Loan Basics LASFAA Boot CAMP Fall 2017

Federal Direct Subsidized Loan Federal Direct Unsubsidized Loan Federal Student Loans Federal Direct Subsidized Loan Federal Direct Unsubsidized Loan Parent PLUS Loan Graduate PLUS loan Federal Perkins Loan Financial aid lingo Sub = subsidized Unsub = unsubsidized PLUS = could be parent or graduate PLUS These loans are generally part of the award package given to students, so they are offered upfront. Some institutions do not package the unsubsidized loan. Are any of you from a school that doesn’t package unsub?

Federal Direct Subsidized Loan Need based loan for undergraduates only Origination fee: 1.066% Fixed interest rate: 4.45% July 1 rate is adjusted for new loans Grace period: 6 months Interest does not accrue – paid by Dept. of Ed Enrolled at least half time During 6 month grace period During other times of deferment Must meet SAP and enroll at least half time Interest rate is fixed for each individual subsidized loan at the time of origination for the life of the loan. Interests rate may change for any new loans. *If loan was first disbursed between July 1, 2012 and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period.

150% Subsidized Usage Limit Applies (SULA) Effective 7/1/13 and applies to new borrowers or borrowers with a zero balance taking out a new loan May only receive Sub for 150% of the published program length MEP-SUP=REP Maximum eligibility period (MEP) Subsidized usage period (SUP) Remaining eligibility period (REP) -Published program length as listed in catalog -MEP = 150% of the published program length -SUP = amount of time student has received sub -REP = remaining amount of time student is eligible for sub -SULA example: If a student is enrolled in a 2 year program, what is their MEP? 3 years. If the student receives subsidized loans for the entire first year, what is their SUP? 1 year. What is the student’s REP? 2 years. If a student is enrolled in a 4 year program, what is their MEP? 6 years. If the student receives subsidized loans for the entire first and second year, what is their SUP? 2 years. What is the student’s REP? 4 years.

150% Subsidized Usage Limit Applies (SULA) Eligibility lost after students exceeds MEP Cannot receive any more sub May receive unsub up to yearly limit in its place Interest subsidy lost on outstanding Direct Subsidized Loans (including Direct Consolidation Loan that repaid a Direct Subsidized Loan) if borrower attends undergrad program at least half-time when remaining eligibility period is zero or less. This slide shows what happens when the student exceeds MEP. -Example continued: If the student enrolled in a 2 year program takes does not complete the program after year 3 (MEP) and enrolls in a 4th year, they will lose sub eligibility and interest subsidy on the date of enrollment in the 4th year. Same if a 4 year student does not complete the program in 6 years and enrolls in year 7. They will lose subsidy upon enrolling in year 7. Program Length Examples – Student receives two years of subsidized loans while enrolled in a two-year program Student transfers to a four-year BA program Student has four years of remaining subsidized loan eligibility Student receives three years of subsidized loans while enrolled in a four-year BA program Student transfers to a two-year AA program Student has no remaining subsidized loan eligibility Transfer Students – Student maximum time to receive subsidized loans is established based on the length of the program the student is currently enrolled in Remaining subsidized eligibility is determined by subtracting from the maximum eligibility for the program, the time the student has already received subsidized loans while enrolled in any program

Federal Direct Unsubsidized Loan Non-need based loan Borrowers is undergrad, grad, or professional Origination fee: 1.066% Fixed interest rate: 4.45% undergrad, 7.00% Grad Grace period: 6 months Interest accrues while student is in school Interest capitalizes Student can elect to pay interest while enrolled Must meet SAP and enroll at least half time Interest capitalizes – it is added to the principal of the loan and then the student begins to accrue interest on interest. Students can contact loan servicer if choosing to pay interest while in school. Highlight differences between sub and unsub.

Graduate/Professional Student Unsubsidized Loan $20,500/academic year Dependent Undergraduate Student Base Eligibility (Sub or Unsub) Additional Unsubsidized Loan Freshman $3,500 $2,000 Sophomore $4,500 Junior/Senior $5,500 $2000 Maximum Total (Aggregate) Limit: $31,000 ($23,000 can be subsidized) Independent Undergraduate Student Base Eligibility (Sub or Unsub) Additional Unsubsidized Loan Freshman $3,500 $6,000 Sophomore $4,500 Junior/Senior $5,500 $7,000 Maximum Total (Aggregate) Limit: $57,500 ($23,000 can be subsidized) Note that some health profession programs have different yearly aggregate amounts. Check with your office. Graduate/Professional Student Unsubsidized Loan $20,500/academic year Maximum Total (Aggregate) Limit: $138,500 ($65,500 may be subsidized)

Parent PLUS Loan Non-need based loan Can borrow up to cost of attendance (COA) minus other aid Borrower is parent of dependent undergrad Student must be enrolled at least half time Origination fee: 4.264% Fixed interest rate: 7.00% Credit check required Additional PLUS loan counseling required for low credit Additional unsub up to independent limit may be awarded if parent does not pass credit check Repayment begins after loan is fully disbursed Parent/Graduate borrower has adverse credit history if… In addition to other conditions (e.g. bankruptcy, foreclosure, tax lien, default), the applicant has one or more debts that are 90 or more days delinquent or that are in collection or have been charged off during the two years preceding the date of the applicant’s credit report But only if the total combined outstanding balance of those debts is greater than $2,085 Additional counseling is required for any PLUS applicant who has adverse credit history but who qualifies for a PLUS Loan through the “reconsideration” process or through obtaining an endorser Reconsideration Dept of Ed will send emails to PLUS application who have been denied a PLUS loan because of adverse credit history, believed to be approved if they request reconsideration of initial PLUS denial. The applicant will be instructed to contact Dept of Ed’s Student Loan Support Center.

