loan repayment presentation office of student financial services august 2010
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Loan RepaymentPresentation
Office of Student Financial Services
August 2010
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Purpose and Objectives
• Start planning NOW – repayment is complicated!
• Become aware of the tools and resources available to you.
• Review all your options. Plan ahead!
• Take action, manage your future!
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Today’s Presentation Topics
1. Rights and Responsibilities
2. What Follows Graduation?
3. What’s the Best Repayment Strategy?
4. Stay Out of Trouble!
5. Key Resources and Contacts
6. Evaluation
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Rights and Responsibilities
Master Promissory Note – 22 Topics
– Loans Types– Loan Limits– Grace Periods– Interest Rates/Payments– Repayment Plans– Default– Deferments & Forbearance
www.usafunds.org/forms/stafford_mpn.pdf
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• Loan Types
─ Subsidized
– Unsubsidized
– Consolidation
– Institutional
– Private
• Interest Capitalization
Rights and Responsibilities
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Rights and ResponsibilitiesWhat do You Owe? To Whom Do You Owe It?
NSLDS www.nslds.ed.gov
USA Funds “Loan Review”
– https://loanreview.usafunds.org/login.aspx?schoolId=00165701
Institutional Loans – Midwestern University
– www.ecsi.net
Private Loans – Who is Your Lender?
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Rights and Responsibilities
Who are the players?
– Lenders
– Guarantors
– Servicers
– Secondary Markets
– US Department of Education (ED)
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What Follows Graduation?
• Grace Periods
• Deferments
• Forbearance
• Organize your records
• Start your planning – get in touch
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What Follows Graduation?
LOAN TYPELOAN TYPE GRACE PERIODGRACE PERIOD
StaffordStafford 6 months6 months
PerkinsPerkins 9 months9 months
Grad PLUSGrad PLUS 6 months6 months
ConsolidationConsolidation 0 months0 months
PrivatePrivate 6-9 months (varies by lender)6-9 months (varies by lender)
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What Follows Graduation?
Six Major Types of DefermentsSix Major Types of Deferments
– At least half-time enrollment as a student in a At least half-time enrollment as a student in a degree or certificate program at an eligible degree or certificate program at an eligible institutioninstitution
– Enrollment in an eligible graduate fellowship Enrollment in an eligible graduate fellowship programprogram
– Enrollment in an approved rehabilitation training Enrollment in an approved rehabilitation training programprogram
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What Follows Graduation?
Six Major Types of DefermentsSix Major Types of Deferments
– Seeking to find (and unable to find) full-Seeking to find (and unable to find) full-time employment (up to three years)time employment (up to three years)
– Experiencing economic hardship (up to Experiencing economic hardship (up to three years)three years)
– Serving on active duty in the militaryServing on active duty in the military
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What Follows Graduation?
ForbearanceForbearance
• Use only if ineligible for deferment or have exhausted Use only if ineligible for deferment or have exhausted deferment time limitdeferment time limit
• Temporary allowance of no payments or lower payments Temporary allowance of no payments or lower payments to avoid delinquency and defaultto avoid delinquency and default
• Interest accrues and capitalizes on Interest accrues and capitalizes on allall loan types loan types
• Granted 12 months at a timeGranted 12 months at a time
• Delaying repayment adds to the overall cost!Delaying repayment adds to the overall cost!
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What Follows Graduation?
Mandatory ForbearanceMandatory ForbearanceLenders are required to grant forbearance to certain Lenders are required to grant forbearance to certain borrowersborrowers
• whose monthly federal education loan payments equal 20% whose monthly federal education loan payments equal 20% of their monthly incomeof their monthly income
• who are participating in AmeriCorpswho are participating in AmeriCorps
• who are a part of a military mobilizationwho are a part of a military mobilization
Contact your lender for more information on theContact your lender for more information on the
mandatory forbearance benefit.mandatory forbearance benefit.
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What Follows Graduation?
Discretionary Forbearance
Borrower must be experiencing financial hardship
Borrower must receive authorization from the
lender or loan servicer
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What’s the Best Repayment Strategy?
• Actively research repayment options – you are in charge!
• Organize your records
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What’s the Best Repayment Strategy?
