Plan the which requirements can never be for changed that plan Income-Driven Repayment Plans Allows borrower to have a loan payment inline with their income There are three (3) IDR plans Income-Based Repayment (IBR) Pay As You Earn Repayment Income-Contingent Repayment (ICR) Balances are forgiven if the loans are not repaid in full at the end of the repayment period Borrower must reapply each year Payments count as eligible payments for Public Service Loan Forgiveness 10

11 What is a Partial Financial Hardship When the annual amount on the borrower s eligible loans exceeds a certain percentage of the difference between the borrower s AGI and 150% of the poverty guidelines based on borrower s family size Partial Financial Hardship Factors Adjusted Gross Income (AGI) Poverty guidelines Family size Standard loan payment IBR 10% (for new Direct Borrowers on/after 7/1/14) Pay As You Earn 10% Income-Driven Repayment Plans HOW DOES A PERSON APPLY FOR IDR? The borrower must complete the Income- Driven Repayment Plan Request online or by paper form at studentloans.gov Borrower must be able to document income by using the IRS DRT (online) or providing a copy of the IRS tax transcript Alternate documentation: Must be submitted with the IDR Plan Request form. If no income, no additional documentation is required Income-Based Repayment (IBR) Direct loan borrowers Perkins loan eligible, if included in a FFELP or Direct Consolidation loan Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan At the end of repayment plan the remaining balance can be forgiven Must meet partial financial hardship criteria 11

12 IBR Repayment Terms IBR for those who are NOT new borrowers on or after July 1, % of discretionary income Balance forgiven after 25 years of repayment IBR for those who ARE new borrowers on or after July 1, % of discretionary income Balance forgiven after 20 years of repayment Pay As You Earn Available for Direct Loan borrowers Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan Repayment period is 20 years Borrower must meet the definition of a new borrower Who Qualifies for Pay As You Earn? A NEW BORROWER IS A STUDENT WHO Has no outstanding DL or FFELP balance as of 10/1/07, or no outstanding balance on the date a borrower receives a new loan after 10/1/07; AND Received a disbursement of a DL on/after 10/1/11 OR Received a Direct Consolidation loan based on application received on/after 10/1/11, unless it repays a DL or FFELP loan that was outstanding as of 10/1/07 12

13 Income-Contingent Repayment For Direct Loan borrowers only Perkins loan eligible, if included in a Direct Consolidation loan Excludes Parent PLUS loan or Consolidation loan that repaid a Parent PLUS loan (except a Direct Consolidation Loan that repaid a Parent PLUS loan after 7/1/06) For borrowers who need a reduced payment but not be eligible for IBR or Pay As You Earn Repayment period is 25 years Direct Consolidation Loans Combines federal loans into a single loan Existing loans are paid in full and replaced with a new loan Provides borrowers a lower monthly payment Establishes new interest rate, repayment schedule, and terms The interest rate is a weighted average of underlying loans rounded up to the next 1/8 percent Direct Consolidation Loan HOW DOES A PERSON APPLY FOR DCL? The borrower must complete a Direct Consolidation Loan Application and Promissory note available at: loanconsolidation.ed.gov THINGS A BORROWER SHOULD CONSIDER ABOUT A DCL Repayment options are available for consolidation loans Subsidized loans retain the interest subsidy during deferments Perkins loans lose interest subsidy and cancellation options FFELP borrower benefits may be lost Private loans may not be included in a Direct Consolidation loan 13

14 Deferment and Forbearance Deferment Postponement of loan payments that a borrower is entitled to receive as long as he/she meets eligibility requirements Borrower s eligibility depends on meeting specific criteria, the loan type, and the date the borrower received his/her first loan Postponement period can vary depending on type Forbearance Temporary postponement, reduction, or repayment extension of loan payments Interest accrues on all loans during the forbearance Offered at the discretion of the lender (except mandatory forbearance) Typically granted for up to 12-month intervals Borrower s first payment is due no later than 60 days of expiration Deferment Criteria Types of Deferment In-school Graduate Fellowship Rehabilitation Training Program Unemployment Economic Hardship Military Length of Deferment No time limit No time limit No time limit Up to 36 months Up to 36 months No time limit Loan Forgiveness Public Service Loan Forgiveness Program Purpose Allows borrowers to have their loans for given if they work for an eligible public service employer, after making 120 qualifying payments beginning on or after 10/1/2007 Requirements Only for Direct Loan Borrowers Must be on IBR, ICR, Pay As You Earn, or Standard Repayment Plan Must work for an eligible public service employer 14

15 Resources for Counseling Beyond the Basics Help students to know who s who Department of Education Government agency that provides support to students and money for college through grants and loans Federal Servicer Organizations hired to help administer the student loan program and assist borrowers during repayment Lender Banks or credit unions that provide private student loans to students Beyond the Basics The Cost of Borrowing Each additional $2,000 borrowed adds: Approximately $762 in interest Approximately $23 to the monthly payment *Assumes 10-year standard repayment period and 6.8% interest rate 15

16 The National Student Loan Data System Tracks the enrollment of all student loan borrowers Contains records of recipients of federal grants and persons who owe an overpayment on a federal grant or federal Perkins loan NSLDS Student Access Students can access at nslds.ed.gov NSLDS tracks their loans until they are paid in full To access they will need their: Social Security Number Date of birth First two letters of their last name PIN Counseling Borrowers Remind them that they: Can change their plan Can change their due date Can postpone with a deferment/forbearance if they have difficulty making a payment Will pay more in interest with longer repayment periods Should contact their servicer if they have difficulty making payments 16

17 Resources from the Department of Education Entrance and Exit Counseling studentloans.gov Federal Student Aid Publications fsapubs.org Nsldsfap.ed.gov Student loans.gov Ifap.ed.gov Federal Student Aid Handbook Conclusion Help your students prepare for repayment by: Reminding them of their options Stressing that they can change their repayment plan if the one they are on becomes unaffordable Encouraging them to contact their servicer if they cannot pay or need assistance Utilize available resources from Great Lakes and the Department of Education Thanks for Attending Great Lakes Higher Education Corporation & Affiliates 17