Graduate PLUS Loan Non-need based loan Can borrow up to COA minus other aid, no aggregate limit Borrower is graduate or professional student Origination fee: 4.264% Fixed interest rate: 7.00% Credit check required Loan payments deferred while at least half time 6 month grace period, interest continues to accrue Must be enrolled at least half time

Direct Loan Application Process FAFSA Eligible student in eligible program with Pell eligibility determination complete Entrance counseling First time borrowers informed of their rights and responsibilities Completed at www.studentloans.gov

Direct Loan Application Process Master Promissory note Includes terms and conditions of the loan disbursement and repayment Valid for 10 years and covers multiple loans Completed on www.studentloans.gov Exit Counseling Information on repayment Must be complete when student drops below half-time or graduates Completed on www.nslds.ed.gov PLUS loan application at www.studentloans.gov

Direct Loan Notification Institution is required to notify the borrower within 14 days after disbursement is made and give the borrower the opportunity to reduce or cancel the disbursement.

Direct Loan Proration Actual enrolled hours Applies to subsidized and unsubsidized loans Required if: Student’s academic program is less than 1 year in length Student’s remaining period of study is less than 1 year in length Standard proration formula Example: December graduates. Actual enrolled hours ---------------------------- 24 Amount of direct X loan student could have for grade level

Alternative Loans Non need based loans Private banks Fees, interest rates, terms vary Most require school certification May require credit check or cosigner Possible solution for -International students -SAP ineligible students -Non-degree seeking students -Students who have reached federal aggregate loan limits

Student Loan Repayment Record of all federal loans Borrower info Loan amounts Interest accrued Servicer info www.nslds.ed.gov

Repayment Plans Standard – 10 years; equal monthly payments Graduated – 10 years; monthly payments start low and increase every 2 years Income sensitive repayment – monthly payments based on annual income and change as income changes Extended – 25 years; fixed or graduated monthly payments Standard – payments are fixed, at least $50 per month. Less interest will be paid over time under this plan than would be paid under other plans. Graduated – more interest will be paid over the life of the loan than under the standard plan ISR: Payment based on annual income, changes as income changes, each lender’s formula for determining payment may vary Extended – payments will be less than standard plan

Repayment Plans Income contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship” (25 yr forgiveness) Income Based – monthly payments will not exceed 15% discretionary income (25 yr forgiveness) Pay As You Earn – monthly payments will not exceed 10% of discretionary income (20 yr forgiveness); must be new borrower on or after 10/1/07 Revised Pay as You Earn – monthly payments will not exceed 10% of discretionary income (20 yr forgiveness); date limitation does not apply Discretionary income: the amount by which your AGI exceeds 150% of the poverty guideline for your family size. ICR: Payments based on AGI, family size and total loans, lower payments but more interest IBR: You must have a partial financial hardship, monthly payments will be lower but more interest will be paid over time, may have to pay income tax on forgiven amount after 25 years PAYE: must be new borrower on or after 10/1/07

Loan Forgiveness Teacher Loan Forgiveness – up to $17,500 on sub or unsub (Direct or Stafford) loans if teach full-time for 5 complete consecutive years in certain elementary/secondary schools serving low-income families https://studentaid.ed.gov/sa/repay-loans/forgiveness- cancellation/teacher Public Service Loan Forgiveness – forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for qualifying employer https://studentaid.ed.gov/sa/repay-loans/forgiveness- cancellation/public-service

Loan Repayment Terms Forbearance – Period of time payments are postponed, reduced or extended Interest accrues Deferment – Period of time payments are postponed for approved set of reasons Interest on subsidized loans does not accrue Default – payments delinquent for 270 days Consolidation – Combines loans into one, requiring one monthly payment to one servicer Loan servicer determines eligibility Forbearance – borrower is willing but unable to pay Deferment – *subsidized loan interest continues to accrue if loan was first disbursed between July 1, 2012 and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. possible reasons for deferment: enrollment, qualifying internship, peace corps, military deployment Default – borrower could be subject to wage garnishment, seizure of income tax refunds, lottery winnings, license non-renewal, sued by Dept of Ed -student not eligible for federal financial aid -damage to borrower’s credit score -Satisfactory repayment arrangements – 6 on-time voluntary payments -Rehabilitation – 9 on time voluntary payments

Resources IFAP – ifap.ed.gov Studentaid.gov Handbooks, regulations, current notifications Studentaid.gov FAQs broken down by loan type Repayment calculators