student loans 101: know before you borrow

Student Loans 101: Know Before You BorrowRevised 9/2013

Agenda

Financial Aid Overview

Types of Student Loans

Getting a Student Loan

After the Loan: Rights and Responsibilities

Financial Aid: Education Pays

High School Diploma Some College Associate Degree Bachelor's Degree$0

$200

$400

$600

$800

$1,000

$1,200

Postsecondary degrees lead to greater weekly earnings

Source: Bureau of Labor Statistics, Current Population Survey, 2012.

Financial Aid: Education Costs

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Rising Cost of Tuition and Fees Since 2000

Academic School Year

4-yr Private

4-yr Public

2-yr Public

Financial Aid

Paying for College

Family Financing

=

Financial Aid: The Hierarchy

Low Low

HighHigh

Private Loans

PLUS Loans

Unsubsidized Stafford Loans

Subsidized Stafford Loans

Perkins Loans

Self-Help Aid: Work Study

Gift Aid: Scholarships

COST

AVAILABILITY

Gift Aid: Grants

*Need-based

*Available to everyone*On financial aid award letter

Agenda





Student Loans: Misconceptions

Some say… But really…College is not worth the cost

College graduates are more likely to obtain higher-paying jobs and keep them during periods of high unemployment.

Student debt is bad If you borrow responsibly and take advantage of applicable repayment options, you can manage student debt. Remember, it’s an investment!

Dropping out of college=no more student debt

Student loans don’t away just because you don’t finish.

Low-income students don’t have to borrow money to go to college

Every student has to invest to go to college. Need-based aid often doesn’t cover the entire cost of attending college.

Student Loans: FFELP vs. Direct

Before July 1st, 2010: After July 1st, 2010 (today)

Federal Family Education Loan Program (FFELP) Federal Direct Student Loans:

Higher interest rates on PLUS loans Different repayment options

Must be repaid, with interest Origination fee No co-signer required Multiple payment options Not discharged in bankruptcy

Student Loans: Federal Overview

Low Low

HighHigh

Private Loans

PLUS Loans



Perkins Loans



COST

AVAILABILITY

Gift Aid: Grants

Student Loans: Perkins

Perkins

Availability Need Based

Interest 5% Fixed

Subsidized? Yes

$/year Maximum $5,500 (undergraduate)$8,000 (graduate)

Total Maximum $27,500 over 4 years (undergraduate)$60,000 (graduate)

Grace Period 9 months

Options Loan forgiveness or cancellation for certain careers

Fixed Rate: Interest rate does not change from year to year, but remains constant over the life of the loan

Grace Period: The period of time between full-time enrollment and when you are required to make your first payment.

Student Loans: Subsidized Stafford

Subsidized Stafford/Direct

Availability Need Based

Interest 3.86% Fixed

Subsidized? Yes (while in-school only)

$/year Maximum Varies depending on year in school

Total Maximum $23,000


Options Unavailable for graduate studentsInterest not subsidized during grace period

Subsidized: The amount borrowed does not accrue interest until you graduate, leave school, or drop below full-time enrollment.

Student Loans: Unsubsidized Stafford

Unsubsidized Stafford

Availability Available to Everyone

Interest 3.86% fixed (undergraduate)5.41% fixed (graduate)

Subsidized? No

$/year Maximum Varies depending on year in school

Total Maximum $ 31,000 (undergrad)$138,500 (graduate)


Options Loan forgiveness available for certain careers

Unsubsidized: Interest will accrue on the loan amount while you are in school.

Calculating Interest:Principal amount - $3,000 w/ 3.86% interest

Year 1: $3,000Interest for 1st year: 3000 x 0.0386 = $116Interest payment: $5/monthRemaining Interest for 1st year: $116 - $60 = $56

Year 2: $3,000 + $56 = $3,056Interest for 2nd year: 3084 x 0.0386 = $119 No interest payments during 2nd year

Year 3: $3,056 + $119 = $3,175Interest for 3rd year: 3,175 x .00386 = $123

Student Loans: Stafford Limits

Dependent Undergraduate

Independent Undergraduate

Graduate Student

1st Year $5500 $3500 subsidized

$9500 $3500 subsidized

$20,500

2nd Year $6500 $4500 subsidized

$10,500 $4500 subsidized

$20,500

3rd Year + $7500 $5500 subsidized

$12,500 $5500 subsidized

$20,500

Maximum Total of Stafford Loans

$31,000 $23,000 subsidized

$57,500 $23,000 subsidized

$138,500

Stafford Loan Limits per Year in School

Student Loans: PLUS Loans

PLUS

AvailabilityNo, Credit Check Required

Interest6.41% Fixed

Subsidized?No

$/year Maximum

Gap in Financial Aid

Total MaximumGap over period you are in school

Grace PeriodNone, repayment beings immediately

OptionsFor parents and graduate studentsRepayment begins immediately

Gap: The difference between the financial aid offered to you and the cost of attendance.

