MoneyCounts: A Financial Literacy Series Student Loans 11-A Grange Building University Park, PA 16802 financialliteracy.psu.edu finlit@psu.edu 814-863-0214

Description A Student loan is a type of loan designed to help students pay for post-secondary education costs such as tuition, books, supplies, and living expenses If you apply for financial aid, your school will likely include student loans as part of your financial aid package It is important to understand what types of loans you are offered, and what types of repayment plans available to students and parents

Learning Outcome Understand the types of Loans available to college students and their parents Understand the steps to take before students borrow loans Understand the relationship between future income and current loan borrowing Understand the various loan debt process and re-payment plans available to students

Who are you borrowing from?

What is the difference? search for college financing Federal Loans Private Loans Lower interest rate No credit check or co-signer needed for students Repayment after graduation or dropping below half-time FAFSA application is needed each year Sub, Unsub, Parent loans Different loans depending on institutions Higher interest rate Terms can be complicated May include pre-payment penalty Requires a co-signer for students

Steps before you borrow loans! Have a family financial meeting Make a financial plan to coincide with your academic plan Factor in family support and saving Part-time employment Search for Scholarships and Grants Check with your College (Penn State) Check with your community, civic organizations, church, family members

Terminology

What you need to know! https://studentloans.gov

What you need to do! The first step in getting student aid is to complete FAFSA at https://fafsa.ed.gov/ You must renew every year! Complete entrance counseling Complete loan agreement (MPN) Complete financial awareness counseling Complete exit counseling (graduation) https://studentloans.gov/myDirec tLoan/index.action

Federal aid eligibility! The William D. Ford Federal Direct Loan Program is the largest federal student loan program. Under this program, the U.S. Department of Education is your lender. No credit check is necessary for the student borrower Credit check is required for PLUS (Parent or Graduate) What you are offered in federal aid is based on your eligibility, what you accept is based on your preference and choice! You do NOT have to accept all loans offered to you! Direct Subsidized Loans Direct Unsubsidized Loans Direct PLUS Loans

Subsidized Unsubsidized First year $3,500 $6,000 Second year $4,500 Third year $5,500 Beyond $7,000 Maximum $23,000 Loan 6.8% (2013) $34,500 Plus accrued interest @6.8% (2013) Summary $264.68 $383.02 Monthly Principal & Interest Total of 120 Payments $31,762.00 $45,962.49 Total Interest Paid $8,761.60 $11,462.49

Be a responsible borrower Make a financial plan & an academic plan Calculate your “true” cost of attendance (Sort your wants and needs) Create a budget Know your loan servicer Keep track of total amount borrowed

Investing in your future! Follow your passion, but make a plan for future financial earning and stability Know your market value after graduation Invest in the practical side of education Rule of thumb e.g.) First year gross salary is $40,000, (net is $28,000); Debt should not exceed $28,000 total Total borrowing should not exceed first year salary (net) Total Borrowing First year salary (net)

Rules for the student loan repayment Get FSA ID and enter the National Student Loan Data System Complete/update your information Understand the financial awareness counseling Reconcile your loans with your records Use the payment estimator tool Find your Student Loan Servicer Familiarize yourself with your loan servicer Understand various repayment plans Research various programs (consolidation, deferment, forbearance, public service loan forgiveness, etc.) Follow similar steps for private loans as well

How many loans do you have?

Who is your loan servicer?

Which repayment plan to choose? Standard Repayment Plan Graduated Repayment Plan Extended Repayment Plan Income-based Repayment Plan Pay As You Earn Repayment Plan Income Contingent Repayment Plan Income Sensitive Repayment Plan Repayment Plans -Office of Federal Student Aid

What Happens if I Don’t Pay My Student Loan Back? Borrowers who default on their student loans are reported to credit bureaus Your credit rating and future borrowing ability will be negatively impacted Legal action can be taken to require payment through garnishment of wages and withholding of tax refunds Student Loans are NOT dischargeable through bankruptcy!

Tips for success! