STUDENT LOANS: AFTER YOU BORROW
Student Loan Basics Nearly Everyone CAN Borrow, however: Loans have to be repaid! Borrow only what you need!! Interest What you are charged for using someone else s money Capitalization The addition of unpaid interest to the principal balance. Then new interest is applied to the ENTIRE balance (principal plus capitalized interest)
Federal Subsidized Stafford Loan Self help and need-based Must be REPAID Must sign Master Promissory Note Must be at least half-time 4.66% starting July 1, 2014 - Can change each year No interest to the student while in school Repay 6 months after no longer half-time. Interest begins immediately.
Federal Unsubsidized Stafford Loan Self help but is NOT need-based Must be REPAID Must sign Master Promissory Note Must be at least half-time 4.66% for unsubsidized loans (undergraduate) Fees and Repayment same as Subsidized Loan
Financial Aid Programs Unsubsidized Federal /Graduate/Professional Loans NOT need-based but student must file FAFSA Must be REPAID Must sign Master Promissory Note 6.21% Interest accrues Fees 4% Origination
Financial Aid Programs Federal Parent Loan (PLUS) and Graduates who have already borrowed maximum in federal direct loans. Must not have adverse credit history Parent borrows on behalf of student 7.21% Repayment begins 60 days after loan is disbursed Repayment can be deferred while student is enrolled at least half-time Interest continues to accrue Maximum: Cost of Attendance minus Other Financial Aid
Loan Limits For Dependent Students Grade Level Subsidized Amt Unsubsidized Amt Annual Limit 1 st Undergrad $3,500 $2,000 $5,500 2 nd Undergrad $4,500 $2,000 $6,500 3 rd & 4 th Undergrad $5,500 $2,000 $7,500 Aggregate limit for undergraduate dependent students is $31,000 with no more than $23,000 in Subsidized Loans. You cannot borrow more than your cost of attendance minus any other financial aid you'll get, so you may receive less than the annual maximum amounts.
Loan Limits - Independent Students and Dependent Students Whose Parents Are Denied PLUS Grade Level Subsidized Amt Unsubsidized Amt Annual Limit 1 st Undergrad $3,500 $6,000 $9,500 2 nd Undergrad $4,500 $6,000 $10,500 3 rd & 4 th Undergrad Graduate or Professional $5,500 $7,000 $12,500 Not eligible $20,500 $20,500 Aggregate limit for undergraduate students is $57,500 with no more than $23,000 in Subsidized Loans. Aggregate limit for graduate/professional students is $138,500 with no more than $65,000 in Subsidized Loans
Your Master Promissory Note (MPN) Contains your Rights and Responsibilities Is a binding legal document that you signed You indicated your commitment to repay your loans by signing the MPN Your MPN may have been used for only one year at a time or as a multi-year note Your MPN expires after 10 years or if you declare bankruptcy or for other reasons check with your lender Check with your loan servicer or your campus if you have questions about your MPN
Loan Disbursement Schools pay for direct costs (charged by the school, like tuition and fees, for example) first. Any loan funds in excess of direct costs are disbursed to the borrower. Schools use a variety of methods to disburse funds Checks Direct Deposit to student accounts Debit cards Check with the campus for more information
Private Loans Come from company or bank Have variable interest rates Can raise up to 19% May want to pay these loans off first if possible. Federal loans have more flexibility.
You Have to Repay Your Loan Even If You did not complete your education You are not employed You did not find employment in your field of study You feel the education you received did not meet your expectations
Repayment Begins Direct Stafford Loan 6-month grace period Begins the day after you stop attending on at least a half-time basis Each loan has only one 6-month grace period. Your loan servicer advises you of your first payment due date during your grace period. You are responsible for beginning repayment of your loan on time even if your loan servicer s communication fails to reach you.
Standard Repayment Schedule Minimum monthly payment is $50 amount of monthly payment depends on how much borrowed; payment required may be higher than the minimum Maximum standard repayment period is 10 years
Graduated Repayment Schedule Begins with lower payments Payments increase over time More interest will accrue over the life of the loan Principal balance decreases at a slower rate
Income-Driven Plans Eligible Borrowers Income Contingent Repayment: Direct Loan borrowers with eligible loans Income Based Repayment: Direct Loan and FFEL Program borrowers with eligible loans and Their payments would be lower on IBR relative to what would have been paid under the 10-year standard repayment plan (called partial financial hardship ) Pay As You Earn: Direct Loan borrowers with eligible loans Must be a new borrower on/after 10/1/2007 who received new loan on/after 10/1/2011 and Their payments would be lower on Pay As You Earn relative to what would have been paid under the 10-year standard repayment plan (called partial financial hardship ) 16
Income-Driven Plans Loan Forgiveness All three plans provide for forgiveness For Income Continent and Income Based, remaining balance forgiven after 25 years of qualifying repayment For Pay As You Earn, remaining balance forgiven after 20 years of qualifying repayment For all three plans, qualifying repayment includes: Payments under an income-driven plan Payments under the 10-year standard repayment plan (or any other repayment plan with a payment amount at least equal to the 10-year standard plan amount) or Economic hardship deferment According to the IRS, the forgiven amount is considered taxable income 17
Income-Driven Plan Example Billy Borrower: Is single with no dependents and lives in Florida Has an AGI of $35,000 and Has $50,000 in Direct Loan debt ($23,000 of which is subsidized), all of which has a 6.8% interest rate 18
ICR Example Borrower Under Income Contingent Repayment, Billy will * : Have an initial monthly payment of $397.17 Have a final monthly payment of $535.23 Make payments that cover all accruing interest, and therefore not have annual capitalization Pay off his loans in 164 months (13 years, 8 months), and therefore receive no forgiveness Pay a total of $78,444.28 on his $50,000 loan debt, compared to: $69,037.44 under the 10-year Standard Repayment Plan or $104,080.83 under the Extended Plan or Consolidation Standard Plan *Assumes a 5% increase in Billy s 19income each year and a 3% annual increase in the poverty guidelines.
IBR Example Borrower Under Income Based Repayment, Billy will * : Have an initial monthly payment of $228.06 Have a final monthly payment of $575.40 Receive $653.16 in interest subsidy during the first three consecutive years of IBR repayment (because the payment will not cover all accruing interest on subsidized loans) Have a payment that is no longer based on his income (no longer have a partial financial hardship) in his 16 th year of IBR Pay off his loan at the beginning of his 21 st year of IBR (and therefore receive no loan forgiveness) Pay a total of $101,673.34 on his $50,000 loan debt, compared to: $69,037.44 under the 10-year Standard Repayment Plan or $104,080.83 under the Extended Plan or Consolidation Standard Plan *Assumes a 5% increase in Billy s income each year and a 3% annual increase in the poverty guidelines. 20
Pay As You Earn Example Borrower Under Pay As You Earn, Billy will * : Have an initial monthly payment of $152.04 Have a final monthly payment of $492.19 Receive $1,999.79 in interest subsidy, during all of the first three consecutive years of Pay As You Earn repayment (because the monthly payment will not cover all accruing interest on subsidized loans) Always have a payment that is based on his income (will always have a partial financial hardship) Receive forgiveness in the amount of $44,979.06 Pay a total of $70,709.53 on his $50,000 loan debt, compared to: $69,037.44 under the 10-year Standard Repayment Plan or $104,080.83 under the Extended Plan or Consolidation Standard Plan *Assumes a 5% increase in Billy s income each year and a 3% annual increase in the poverty guidelines. 21
Borrower Example - Recap ICR IBR Pay As You Earn Initial Payment $397.17 $228.06 $152.04 Final Payment $535.23 $575.40 $492.19 Time in Repayment 13 years, 8 months 20 years, 2 months 20 years Total Paid $78,444.28 $101,673.34 $70,709.53 Forgiveness $0 $0 $44,979.06 For comparison: 10-year Standard Payment $575.40 $347.04 Time in Repayment 10 years 25 years Total Paid $69,037.44 $104,080.83 Extended & Consolidation Standard 22
Federal Consolidation Loan Benefits Extended repayment of up to 30 years, based on your loan balance One monthly payment Can prepay or change repayment plans Fixed interest rate
Trouble Paying? Contact your Direct Loan Servicer! You may be able to reduce your monthly payments if you qualify for an alternate repayment schedule You may be able to temporarily postpone your payments if you qualify for a deferment or if you qualify for a forbearance
Deferment Time period when repayment is temporarily suspended A deferment period may be granted for: At least half-time enrollment at an eligible school Graduate fellowship Rehabilitation program Unemployment Economic hardship Military Service These deferments apply to loans made on or after July 1, 1993. If you have a loan made before that date, check your promissory note.