Student Loans

Types of Student Loans Perkins Subsidized Stafford Unsubsidized

Stafford PLUS

Availability Need-Based Need-Based Everyone Everyone, Credit Check Required

Interest 5% fixed 3.86% fixed3.86% fixed5.41% fixed (grad)

6.41% fixed

Subsidized? Yes Yes (while in school) No No

$/year Maximum

$5,500 (undergrad)$8,000 (graduate)

Varies depending on year in school

Varies depending on year in school

Gap in Financial Aid

Total Maximum $27,000 $23,000

$31,000 (undergrad)$138,000 (grad)

Gap for 4 years

Grace Period 9 months 6 months 6 months None, repayment immediate

OptionsLoan Forgiveness or cancellation for certain careers

Unavailable for grad students. Interest not subsidized during grace period

Loan Forgiveness available for certain careers

For parents and graduate students. Repayment begins immediately.

Student Loans: Private Loans

Low Low

HighHigh

Private Loans

PLUS Loans



Perkins Loans



COST

AVAILABILITY

Gift Aid: Grants

Private Loans

Student Loans: Private Loans

Compare interest rates Large loans sometimes required to access lower interest

rates Private interest rates more likely to be variable

Compare fees Private loans usually associated with higher fees

Compare grace periods You may not be able to predict what will happen during

your college career. Some private loans may have you paying back before you are finished with school.

Compare repayment options Government loans offer options for repayment, deferment,

forbearance, forgiveness, consolidation. Private loans don’t.

Consider the sustainability Will I have to continue borrowing private loans?

Should I consider a private loan?

Agenda






•Loan Entrance Counseling•Master Promissory Note •Disbursement

notice

Agenda





Rights

Copies of your promissory notes

Loan disbursement notification Loan disclosure statement Repayment schedule Grace period Deferment or forbearance Prepay without penalty Notification if loan is sold or

transferred Consolidate loans Notification when loan is paid

in full

Responsibilities

Pay back your loan in full Stay informed about:

Loan balances Payment amounts

Notify your loan servicer: Name or contact info changes Graduation, leaving school,

transferring to another school or dropping below half-time enrollment

Trouble with loan payments

Responsibilities: Borrow Responsibly!

Cabinet Maker History Teacher Dentist

What do you expect to earn when you graduate? Also consider, depending on the demand for your career, how long it may take you to find a job.

Entry-level salary: $25,100/year

$2,091/month

Entry-level salary: $44,500/ year

$3,708/month


$9,858/month

How much do you expect to have to borrow? What kind of school will you attend and for how long? How much will you have to borrow each year?

$3,000/year for a 2- year program @ a community college = $6,000 total

$5,500/year for 4 years @ a state school = $22,000 total

$5,500/year for 4 years @ a state school + $20,500/year for 4 years @ a state school =$104,000 total

Calculate what your estimated monthly payments will be once you start repayment. Look online for student loan calculators to help with this.

$69.75/month $255.73/month $1,208.92/month

Calculate between 8-10% of your monthly income.

$167.28-$209.10 $296.54-$370.80 $788.64-$985.80

Responsibilities: Borrow Responsibly!

Cabinet Maker History Teacher Dentist

What do you expect to earn when you graduate? Also consider, depending on the demand for your career, how long it may take you to find a job.


$2,091/month

Entry-level salary: $44,500/ year

$3,708/month


$9,858/month

How much do you expect to have to borrow? What kind of school will you attend and for how long? How much will you have to borrow each year?

$3,000/year for a 2- year program @ a community college = $6,000 total

$5,500/year for 4 years @ a state school = $22,000 total

$5,500/year for 4 years @ a state school + $20,500/year for 4 years @ a state school =$104,000 total

Calculate what your estimated monthly payments will be once you start repayment. Look online for student loan calculators to help with this.

$69.75/month $255.73/month $1,208.92/month

Calculate between 8-10% of your monthly income.

