Navigating Your Student Loan Repayment

as of April 27, 2012

Agenda

•Determining Your Loan Portfolio•Debt Management Considerations•Loan Repayment Plans•Is Consolidation worth it?•Q&A

Loan Portfolio

As a 2012 Graduate your loan portfolio that may contain any or all of the following loans with multiple lenders:

• Consolidation loans with a fixed rate from prior degrees• Stafford loans with a variable rate from prior degrees• Stafford loans with a fixed rate• Perkins Loans with a fixed rate• Graduate PLUS loans with a fixed rate• Private loans with a variable rate• Columbia Institutional Loan with a fixed rate

Determining Your Loan Portfolio

•What types of education loans do you have? How many loans do you have?

– Federal Stafford Loans, Consolidation Loans, Perkins Loans, Graduate PLUS Loans, Private Loans, Columbia Institutional Loans, prior loans from other degrees, loans with lenders who have exited the FFEL program, etc.

•Who is the lender or service provider for each of your student loans? – Most education loans are issued under one or two of the following

programs: FFEL or Direct.– Sometimes the lender is one entity but the servicer is completely

different or the lender has sold the loan to the Department of Education.

•How much and when did you borrow each loan? – This will help you determine the best repayment option and how to

calculate any accrued interest.

Determining Your Loan Portfolio

Tools to Assist you in identifying all of your loans:1. Open Your Mail, Open Your Mail, Open Your Mail

• Your loans may have been sold to a loan servicer and you will need to coordinate payment with an entity other than the lender who originated the loan

2. National Student Loan Data System (NSLDS): http://www.nslds.ed.gov – central database for federal student aid but not a binding document. Only federal loans are listed here with their loan owner and contact information. (Log in using SSN, DOB and Federal PIN)

3. Lender Specific Websites (Log in using borrower specified username and password)• Access Group – https://www.accessgroup.org • Chase – www.CSLservicing.com• Citibank – http://www.studentloan.com • Sallie Mae – www.manageyourloans.com

Understanding Loan Types

Federal Stafford Loan:• Lower interest student loans that are regulated by the federal government. The loans

are either subsidized or unsubsidized and the maximum was $20,500-$33,000(HEAL limits) per year.– Subsidized – Need-based with accruing interest paid by the government while the

borrower is in school, during a grace period and during eligible deferment periods– Unsubsidized – Not need-based with accruing interest paid by borrower or capitalized

at repayment• Lender Options: FFELP Lender or Federal Direct Loan Program• Repayment begins six months after you leave school or drop to less than half time

status (6 credits), whichever happens first. • Up to 10-year repayment period (or up to 25 years extended for debts over $30,000)• No prepayment penalties• Interest Rates:

– Loans disbursed prior to July 1, 2006:• have a variable interest rate that is adjusted annually and is capped at 8.25%. • Interest rate changes every July 1 based on the 91 T-Bill auction at the end of

May plus a margin.– Loans first disbursed on or after 7/1/06:

• have a fixed rate of 6.8% (this applies to most everyone in the room). Since this is a fixed rate loan, there is no “refinance” tool to lower the interest rate – only federal loan consolidation which may effectively raise your interest rate.

Understanding Loan Types

Federal Consolidation Loan: • Fixed interest rate

– Weighted average of underlying loans• Not a refinance tool, just debt management• No grace period • Repayment will begin immediately• Can be stretched to 30 years depending on debt levels• No prepayment penalties• Stafford loans first disbursed on or after 7/1/06 already have a fixed rate

of 6.8% and do not necessarily need to be consolidated– The changes in the federal programs have made this option less desirable – Lenders have eliminated consolidation loans– Students must consolidate federal loan debt under the Federal Direct Loan

program if they want to take advantage of Public Service Loan Forgiveness

Understanding Loan Types

• Federal Perkins Loans: Need-based federal loans with a fixed 5% interest rate. No interest accrued while you were in school. Repayment begins 9 months after you leave school or drop below half-time, whichever happens first, and is set on a 10 year repayment.– The loan servicer is ACS www.acs-education.com or call (800) 826-4470– Manage your account here, pay online, update contact info, etc. – Grace period clock starts on June 1

• Columbia Institutional Loans: Need-based loans awarded as part of the scholarship consideration process. No interest accrued while you were in school. Repayment begins six months after you leave school and loans carry a fixed rate of 5% and are set on a 10 year repayment.– Grace period clock starts on June 1– After May 1, loan servicer is ACS www.acs-education.com or call (800) 826-4470. Manage

your account here, pay online, update contact info, etc. – Kellog and Clay loans.

