Loans and Repayment Realities:

Today’s Objectives Repayment Options Public Service Loan Forgiveness Deferment and Forbearance Resources available to you

Today’s Realities Reality #1 Borrowers have loans with multiple lenders/servicers and –It can be confusing –You may not know where all of your loans are –You may not be aware of or apply for deferments or repayment plans with all of your lenders

Today’s Realities Reality #2 Borrowers need to know all of their rights and responsibilities more than ever –Approximately 40-50% of deferment and income-based repayment applications are incomplete –Borrowers are having a difficult time managing their payments

bank or credit union that provides the funding for students Lender Organization hired to help administer the student loan process and assist borrowers during repayment Servicer Government agency that provides support to students and money for college through grants and loans Department of Education Who’s Who in the Loan Business

What happens to loans? You need to know that: –Student loans may have been sold to other lenders or to the Department of Education –Students will receive a letter by mail if loans are sold –Letter will state: Change of servicing from a lender/servicer to ED/servicer Future payments will need to be made to ED They may have other loans with lender/servicers that may not be transferred

Simple Steps to Successful Repayment A three-step approach to ensure successful repayment Step 1 Know who you owe and how much Step 2 Learn what is the right repayment plan for you Step 3 Know the importance of staying on top of your loans

Step One: Know Who You Owe and How Much

Start with NSLDS

NSLDS - Summary Page

NSLDS - Loan Detail

Tracking Non-Federal Loans All loans are reported to the credit bureaus Students can obtain a listing of their non-federal loans on their credit report Free credit reports are available at annualcreditreport.com

Obtaining a Credit Report

What’s needed –Name –Address –Social Security number –Personal information check Questions based on information in the credit file –Lender for a particular credit or loan account –Loan payment amount –Previous address

Sample Credit Report

Step Two: Determine the Right Repayment Plan

What are your options? What is in your immediate future? –Are you going to graduate school? –Do you have a job? –What other expenses will you have? What are your goals for repaying your loans? –Defer monthly payment –Pay off quickly –Lower monthly payment

What’s Next? Calculate your student loan debt through the various repayment plans Finally, look at their budget –Student loan payment shouldn’t exceed more than 10-15% of monthly income

Borrower’s Budget Housing 30% Transportation 15% Food 14% Student Loan Payments 10-15% Savings 10% Household 7% Everything Else 7-14%

Standard Repayment Equal monthly payments of at least $50 (depending on their loan balance) for up to 10 years Borrowers will automatically be enrolled in the standard repayment plan Option for borrowers who want to repay loans off in the shortest time with the lowest amount of interest accrued

Standard Repayment Chart $25,000$287 $9,524$34,524 Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) 1 An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan

Graduated Repayment Monthly payments start lower and gradually increase over time for up to 10 years More interest will be paid over 10 years Option for borrowers who have cash flow problems early on, but expect that their income will increase steadily over time

Graduated Repayment Loan Amount Monthly Payment Years 1-2 Years 3-10 Total Interest Paid Total Paid 1 (LOAN + INTEREST) 1 An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan. $25,000 $141 $338 $10,882$35,882

Income-Based Repayment Reduced monthly payments for borrowers who demonstrate a partial financial hardship (based on loan debt, income, and family size) Eligibility is re-evaluated each year At the end of 25 years of repayment and 300 payments, any remaining balance may be forgiven Option for borrowers who need an affordable payment adjusted based on their income

Income-Based Repayment Monthly payment is 15 percent of X X = monthly AGI (adjusted gross income) – 150 percent of monthly poverty level

Income-Based Repayment If monthly payment is amount not enough to pay accrued interest SUBSIDIZED STAFFORD LOANS The Department of Education will pay the remaining interest for up to three years UNSUBSIDIZED STAFFORD LOANS The interest will accrue and be capitalized at the end of the income- based repayment plan