For Federal Stafford and Grad PLUS LoansFor Federal Stafford and Grad PLUS Loans
– StandardStandard
– GraduatedGraduated
– ExtendedExtended
– Income-Sensitive (FFEL) or Income-Contingent (DL)Income-Sensitive (FFEL) or Income-Contingent (DL)
– Income-BasedIncome-Based
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What’s the Best Repayment Strategy?
For Private LoansFor Private Loans
– Repayment plans may vary by lender and Repayment plans may vary by lender and loan programloan program• May be similar to plans available on federal loansMay be similar to plans available on federal loans
– Variable rates may affect monthly payment Variable rates may affect monthly payment amountamount
– Consult your lenderConsult your lender
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What’s the Best Repayment Strategy?
1. Standard Repayment Plan1. Standard Repayment Plan– Level monthly payments over 10 year periodLevel monthly payments over 10 year period
– Higher monthly paymentsHigher monthly payments
– Up to 10 years to repayUp to 10 years to repay
– Most commonly selected planMost commonly selected plan
Advantage: Advantage: Typically yields the lowest overall loan costTypically yields the lowest overall loan cost
Considerations: Considerations: Higher payment (compared to other plans);Higher payment (compared to other plans);may be more difficult to manage if starting income is lowmay be more difficult to manage if starting income is low
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What’s the Best Repayment Strategy?2. Graduated Repayment Plan2. Graduated Repayment Plan
– Monthly payments adjusted at one or more pre-defined intervalsMonthly payments adjusted at one or more pre-defined intervals– Payment must cover accruing interestPayment must cover accruing interest– Number of intervals and frequency of adjustments can vary by Number of intervals and frequency of adjustments can vary by
lenderlender– Up to 10 years to repayUp to 10 years to repay
Advantage: Advantage: Provides a low initial monthly payment and offers Provides a low initial monthly payment and offers predicable payment increases; good for borrowers with predicable payment increases; good for borrowers with increasing income potentialincreasing income potential
Considerations: Considerations: Lower up-front payments may cause Lower up-front payments may cause somewhat higher interest costssomewhat higher interest costs
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What’s the Best Repayment Strategy?
3. Extended Repayment Plan3. Extended Repayment Plan
– Available to FFELP borrowers who have accumulated more than Available to FFELP borrowers who have accumulated more than $30,000 in Stafford Loans on or after October 7,1998$30,000 in Stafford Loans on or after October 7,1998
– Repayment term can be “extended” up to 25 yearsRepayment term can be “extended” up to 25 years– Can be standard or graduatedCan be standard or graduated
Advantage: Advantage: Provides a lower monthly payment for the entireProvides a lower monthly payment for the entirerepayment termrepayment term
Considerations: Considerations: Longer repayment term typically results in Longer repayment term typically results in higher overall interest costhigher overall interest cost
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What’s the Best Repayment Strategy?
4A. Income Sensitive Repayment Plan (FFELP only)4A. Income Sensitive Repayment Plan (FFELP only) – Based on your total monthly gross incomeBased on your total monthly gross income
– Must cover at least monthly accruing interestMust cover at least monthly accruing interest
– Up to 10 years to repay (may be extended to 15 years)Up to 10 years to repay (may be extended to 15 years)
4B. Income Contingent Repayment Plan (Direct Loans only)4B. Income Contingent Repayment Plan (Direct Loans only)– Based on family size, household AGI, and total loan amountBased on family size, household AGI, and total loan amount
– Balance forgiven after 25 years of paymentsBalance forgiven after 25 years of payments
• Forgiven amount taxable under current lawForgiven amount taxable under current law
Advantage: Provides a flexible monthly payment associated with incomeAdvantage: Provides a flexible monthly payment associated with income
Considerations: Longer repayment term typically results in higher overallConsiderations: Longer repayment term typically results in higher overallinterest costsinterest costs
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What’s the Best Repayment Strategy?
5. Income-Based Repayment Plan (IBR) 5. Income-Based Repayment Plan (IBR)
• You can use Income-Based Repayment (IBR) to repay Federal You can use Income-Based Repayment (IBR) to repay Federal Stafford, Grad PLUS and Consolidation Loans if you have a Stafford, Grad PLUS and Consolidation Loans if you have a ““partial financial hardship” (PFH)partial financial hardship” (PFH)
• Amount due is lesser of:Amount due is lesser of:– Amount required using 10-year Standard Plan, ORAmount required using 10-year Standard Plan, OR– Amount required using IBRAmount required using IBR
• Monthly payment is based on:Monthly payment is based on:– Family AGIFamily AGI– Family sizeFamily size– HHS Poverty Guideline for state of residenceHHS Poverty Guideline for state of residence
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What’s the Best Repayment Strategy?
