A BC W O R K S H O P 2 0 1 4

LOANS

LOANS

• Types of Loans

• Loan Processes and Requirements

• Repayment Options

FEDERAL LOANS

• Federal Direct Subsidized Loan

• Federal Direct Unsubsidized Loan

• Perkins

• PLUS

• GradPlus

FEDERAL DIRECT SUBSIDIZED LOAN

• Need-based Loan• Origination Fee: 1.073%• 2014-2015 Interest Rate: 4.66%• Grace Period: 6 months• Department of Education pays interest• In-School• Deferment

• Student pays interest once repayment begins• Only undergraduate students are eligible• Student must be enrolled at least half time• Student must be meeting SAP

SUBSIDIZED LOAN 150% LIMIT

• Effective for new Direct Loans for which the first disbursement is made on or after July 1, 2013, Direct Subsidized Loan eligibility is limited to a maximum of 150% of the student’s current academic program length.• This policy is in addition to, and not in place of,

the lifetime aggregate loan limits currently in place. Click on the Loan Limits link below to view these lifetime limits.

• Borrowers may receive Direct Subsidized Loans for no more than 150% of the length of the current academic program (ex: 6 years for a 4 year degree)

• Once a borrower has received Direct Subsidized Loans for 150% of the length of their program, the borrower’s future Subsidized Loan eligibility will end.

• A student who has received Direct Subsidized Loans for 150% of the length of their program and continues enrollment beyond that point will lose all subsidies on previously received Direct Subsidized Loans and would be required to pay all accumulated interest.

FEDERAL DIRECT UNSUBSIDIZED LOAN

• Non-Need based Loan• Origination Fee: 1.073%• 2014-2015 Interest rate: 4.66% UG, 6.21% Grad• Grace period: 6 months• Student pays interest • Interest is capitalized• Student can choose to pay interest while enrolled

• Undergraduates and Graduates are eligible• Student must be enrolled at least half time• Student must be meeting SAP

FEDERAL LOAN LIMITS

Dependent Undergraduate Student

Subsidized Loan Additional Unsubsidized Loan

Freshman $3,500 $2,000

Sophomore $4,500 $2,000

Junior/Senior $5,500 $2,000

Maximum Total Debt: $31,000 ($23,000 can be subsidized)

Independent Undergraduate Student

Subsidized Loan Additional Unsubsidized Loan

Freshman $3,500 $6,000

Sophomore $4,500 $6,000

Junior/Senior $5,500 $7,000

Maximum Total Debt: $57,500 ($23,000 can be subsidized)

FEDERAL LOAN LIMIT

Graduate/Professional Student

Unsubsidized Loan $20,500/academic year

Maximum Total Debt $138,500 ($65,500 may be subsidized)

PLUS LOAN

• Parent Loan for Undergraduate Students (PLUS)• Non-need based loan• Can borrow up to COA

• Borrower must be credit worthy• Origination fee: 4.292%• 2014-2015Interest Rate: 7.21%• If the parent is denied, the student may receive a

Federal Direct Unsubsidized loan at Independent Undergraduate loan limit

GRAD PLUS

• Loan for Graduate Students• Non-need based loan• Borrower must be credit worthy• 2014-2015 Interest Rate: 7.21%• Origination Fee: 4.292%• Can borrow up to COA• No aggregate limit

FEDERAL LOAN INTEREST RATES

T= Treasury BillCurrent 10-year T-Bill rate= 2.61%

Loan Type Rate Formula

2014-2015 Rate

Cap

Subsidized Direct Loans and Unsubsidized Direct Loans- Undergraduate Students

T + 2.05% 4.66% 8.25%

Unsubsidized Direct Loans- Graduate Students

T + 3.6% 6.21% 9.5%

PLUS- including GradPLUS T + 4.6% 7.21% 10.5%

ALTERNATIVE LOANS

• Interest rates are usually variable

• Origination and repayment fees vary

• Co-signer typically required

• Most require school-certification

ALTERNATIVE LOANS

• Possible solution for• International Students

• SAP Ineligible students

• Non-degree seeking students

• Students who have reached federal loan aggregates

LOAN PROCESSES AND REQUIREMENTS

• Entrance Counseling

• Promissory Note

• Exit Counseling

ENTRANCE COUNSELING

• First-time borrowers• Inform them of their rights and responsibilities in taking

out this loan

• www.studentloans.gov

PROMISSORY NOTE

• Document signed by borrower, which includes terms and conditions of the loan disbursements, use, and repayment

• Mater Promissory Note• Good for ten years• Covers multiple loan periods and varying loan amounts of

the same type of loan

EXIT COUNSELING

• All borrowers that leave an institution must complete exit counseling• Includes graduating, withdrawing, transferring, or not

returning

• www.nslds.ed.gov

LOAN NOTIFICATION

• The institution is required to notify the borrower that a loan disbursement has been made, and that the borrower may reduce or cancel the disbursement

DIRECT LOAN PRORATION

• Must occur when:• A student’s academic program is less than a year in

length• A student is completing a period of enrollment that is less

than one academic year

• Standard proration formula:• Amount of direct loan student could have for grade level

÷ 24 x enrolled hours

LOAN REPAYMENT

• Single source for all federal loan info including• Borrower info• Loan amounts• Interest accrued• Servicer info

•www.nslds.ed.gov

WAYS TO REPAY

• Standard – Monthly payment remains consistent for 10 years

• Graduated – Monthly payments are lower at first but then increase every 2 years over the 30 year repayment term

• Income-sensitive – Monthly payments are based on your monthly gross income

• Extended – Monthly payments over a 25 year plan

WAYS TO REPAY, CONT’D

• Income Contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship”; (25 year forgiveness)

• Income Based- Monthly payments 10-15% of the amount by which your adjusted gross income exceeds 150% of the poverty line for your family size. (25 year forgiveness)

• Pay As You Earn- Payments based on annual income and family size, not to exceed 10% of discretionary income. (20 year forgiveness)

OTHER LOAN TERMS

• Deferments

• Forbearance

• Default

• Cohort Default Rate

DEFERMENT

• Period of postponing payments

• Federal government will pay interest for the borrower with a Subsidized DL

• Entitlement

• Some possible deferment situations:• Education• Peace Corps/ Military

FORBEARANCE

• Temporary cessation, reduction, or extension of payments

• Student is responsible for interest that accrues

• Borrower is willing but temporarily unable to pay

DEFAULT

• Failure to meet the terms of the promissory note• Failure to repay• Failure to attend• Borrower is considered to be in default after being

delinquent for 270 days• Borrower is subject o wage garnishment, seizure

of income tax refunds, lottery winnings, license non-renewal, sued by DOE• Student not eligible for federal financial aid• Damage to the borrower’s consumer credit score

DEFAULT

• Satisfactory Repayment Arrangements• Six on-time voluntary payments

• Rehabilitation• Nine on-time voluntary payments

• Consolidation can “fix” a defaulted loan

COHORT DEFAULT RATE

• Includes DL loans, and loans underlying DL consolidation loans

• CDR = % of borrowers who enter repayment in a given federal fiscal year who then default within the next 3 fiscals years

• High rate has consequences for schools• >15% = loss of 1 installment/semester• >15% = 30 day hold on 1st time, 1st year borrowers• > 40% = loss of participation in Title IV funding

QUESTIONS?