Income-Based Repayment Borrower 1Borrower 2Borrower 3Borrower 4 Family Size1234 Monthly AGI$3,000 $6, % of Poverty Level $1,353$1,821$2,288$2,756 X$1,647$1,179$3,712$3,244 15% of X$247$176$556$486 Loan Amount Standard Monthly Payment Borrowers who Qualify for IBR $25,000$287Borrower 1 & 2

Maximum Qualifying Income Examples LOAN DEBT AGI $10,000$25,450 $15,000$30,053 $25,000$39,360 $35,000$48,466 $50,000$62,276 $100,000$108,308 LOAN DEBT AGI $10,000$36,670 $15,000$41,273 $25,000$50,480 $35,000$59,686 $50,000$73,496 $100,000$119,528 Family Size = 1Family Size = 3 The examples assume an interest rate of 6.8% and poverty line for 48 contiguous states or DC.

IBR Roadblocks Qualifying for a reduced payment can be a challenge for some borrowers because their financial situation changes frequently 40-50% of IBR applications are returned –Supporting documentation not included –Incomplete application –Tax returns not signed

Income-Sensitive Repayment* Reduced monthly payments based on income and total loan amount for up to 10 years Lender must grant a forbearance for up to 5 years if the loan cannot be repaid within 10 years Borrowers need to reapply every year Option for borrowers who need their monthly payment to fluctuate with their income over a period of 10 years *For FFELP loans only

Income-Sensitive Repayment Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) $25,000 $120 (Year 1) $313 (Year 2-10) $10,293 $35,293 1 Example assumes an annual salary of $36,000.

Income-Contingent Repayment* Reduced monthly payments based on income, family size, and total loan amount, and for up to 25 years After 25 years, any remaining debt will be discharged Option for Direct loan borrowers who plan to pursue careers with lower salaries *For Federal Direct loans only

Income-Contingent Repayment Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) $25,000 $219 (Initial Payments) $251 (Final Payments) $14,271 $39,271 1 Example assumes an annual salary of $36,000.

Extended Repayment Payments that are fixed or gradually increase over 25 years for loan debt that exceeds $30,000 More interest is paid over the life of the loan Can be used as an alternative to consolidation Option for borrowers who have larger loan debt and need lower monthly payment

Extended Repayment $30,000$208 $32,466$62,466 Loan Amount Monthly Payment Total Interest Paid Total Paid 1 (LOAN + INTEREST) 1 An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.

OPTIONS FOR PAYING BACK $40,000 IN DEBT, $36,000 SALARY $ (First Year) $ (Tenth Year) $ (Maximum) $ (Year 1) $ (Years 2–10) $ (Years 1–2) $ (Years 3–10) $15, $17, $16, $31, $55, $57, $56, $71, $ $43,289.00$83,289.00$ $ (Initial) $ (Final) $22, $62,834.89

Consolidation Loans Will give borrowers a single payment for their federal loans May give borrowers a lower monthly payment Option for borrowers with multiple servicers and who want to make one payment each month

Consolidation Loans Borrowers should consider the trade-offs –Interest rate may increase slightly when the weighted average of consolidated loans is rounded to the nearest eighth percent –May pay more in accrued interest –Perkins loan loses interest subsidy and some cancellation options

Special Direct Loan Consolidation Began January 17, 2012 goes to June 30, 2012 Eligible students will be contacted by Servicers Must have at least one FFELP and one DL Interest rate in not a weighted average FFELP loan interest rate reduced by.25% Combines both FFELP & DL loan into one payment with one servicer

Loan Forgiveness & Cancellation Programs Forgiveness Programs Teacher Loan Forgiveness Public Service Employee Discharge /Cancellation Programs Total and Permanent Disability (TPD) Death

Loan Forgiveness or Discharge Forgiveness Forgiveness programs require a certain performance of the borrower in order to establish eligibility Generally, this requires a set period of time to be completed Discharge Discharge programs do not require performance-based actions of the borrower Generally, it requires a one time incident to take place for qualification

Loan Forgiveness Public Service Loan Forgiveness –Borrowers who hold a public service job may be eligible to have a portion of their Direct Loan debt forgiven after 120 qualifying monthly payments on or after 10/1/07 –Option for borrowers who pursue public service careers, have high debt and lower income

