Student Loan Repayment Andrea Morgan, Gary Moore, and Melissa Greenslade Program Coordinators University of Arkansas Office of Financial Aid Student Loans Average student loan debt for graduating seniors from public schools = $20,200 25% of students borrow $30,500 or more 10% of students borrow $39,300 or more Student loan repayment shouldn’t exceed more than 10-15% of your expected monthly income Loan Terms - Definitions Interest Rate: the percentage of a sum of money charged for its use Federal Loans disbursed after July 1, 2006 have fixed interest rates Means that the interest rate will stay the same for the life of the loan Federal Loan interest rates are changed every July 1st. The change is announced the preceding May Grace Period: the period of time after graduation (or you drop below half-time enrollment) before you have to start making payments on your loans Loan Terms - Definitions, cont. Deferment: allows students to temporarily postpone making payments on their loans Government pays interest during deferment on subsidized loans, the student is responsible for interest on unsubsidized loans Eligibility for deferment: Half-time enrolled at postsecondary school Taking part in an approved graduate fellowship or rehabilitation program Unable to find full-time employment Qualified for economic hardship On active duty during war or other military operation Member of the National Guard or other reserve component Forbearance: a temporary postponement or reduction of payments for a period of time because you are experiencing financial difficulty Interest accrues on both subsidized and unsubsidized loans during forbearance Both can be granted in intervals of up to 12 months at a time for up to 3 years Loan Terms- Definitions, cont. Delinquency: a loan is considered delinquent when one payment is missed Delinquent loans are reported on a borrower’s (and co-signer’s) credit report when they are 60 days delinquent Default: technical default occurs when a borrower does not make a payment for 270 days on Stafford, PLUS, or consolidation loans Direct Loans (loans after July 1, 2010) – the loan is referred to Debt Management Collection System and is considered in default once the borrower is 360 days delinquent FFELP Loans (loans before July 1, 2010) – the lender files the claim up to 60 days after technical default Consequences of default: -- Damaged credit rating for at least 7 years -- Collection fees assessed on defaulted loans -- Inability to receive additional financial aid -- Federal tax refund revoked -- Wages garnished Can resolve a defaulted student loan by making satisfactory arrangement with servicer, consolidating the defaulted loan, rehabilitating the defaulted loan (9 full payments in 10 months), paying the loan in full, or receiving a discharge on the defaulted loan Loan Terms - Definitions, cont. Discharge: the release of the borrower from all or a portion of a loan obligation FFELP and Direct loans may be discharged for: Total and permanent disability Death False certification by the school False certification due to Identity Theft Closed school Parents and Spouses of September 11th victims You may NOT normally have a student loan discharged due to bankruptcy Types of Student Loans Federal Loans Direct Loans Subsidized Unsubsidized Federal Family Education Loan Program (FFELP) Subsidized Unsubsidized Perkins Loans PLUS Loans Parent PLUS Graduate PLUS Alternative (Private) Loans FFELP vs. Direct Loans FFELP (Federal Family Education Loan Program) Federal Loans prior to July 1, 2010 Loans were borrowed from private lenders Direct Loans Federal Loans after July 1, 2010 Loans are borrowed directly from the government These loans may be subsidized or unsubsidized Subsidized Loans Need-based loan where the government pays the interest while you are enrolled at least half-time, during the grace period (not for loans taken after 7/1/12), and during deferments Interest rates for July1, 2011-June 30, 2012 Undergraduates: 3.4% Graduates: 6.8% **no more sub loans for graduates as of 7/1/12 Grace Period: you have 6 months from the last date of attendance in school or from when you drop below half-time before repayment begins Repayment Terms: 10 years in Standard, Graduated, and Income-Sensitive (for FFELP loans only) repayment plans Up to 25 years for Income-Based, Extended, and Income Contingent (for direct loans only) repayment plans Unsubsidized Loans Non-need-based loan where the student is responsible for paying interest