Understanding Loan Types

Graduate PLUS Loan Terms• Annual fixed interest rate of 7.9%• Accrued interest paid by borrower or capitalized at repayment• 10-year repayment period

– Extended repayment plans of up to 25 years are available for Stafford and Graduate PLUS loans with accumulated loans balances in excess of $30,000

• No official grace period – Instead, students are given a 6 month post-enrollment deferment to align the repayment of the loan with the Stafford loan.– Citibank and Chase will capitalize the interest at the end of the 6 month post

enrollment period and NOT at the end of the in-school period. – Access Group will capitalize interest in May and then again at the end of the 6

month period. – Check with your loan servicer on specifics on their internal policies and about

repaying accrued interest

Understanding Loan Types

Private Loans• Terms differ depending on lender

Check loan promissory note for specific terms• Accrued interest paid by borrower or capitalized at repayment• Generally, repayment period is 20 years depending on loan balance

and lender• Generally 6 or 9 month grace period depending on lender• Interest rate is variable for the life of the loan

There is currently no private loan consolidation product on the market that offers a fixed rate

Cannot be consolidated under the Federal Consolidation Loan Program

Debt Management

Before you can choose your Loan Repayment Terms, you need a plan.• Choose a repayment timeline to meet financial goals. When it

comes to determining a repayment strategy to fit your needs, remember that a “one size fits all” approach does not work.

• Be sure to consult with your lender and use the tools at your disposal.

• Repayment strategies are borrower-specific and tailored to meet the borrower’s financial goals, for example:

• Pay student loan debt quickly• Pay higher rate debt first• Save to buy a house, start a family• Relocate, go into business, etc. • Working in public sector

Repayment Plans

Standard (level) Repayment• This plan requires equal monthly payments that include principal

and interest. • It offers:

– The same payment amount for the entire term (10 years) – Typically, the lowest overall cost– No penalty for early payoff

• Drawback: The monthly payments may be more than some borrowers can afford

Standard (level) Repayment – Payment Example

Stafford Loan Amount

Interest Rate*

Monthly Payment**

Overall Interest

Total Payments

$41,000 6.8% $472 $15,620 $56,620

GRAD PLUS Loan Amount

Interest Rate

Monthly Payment

Overall Interest

Total Payments

$58,000 8.5% $719 $28,294 $86,294

Standard Repayment is the most commonly selected repayment plan and minimizes the amount of overall interest you will pay.***

* Assumes current interest rates** Assumes 10 year repayment term***Does not include accrued interest

Repayment Plans

Graduated Repayment• This plan provides lower monthly payments that increase at

predetermined intervals during the repayment term. It is for all borrowers whose incomes may be lower at first, but will increase.

• It offers:– Lower initial monthly payments– Predictable increases in monthly payment amount– No penalty for early payoff

• Drawback: The borrower will pay for lower payments with higher interest costs

Graduated Repayment– Payment Example

Graduated Repayment allows borrowers to pay lower monthly payment while transitioning from school to work. The payments increase at set intervals and level off on a pre-determined date.***

Stafford Loan Amount

Interest Rate*

Monthly Payment**

Overall Interest

Total Payments

$41,000 6.8% $232/$555 $17,847 $58,847

GRAD PLUS Loan Amount

Interest Rate

Monthly Payment**

Overall Interest

Total Payments

$58,000 8.5% $411/$835 $31,995 $89,995

* Assumes current interest rates** Assumes 10 year repayment term, 2 years worth of interest only payments, then regular standard repayment***Does not include accrued interest

Repayment Plans

Extended Repayment• This plan extends the repayment term for up to 25 years if your

loans total more that $30,000, and providing all your loans were disbursed after October 7, 1998.

• It offers:– Low fixed or interest only payments– Choice of level or graduated repayment schedules– No penalty for early payoff

• Drawback: Higher interest costs

Extended Repayment– Payment Example

Extended Repayment provides additional years of repayment terms to borrowers who qualify. The extension in repayment terms provides payment relief without the need to consolidate.

Stafford Loan Amount

Interest Rate*

Monthly Payment**

Overall Interest

Total Payments

$41,000 6.8% $285 $44,371 $85,371

GRAD PLUS Loan Amount

Interest Rate

Monthly Payment**

Overall Interest

Total Payments

$58,000 8.5% $467 $82,110 $140,110

* Assumes current interest rates** Assumes 25 year repayment term***Does not include accrued interest

Repayment Plans

Income-Based Repayment • For repayment of Stafford, Grad PLUS and Consolidation Loans if experiencing

partial financial hardship• “Partial Financial Hardship” exists when your monthly payment calculated using the

10 year standard repayment plan is greater than what your payment would be using 15% of your annual AGI above 150% of the poverty line for your family size.

• Any outstanding eligible loan balance is cancelled after 25 years– May be a taxable event

• Monthly payment can allow for negative amortization (less than the monthly interest that accrues)

• Includes a limited interest subsidy benefit – If your payments don't cover the interest that accrues, the government pays or waives the

unpaid interest (the difference between your monthly payment and the interest that accrued) on subsidized Stafford loans for the first three years of income-based repayment.