Public Service Loan Forgiveness Cannot be in default Must be employed, in any position, by a public service organization –Service in Americorps or Peace Corps qualifies Must make 120 separate, full monthly payments that are made: –Within 15 days of due date –After October 1, 2007 Payments made prior to October 1, 2007 do not count –Payments do not have to be consecutive

PLF Eligibility FFELP borrowers who consolidate into Direct Loan to qualify –Only payments made on DL consolidation loan count toward qualifying payments Must be employed by public service organization at time PSLF is requested and during time qualifying payments were made Employment must be considered “full time”(annual average of 30 hrs per week)

PLF Eligibility Public service organization is a private organization that provides public services –Emergency management –Military service –Public safety –Law enforcement –Public interest law services (legal advocacy provided on behalf of low-income communities at a nonprofit organization rather than strictly “in” low-income communities at a nonprofit organization)

PLF Repayment Plans Income-based repayment (IBR) plan –Not available for parent PLUS Income-contingent repayment (ICR) plan Standard 10-year repayment plan Any other plan if monthly payment is not less than amount paid under standard 10-year repayment plan –Caution: Consolidation ‘standard’ plan may be longer than 10 years and payments may not qualify

What Should Borrowers Expect During Grace The lender must offer the borrower a choice of repayment schedules, no more than six months before the first payment is due –The borrower must select a repayment schedule within 45 days of the lender’s notification –If the borrower does not select a schedule, the lender must establish the standard repayment schedule Before the grace period ends, borrowers will receive a coupon book and repayment schedule

What Should Borrowers Do During Grace Contact their lender/servicer if they had a change in their name, address, or phone number –Many borrowers move after graduation so it’s important that they inform the lender/servicer of these changes Use calculators –Determine their monthly payment –Find the plan to meet their goal

Step 3 Stay on Top of Your Loans

Keeping in Touch with Lenders It is important to inform each lender/ servicer of changes to –Name –Address –Telephone number 50-60% of all borrowers who default are in “skip” on the date of default

Readjust Your Plan Borrowers can change their –Payment due date –Repayment plan If you encounter difficulty paying, remember these options –Deferment –Forbearance

Deferment Postponement of loan payments that a borrower is entitled to as long as he/she meets eligibility requirements Borrower’s eligibility depends on him/her meeting specific criteria; the loan type; and the date the borrower received his/her first loan In most cases, borrowers must request a deferment and provide documentation necessary to support eligibility. Some deferments are automatic (e.g., in-school deferment)

Deferment The federal government pays the accruing interest on subsidized loans All deferments are borrower-specific –Time limits are enforced for each borrower Borrowers are entitled to a deferment if they meet eligibility requirements Today, economic hardship and unemployment are the most used deferments

Deferment Criteria Types of DefermentLength of Deferment In-schoolNo time limit Graduate FellowshipNo time limit Rehabilitation Training ProgramNo time limit UnemploymentUp to 36 months Economic HardshipUp to 36 months MilitaryNo time limit

Deferment Roadblocks Changes to eligibility requirements for economic hardship deferment –Borrowers who had an HRD deferment, now do not qualify even though their financial situation is the same 40-45% of deferment applications are rejected –Supporting documentation not included –Incomplete application Borrowers do not know to apply for a deferment with all of their lenders

Forbearance Temporary postponement, reduction, or repayment extension of loan payments Interest accrues on all loans during the forbearance Borrower’s first payment is due no later than 60 days after the date the forbearance expires Offered at the discretion of the lender (except mandatory forbearance)

Forbearance Generally granted for up to 12-month intervals, but lenders set the maximum amount of forbearance time allowed and it varies from lender to lender Four types of forbearance: –Administrative forbearance –Discretionary forbearance –Mandatory forbearance –Mandatory administrative forbearance

What Else Can You Do? Check out these websites –mygreatlakes.org –nslds.ed.gov –annualcreditreport.com –Studentaid.ed.gov

Thank You! Great Lakes Higher Educational Loan Services