on the loan. Interest begins to accrue starting at the date of the first disbursement Interest rate for July1, 2011-June 30, 2012: Undergraduates and Graduates: 6.8% fixed Grace Period: you have 6 months from the last date of attendance in school or from when you drop below half-time before repayment begins Repayment Terms: 10 years for standard, graduated, and income-sensitive (FFELP loans only) repayment plans Up to 25 years for income-based, extended, and income-contingent (direct loans only) repayment plans Perkins Loans Need-based loan where the government pays the interest while you are enrolled at least half-time, during the grace period, and during deferments Interest Rate for July1, 2011-June 30, 2012: 5% Fixed Grace Period: repayment begins 9 months after your last date of attendance in school or after you drop below halftime enrollment Repayment Term Typically up to 10 years PLUS Loans PLUS loans are credit-based loans that are given to parents or graduate students through the federal government. Interest begins to accrue from date of disbursement Interest Rate July1, 2011-June 30, 2012: 7.9% fixed There is no grace period on these loans There may be in-school deferment or 6 month post-graduation deferment available Repayment Terms: Parent borrowers 10 years for standard, graduated, and income-sensitive plans Up to 25 years for extended plans Graduate Student borrowers 10 years for standard, graduated, and income-sensitive plans Up to 25 years for contingent, extended, and income-based plans Alternative (Private) Loans Credit based loans through a private lender Terms will vary by lender and loan Interest rate is based on the borrower’s credit rating There is no interest subsidy, the borrower is responsible for repaying all interest on the loan Origination fees may be higher than federal loans There may be limited deferment or forbearance options Most offer flexible payment plans (15-25 years to repay) These loans may or may not have a grace period These loans cannot be consolidated into a Federal Consolidation Loan Federal Consolidation Loans Allow borrowers to combine their federal loans into a single loan and to have a single monthly payment Available to those who are in repayment or grace period If you consolidate while still in school, you may still have multiple servicers if you continue to borrow and you will lose the 6 month grace period Advantages: May give borrowers a lower monthly payment Single monthly payment to one servicer Disadvantages: Interest rate may increase slightly when the weighted average of the consolidated loans in rounded to the nearest eighth percent (capped at 8.25%) May pay more in accrued interest May lose some benefits like cancellation or loan forgiveness A consolidated Perkins Loan loses the interest subsidy and some cancellation options Need Information About YOUR Loans? NSLDS (National Student Loan Data System) www.nslds.ed.gov US Department of Education central database for student aid Contains information about all federal student loans, federal grants, and student enrollment Used to determine student eligibility for federal aid, monitor aggregate totals, and track changes to student’s financial history Students can use this database to track loans Can access with your SSN, DOB, first 2 letters of last name, and a PIN Parents can also look up their PLUS loan info on NSLDS Federal Loan Repayment Plan Options Standard Graduated Extended Income-Sensitive Income-Contingent Income-Based Standard Repayment Equal monthly payments of at least $50 for up to 10 years Example: $25,000 loan (at 6.8% for 10 years) Monthly payment = $287 Total interest paid = $9,524 Total paid (principle + interest) = $34,524 Graduated Repayment Monthly payments start lower and gradually increase over time for up to 10 years; will pay more in interest than Standard Example: $25,000 loan (6.8% for 10 years) Monthly payments: Years 1-2 = $198 Years 3-4 = $240 Years 5-6 = $292 Years 7-8 = $255 Years 9-10 = $432 Total interest paid = $11,389 Total paid (principle + interest) = $36,389 Extended Repayment Monthly payments are fixed or gradually increase over 25 years for loan debt that exceeds $30,000 in direct or FFELP loans Example: $30,000 (6.8% for 25 years) Monthly payment = $208 Total interest paid = $32,466 Total paid (principle + interest) = $62, 466 Income-Sensitive Repayment Monthly payments are based on income and total loan amount for up to 10 years; for FFELP loans only Must reapply for this