• IBR calculators available at:– http://www.finaid.org/calculators/ – http://ibrinfo.org/

Income Based Repayment– Payment Example

Income Based Repayment**

Total Federal Loan Amount***

Annual Salary (assuming 3% increase)

Interest Rate*

IBR Monthly Payment

Overall Interest

Total Payments

$99,000 $60,000 7.8% $555 (1st year)$703 (9th year)$1,063 (23rd year)

$116,592 $215,592

* Assumes an average of loans included**22.9 years to total payoff***Does not include accrued interest

Consolidation Consideration

• A Federal Consolidation loan allows the borrower to combine one or more of their eligible federal education loans into one new loan – and can extend the repayment term (up to 30 years), allowing lower

monthly payments.• Loan consolidation is a financial management strategy that may

benefit student borrowers, although it may not be the best strategy for everyone. It is not a re-financing tool!

• Consolidation interest rate– Consolidation loans have a fixed interest rate for the life of the loan– To determine the fixed rate, a weighted-average is computed based on

current interest rates of underlying loans – Calculated rate is rounded up to the nearest 1/8th percent– The interest rate is capped at 8.25%

Consolidation Consideration

• Lender issues new loan and pays off the loan(s) put into the consolidation

• Consolidation loans will likely negatively impact borrower benefits– Terms associated with individual loans no longer apply– Consolidation loan has its own interest rate and different payback terms

• Consolidation loans usually cannot be refinanced– Borrowers can reconsolidate under specific conditions

• Consolidation loans do not have a grace period– Requires immediate repayment– Borrowers who consolidated prior loans can expect to have a payment

due around the time of graduation

Weighted Average Interest Rates

$58,000 $58,000 x 8.5% = $4,930

$41,000 X 6.8% = $2,788

GRAD $41,000PLUS S

T $99,000 $7,718AF $7,718 ÷ $99,000 = 0.077959596FO or 7.80%RD

8.5% 6.8%

What is Weighted Average?

7.8% rounded up to thenearest 1/ 8 % = 7.875%

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Consolidation Loan– Payment Example Consolidation combines the Stafford loans and the GRAD PLUS loans into one new loan with a new interest rate and a longer repayment term.

Consolidation Loan Amount

Interest Rate*

Monthly Payment

Overall Interest

Total Payments

$99,000 7.875% $718 $159,415 $258,415

* Using weighted average interest rate from underlying loans** Assumes 30 year repayment term***Does not include accrued interest

Repayment Comparison **Assumes $99K total debt from previous slides

Interest Rate

Monthly Payment

Overall Interest

Total Payments

Consolidation Repayment – 30 yrs

8.25% $718 $159,415 $258,415

Income Based Repayment (IBR) – new 22.9 years**

7.8% $555 (1st year)$703 (9th year)

$1063 (23rd year)

$116,592 $215,592

Extended Repayment – 25 yrs

6.8%; 8.5%

$752 $126,481 $225,481

Graduated Repayment – 10 yrs

6.8%; 8.5%

$643; adjusting to $1390

$49,842 $148,842

Standard Repayment – 10 yrs

6.8%; 8.5%

$1191 $43,914 $142,914

Options Payment Structure Maximum Payment Period Additional Features

Standard Fixed 10 years - Highest initial payment- Lowest total interest- No negative amortization

Graduated Tiered 10 years - Interest only payments initially- Payments increase incrementally- No negative amortization- Monthly payments can’t be more than three times greater than any other payment (“3 times rule”)

Extended Fixed or tiered 25 years - Lowest initial payment without considering income- No negative amortization- To qualify in FFELP: - FFELP debt must be > $30,000 - New FFELP borrower ≥ 10/7/98

Income Sensitive Adjusted annually based on:- Total gross income

15 years - Subject to “3 times rule”- No negative amortization

Income Based (IBR) Adjusted annually based on:- Household AGI- Household size- Poverty guideline- State residence

25 years - Payment is 15% of “disposable” income if experiencing “partial financial hardship”- Eligibility/payment amount re-evaluated annually- Negative amortization allowed

Deferment and Forbearance

What is deferment?• If you find that you are unable to meet your monthly payment obligations,

contact your lender right away. You may qualify for a deferment that will allow you to postpone making principal payments on your loan. The most common deferments granted are those for:– In-school periods ------------granted without time limit– Unemployment ------------applied for annually for up to 36 months maximum– Economic hardship -------applied for annually for up to 36 months maximum

What is forbearance?• For borrowers with temporary financial issues who do not meet the

requirements for deferment, you may suspend your payments under certain circumstances by requesting forbearance. You will be responsible for the interest that accrues on your loan. This interest is added to the amount you owe when you re-enter repayment and must be repaid when payments resume.