5. Income-Based Repayment Plan (IBR) 5. Income-Based Repayment Plan (IBR) (Continued):(Continued):
• Allows you to make a reduced payment not more than Allows you to make a reduced payment not more than 15% of your income that exceeds 150% of poverty level15% of your income that exceeds 150% of poverty level
• Monthly payment can be less than accrued interest (it Monthly payment can be less than accrued interest (it allows for negative amortization)allows for negative amortization)
• Unpaid interest that accrues on Subsidized Stafford debt Unpaid interest that accrues on Subsidized Stafford debt will be subsidized for up to 3 years during IBRwill be subsidized for up to 3 years during IBR
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What’s the Best Repayment Strategy?
5.5. Income-Based Repayment Plan (IBR) (Continued):Income-Based Repayment Plan (IBR) (Continued):
• Any outstanding eligible FFEL or Direct loan balance (other than Parent Any outstanding eligible FFEL or Direct loan balance (other than Parent PLUS) is forgiven after 25 yearsPLUS) is forgiven after 25 years
• Any loan amount that is cancelled may be taxable in the calendar year in Any loan amount that is cancelled may be taxable in the calendar year in which it is cancelledwhich it is cancelled
• New IBR provisions proposed in the President’s FY2010-11 budgetNew IBR provisions proposed in the President’s FY2010-11 budget
• Website Information: Website Information: http://www.ibrinfo.org : : www.salliemae.com – Repaying Student
Loans
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What’s the Best Repayment Strategy?
Federal Loan Consolidation Options
– Positives:• Combine eligible loans into one new loan• Extend repayment term• Lower monthly payments
– Negatives• Longer repayment timeframe, more interest• Potential loss of some benefits
– For more information: www.loanconsolidation.ed.gov
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What’s the Best Repayment Strategy?Comparison of Repayment PlansComparison of Repayment Plans Average Loan IndebtednessAverage Loan Indebtedness
$100,000$100,000
Repayment PlansRepayment Plans Interest Interest RateRate
No. of No. of PaymentsPayments
Initial Initial Payment / Payment / Long-term Long-term PaymentPayment
Total Total Repayment Repayment AmountAmount
StandardStandard 6.8%6.8% 120120 $1,151$1,151 $138,096$138,096
Graduated (2 year interest-Graduated (2 year interest-only)only)
6.8%6.8% 120120 $567/$1,353$567/$1,353 $143,530$143,530
Income SensitiveIncome Sensitive 6.8%6.8% 120120 $1,600/$1,082$1,600/$1,082 $136,036$136,036
Income-Based - $40,000 in Income-Based - $40,000 in Year 1 with 3.5% increase in Year 1 with 3.5% increase in salary each yearsalary each year
6.8%6.8% 300300 $87/$301$87/$301 $52,816$52,816
ExtendedExtended 6.8%6.8% 300300 $694$694 $208,222$208,222
Consolidation - ExtendedConsolidation - Extended 6.875%6.875% 300300 $699$699 $209,648$209,648
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What’s the Best Repayment Strategy?Comparison of Repayment PlansComparison of Repayment Plans Average Loan IndebtednessAverage Loan Indebtedness
$150,000$150,000
Repayment PlansRepayment Plans Interest Interest RateRate
No. of No. of PaymentsPayments
Initial Initial Payment / Payment / Long-term Long-term PaymentPayment
Total Total Repayment Repayment AmountAmount
StandardStandard 6.8%6.8% 120120 $1,726$1,726 $207,145$207,145
Graduated (2 year interest-Graduated (2 year interest-only)only)
6.8%6.8% 120120 $850 / $2,030$850 / $2,030 $215,295$215,295
Income SensitiveIncome Sensitive 6.8%6.8% 132132 $850 / $1,726$850 / $1,726 $217,345$217,345
Income-Based - $42,000 in Income-Based - $42,000 in Year 1 with 3.5% increase Year 1 with 3.5% increase in salary each yearin salary each year
6.8%6.8% 300300 $112 /$358$112 /$358 $64,501$64,501
ExtendedExtended 6.8%6.8% 300300 $1,041$1,041 $312,332$312,332
Consolidation - ExtendedConsolidation - Extended 6.875%6.875% 300300 $1,048$1,048 $314,471$314,471
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What’s the Best Repayment Strategy?
Comparison of Repayment PlansComparison of Repayment Plans Average Loan IndebtednessAverage Loan Indebtedness
$200,000$200,000
Repayment PlansRepayment Plans Interest Interest RateRate
No. of No. of PaymentsPayments
Initial Initial Payment / Payment / Long-term Long-term PaymentPayment
Total Total Repayment Repayment AmountAmount
StandardStandard 6.8%6.8% 120120 $2,302$2,302 $276,193$276,193
Graduated (2 year interest-Graduated (2 year interest-only)only)
6.8%6.8% 120120 $1,133 / $2,707$1,133 / $2,707 $287,060$287,060
Income SensitiveIncome Sensitive 6.8%6.8% 132132 $2,400 / $2,286$2,400 / $2,286 $275,741$275,741
Income-Based - $60,000 in Income-Based - $60,000 in Year 1 with 3.5% increase in Year 1 with 3.5% increase in salary each yearsalary each year
6.8%6.8% 300300 $337 /$872$337 /$872 $169,665$169,665
ExtendedExtended 6.8%6.8% 300300 $1,388$1,388 $416,443$416,443
Consolidation - ExtendedConsolidation - Extended 6.875%6.875% 300300 $1,398$1,398 $419,295$419,295
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What’s the Best Repayment Strategy?
Public Service Loan ForgivenessPublic Service Loan Forgiveness
This is a new program for federal student loan borrowers This is a new program for federal student loan borrowers who work in certain kinds of jobs:who work in certain kinds of jobs:
– Are employed by any nonprofit, tax-exempt 501 (c)(3) Are employed by any nonprofit, tax-exempt 501 (c)(3) organization;organization;
– Are employed by the federal government, a state government Are employed by the federal government, a state government (this includes the military and public schools and colleges); or(this includes the military and public schools and colleges); or
– Serve in a full-time AmeriCorps or Peace Corps position.Serve in a full-time AmeriCorps or Peace Corps position.
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What’s the Best Repayment Strategy?
Public Service Loan Forgiveness
• Federal loans must be consolidated into the Federal Direct Loan Program
• Debt remaining after 10 years of eligible employment and qualifying loan payments is forgiven
• Only payments made after October 1, 2007 count towards the 10 years (120 monthly payments, not necessarily consecutive)
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Stay Out of Trouble!
• Work with your lender or servicer
• Communicate – keep good records!– Who, what, when, where, how much?
• Don’t default – the consequences are severe!
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Stay Out of Trouble!
Customer Service Contact Strategies
• Plan your call in advance, have notes as to the issues to be discussed
• Be businesslike and polite• Check and confirm what has been agreed to • Monitor your mail/email for follow up
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Stay Out of Trouble!
Consequences of Default are Severe!Adverse credit reporting
Loss of eligibility for flexible repayment options
Professional licenses can be withdrawn or denied
Income tax refunds withheld
Interest continues to build up
Legal action
Debt collection including fees and fines
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Key Resources and Contacts
Consider a financial advisor – what to look for:
– A good listener – “good chemistry”– Willing to be interviewed for the job– Excellent references– Has appropriate professional certifications (CFP)– Fee based, not commission based
Ask questions!
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Check out the NEW Alumni Website!Loan TypesLoan Postponement OptionsLoan Repayment InformationGlossary of TermsFAQ’sForms to downloadOn-line Resources
CalculatorsNSLDS
Contact Informationwww.midwestern.edu/x749.xml
Key Resources and Contacts
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Key Resources and Contacts
You are not alone in this!
– Office of Student Financial Services 623.572.3321 [email protected]
– MWU Institutional Loans866.729.2698
www.midwestern.edu/programs_and_admission/financial_aid/institutional_loan_repayment.html
– Alumni Website – financial aid informationwww.midwestern.edu/x749.xml
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Evaluation
Student Financial Services Exit Survey
http://mwunet.midwestern.edu/administrative/OIREA/Survey/fs/fsexit.htm
“The more you do in your life today, the better it will be tomorrow!”