$167.28-$209.10 $296.54-$370.80 $788.64-$985.80Can they afford it? What other financial responsibilities or choices may come into play?

Responsibilities: Debt Levels

Key Points: Choose a school and program wisely. Only borrow what you need. Find out how much your total debt level should

be. How much income will I have? How much of my income am I willing to spend

on loans? How much can I borrow before my loans are no

longer affordable? Student loan payments should be no more than

8-10% of your monthly income. Make and keep a budget to work with those debt

levels.

Responsibilities: Making Informed Choices

Borrow for direct educational costs only

Work during college Pay unsubsidized loan

interest while enrolled Compare repayment

plans and monthly payment amounts based on what you expect to borrow

Reduce expenses Learn to manage money

well

Responsibilities: Repayment Terms

RepaymentThe process of paying back your loans or the period in which you

pay back your loans. Different options may be available to fit your situation.

Consolidation Creates one large loan with a potentially longer term out of your smaller loans.

Deferment Suspends repayment for in-school periods, periods of military service, and economic hardship.

Forbearance Suspends repayment due to financial difficulty.

Discharge Eliminates any further repayment.

Forgiveness Reduces any remaining repayment.

Default When you fail to make payments on your loan as scheduled according to your promissory note.

Responsibilities: Repayment

Repayment Plan

Standard Graduated Income-Contingent

Extended Income-Based

Pay As You Earn

Term 10-year term

10-year term

Up to 25-year term

Up to 25-year term

Up to 25-year term

Up to 20-year term

Minimum Payment

At least $50/month

Interest payments ($25 minimum), gradually increasing over time

At lease $5/month. Depends on family size, adjusted gross income, loan debt

Either fixed or graduated payments.

Payments depend on family size, adjusted gross income, loan debt

Caps monthly payments at 10% of monthly income.

Additional Info

“Cheapest” for borrowers

Later payments cannot be more than 3x earlier payments

Borrower must reapply each year

For borrowers with over $30,000 in loans

Loans must present “partial financial hardship”

Only for new borrowers as of 10/1/07 who received loans after 10/1/11.

All repayment plans except the standard plan require you to apply for them

Repayment: Consolidation

Direct (current) Consolidates all federal

student loans into one big loan

Interest rate the “weighted average” of all loans

Same repayment options as Federal Direct

May reduce monthly payments

Consolidating PLUS loans negates eligibility for income-based repayment plans

Consolidation may lower

monthly loan payments.

Responsibilities: Deferment, Forbearance, Discharge

Deferment

•Postpones repayment. •Interest subsidy resumes on subsidized portion.•Requested by the borrower while in school, on active military duty, or experiencing temporary financial difficulties.

Forbearance•Postpones repayment due to economic hardship. •Interest accrues. Requested by the borrower.

Discharge •Eliminates any further repayment under very limited conditions.

Program Condition

Teacher

Up to $5,000 in Stafford Loans after five consecutive years teaching in elementary or secondary school serving low-income families.

Up to $17,500 in Stafford Loans after five consecutive years in a school serving low-income families as a highly qualified full-time secondary school math or science teacher or as a highly qualified special education teacher.

National Service $5550 scholarship or loan forgiveness per 12-month AmeriCorps term.70% of Perkins loan cancelled for Peace Corps service.

Perkins Loan Cancellation

Up to 100% of loan cancelled for five years of employment in specific positions, including teaching in low-income schools, nursing, and law enforcement.

Public ServiceAfter 120 on-time monthly payments while employed by the federal or state government, or by a 501c3 nonprofit. Loan must be in repayment status. Amount forgiven is not taxable.

Income-Based, Income-Contingent and Pay As You Earn

After 25 years of making on-time payments in these programs any remaining balance will be forgiven. Amount forgiven is taxable under current law. Does not apply to loans currently in default status. For Pay As You Earn, the balance is forgiven after 20 years.

Responsibilities: Forgiveness

Wrap-Up: Summary

Take advantage of “free” money. Complete the FAFSA every year. Borrow wisely. Assess your spending and stick to your budget. You have options with student loans. Know

them! Ask for help!

Resources

Studentaid.gov – Federal Student Aid Website Your college financial aid office Finaid.org StudentLoanBorrowerAssistance.org MappingYourFuture.org IRS.gov Student Loan Ombudsman (info on

studentaid.gov)

A nonprofit corporation, USA Funds® works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services.

student loans 101: know before you borrow

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