type of repayment plan yearly Example: $25,000 loan; gross monthly income of $3000 Monthly payment = $120 for year 1 Monthly payment = $313 for years 2-10 Total interest paid = $10,293 Total paid (principle + interest) = $35, 293 Income-Contingent Repayment (ICR) Monthly payments are based on income and family size for up to 25 years and any remaining amount is discharged; for Direct loans only Must reapply for this type of payment plan yearly Example: $25,000 loan Monthly payment $218 initial payment $249 remaining payments Total interest paid = $14,421 Total paid = $39,421 Borrower is responsible for paying any taxes on the amount discharged Income-Based Repayment (IBR) Payment won’t exceed 15% of disposable income; designed to help borrowers with unmanageable payments relative to their income Eligibility is based on AGI (Adjusted Gross Income), family size, and loan debt Must reapply for this type of repayment plan yearly Loan balance forgiven after 25 years and 300 eligible payments have been made Example: $25,000 loan Monthly payments First year payment = $247 Maximum monthly payment = $288 Total interest paid = $10, 546 Total paid (principle + interest) = $35,546 Loan Forgiveness Public Service Loan Forgiveness Teacher Loan Forgiveness Federal Employee Loan Forgiveness Public Service Loan Forgiveness Borrower’s who work for a public service employer may be eligible to have a portion of their direct loan debt forgiven after 120 qualifying monthly payments are made after October 1, 2007 Public Service Organization Federal, state, local or tribal government agency/organization Public child or family service agency Non-profit organization under section 501(c)(3) A tribal college or university A private organization that provides public services Qualifications: Cannot be in default Must be employed full time (30 hours/week) Must make 120 qualified payments These payments do not have to be consecutive, but must be separate, on-time, and full monthly payments Payments must be made under IBR, ICR, or standard repayment plans Loan Forgiveness for Teachers Borrowers who teach in an elementary or secondary school that is designated as low-income may be eligible to have a portion of their Stafford loan debt forgiven Qualifications: Teach full-time for at least 5 consecutive years at a low-income school Cannot be in default Must be a “highly qualified” teacher Obtained full state certification; bachelor’s degree; and demonstrate subject knowledge and teaching skills in reading, writing, math, or other basic elementary curriculum (for elementary teachers) or high level of competency in the subject area taught (for secondary teachers) Up to $5000 in forgiveness for teachers who meet the qualifications on or after October 30, 2004 Up to $17,500 in forgiveness for “highly qualified” mathematics or science teacher in a secondary school or for “highly qualified” special education teachers in an elementary or secondary school Federal Employee Loan Forgiveness Permits federal agencies to repay federal student loans as a recruitment or retention incentive for candidates or current employees of the federal agency What to Expect From Your Loan Servicer A repayment disclosure notice Outlines the terms of the loan borrowed Provides repayment options available Establishes the first payment due date Your Responsibilities Stay on top of your loans Inform each servicer of changes to your name, address, or telephone number Discuss options with your servicer before failing to make a payment Remember that you can change your repayment plan and due date (at least 1x annually) If you have difficulty making payments, remember deferment and forbearance Additional Help Federal Student Aid on the Web Studentaid.ed.gov or studentloans.gov or nslds.ed.gov http://blog.simpletuition.com/ http://www.paybacksmarter.com/ Student Loan Help for Arkansas Facebook Page Phone: 855-275-1200 Email: [email protected] Help navigating through the acronyms, rhetoric, and terms that are part of the federal student loan system Student loan repayment plans and calculators Help if you find yourself facing default Thank You! Please complete and submit your evaluation forms PowerPoint presentation and handouts will be posted on our website Contact Information: Office of Financial Aid; Andrea, Gary, and Melissa Campus location: 114 Silas Hunt Hall Phone: 479-575-3806 Fax: 479-575-7790 Website: http://finaid.uark.edu/ And find us on Facebook at University of Arkansas Financial Aid!