• Forbearances are at the lenders discretion and many have a cap on how long a forbearance can last. Use this sparingly in case of an emergency down the road.

Loan Assistance and Loan Forgiveness Programs

• Loan Assistance Programs (LAP) and loan forgiveness may be available if borrowers qualify and funding is available

• Programs typically are sponsored/funded by:– Employer– Federal, state or local government/jurisdiction

• New program created by CCRAA:– Public Service Loan Forgiveness Program

http://www.finaid.org/loans/publicservice.phtml • will discharge the remaining debt after 10 years of full-time employment in public

service • borrower must have made 120 qualified payments under IBR or ICR as part of

the Direct Loan program in order to obtain this benefit. Only payments made on or after October 1, 2007 count toward the required 120 monthly payments

• There are many restrictions to this type of loan forgiveness. Please research this thoroughly before committing to it.

Private Loan Considerations

• Private Loan Repayment– Managing variable rate private loans

• Payment amounts can change monthly, quarterly, or annually, depending on the loan terms (Sallie Mae – monthly, Chase/Citibank – quarterly)

– Harder to forecast– Requires careful budgeting– Example below assumes a 20-year repayment

– Extending your Federal loan repayment out to 25 years can help with lowering monthly private loan payments which can offer more funds to focus on repaying their higher, variable rate private loans

– Big questions always is: Can you lock in the interest rate (consolidate) a private loan?• Unfortunately, no, not into a fixed rate student loan product

$58,000 at 7.25% $458 per month

$58,000 at 8.25% $494 per month

$58,000 at 9.25% $531 per month

$58,000 at 10.25% $569 per month

Borrower Benefits

• Ways to Lose Incentives– Lenders have been changing borrower benefits due to the credit crisis.

Check with your lender to see if you are still eligible for the borrower benefits you were first quoted.

– Failure to enroll in required electronic servicing• Many lenders offer 0.25% interest rate reduction for auto-debit

– Failure to make required on-time payments– Failure to understand definition of late payment

• usually within 10 – 15 days of due date, some as little as 1-7 days!!– Use of deferment, forbearance, or non-standard repayment when a

“regularly scheduled standard payment” clause is included– Consolidation– Sale of loan

Default/Delinquency

If you fail to repay (default on) student loans, it can:• Negatively impact your credit rating• Prompt withholding of your federal and state tax refunds• Limit your job selection (many companies run credit checks on job

applicants)• Rescind your professional license• Trigger garnishment of your wages• Raise the interest rate you pay on a car or home loan

Be sure to be in touch with your loan servicer if you are experiencing any issues

Next Steps – Summary

• Identify all loans borrowed and when they go into repayment – plug the dates into your calendars!– If you have outstanding loans from prior degrees, your loan repayment will begin

again immediately at graduation.

• Come up with a repayment strategy from the ones listed that best suits your needs, financial plans, salary, bonuses, etc.

• Log onto the lender/loan servicer websites and call them to:– review all loans– sign up for ACH auto-debit! Don’t leave money on the table.– update addresses and other contact information – use loan repayment calculators to estimate monthly payments– inform them of any difficulties you are having with loan repayment

• Make sure there are no HOLDS or account balances on your Columbia account before you graduate – diploma will not be released.

• Complete your mandatory Federal Exit Interview online using SSOL. – Due May 1

Loan Servicing Centers

Direct Loan Servicing Centers for Students [includes PUT loans]

For questions about loan repayment or other loan servicing issues, a borrower can contact his or her loan servicing center.

Direct Loan Servicing Center

Phone: 800/848-0979

TDD/TTY: 800/848-0983

Overseas: 315/738-6634

Web site: www.dl.ed.gov

Department of Education Student Loan Servicing Center (ACS)

Phone: 800/508-1378

TDD/TTY: 800/662-1220 within New York State

TDD/TTY: 800/855-2880 outside New York State

Web site: www.ed-servicing.com

Loan Servicing Centers Continued

• FedLoan Servicing (PHEAA) • Phone: 800/699-2908 • TDD/TTY: 800/722-8189 • Overseas borrowers: 717-720-1985 • Web site: www.myfedloan.org

• Great Lakes Educational Loan Services, Inc. • Phone: 800/236-4300 • TDD/TTY: 800/236-4300 • Overseas: 608/246-1700 • Web site: www.mygreatlakes.org

• Nelnet • Phone: 888/486-4722 • TDD/TTY: 888/486-4722 • Overseas: 303/696-3625 • Web site: www.nelnet.com

• Sallie Mae • Phone: 800/722-1300 • Fax: 866/266-1300 • TDD/TTY: 877/713-3833 • Overseas: 254/554-4535 • Web site: www.salliemae.com

Questions