Forbearance You are unable to make your scheduled payments but you do not qualify for a deferment Forbearance allows you to Reduce the amount of your payment Temporarily stop payments Most forbearance is discretionary it is up to your lender to decide to grant forbearance.
Forbearance You are still responsible for the interest that accrues during forbearance. Try to pay it. Capitalized interest is added to the principal balance and increases your total outstanding debt and possibly your monthly payments
Loan Cancellation Direct Stafford Loan Your death You become totally and permanently disabled Your school fails to pay a refund if you withdraw Your school closes and you are unable to complete your program of study as a result Your loan was falsely certified as a result of identity theft Your school falsely certified or fraudulently completed a loan application in your name without your approval
Loan Forgiveness Teacher Loan Forgiveness Direct Stafford Loans First loan was made on or after October 1, 1998 You teach in a qualifying low-income school for 5 consecutive years
Loan Forgiveness Public Sector Employee Forgiveness Direct Stafford & Direct Grad PLUS Loans You made 120 monthly payments on eligible loans after October 1, 2007 You are employed in a public-service job at the time of forgiveness and have been employed in a publicservice job during the 120 month period
PSLF Qualifying Employment Each of the 120 payments must have been made during a period of qualifying employment Qualifying employment includes any job at: A government organization A not-for-profit, 501(c)(3) organization or Any other not-for-profit organization that is not a labor union or partisan political organization and that provides public services in the following categories: Emergency management, military service, public safety, law enforcement, public interest legal services, early childhood education, public service for individuals with disabilities, public health, public education, public library services, school library services, or other schoolbased services Borrower can work at multiple organizations while making the required120 payments 31
Loan Forgiveness Direct Stafford Loan Service in Areas of National Need For each school, academic or calendar year of full time employment in an area of national need that you complete on or after August 14, 2008 Up to $2,000 of your outstanding loan balance will be forgiven Maximum of $10,000 can be forgiven Cannot receive forgiveness for more than 5 years of service This program is subject to federal funding and availability
Use NSLDS National Student Loan Data System (NSLDS) Use NSLDS to monitor all of your federal student loan debt Use NSLDS to identify who is servicing your loan www.nslds.ed.gov 800-999-8219 You ll need your federal student aid PIN to access. Any private or alternative loans you have borrowed will not be listed on NSLDS.
Use NSLDS Federal Direct Loan Servicers include FedLoan Servicing (AES/PHEAA) Great Lakes Educational Loan Services, Inc. Nelnet Sallie Mae Some additional non-profit servicers
Delinquency and Default When you fail to make your payment on time, you are delinquent in meeting your obligation When you fail to make your payments for 270 days, you will be in default on your student loan There are serious consequences to defaulting on your student loan obligation
Consequences of Default Damaged credit rating Referral to a collection agency Collection costs are added to your debt Garnishment of your wages Federal or state tax refunds, Social Security benefits, etc. can be withheld Civil lawsuit filed against you (court costs and legal fees) Loss of deferment and forbearance entitlements Loss of repayment option flexibility Loss of eligibility for further financial aid Suspension of professional license
PLEASE BE ALERT TO LOAN PAYMENT SCAMS! 37
Questions and More Information 866-866-CFNC (866-866-2362) Visit CFNC.org Laura Misner Laura.misner@cfi.org 828-712-9840 Mappingyourfuture.org Studentaid.ed.gov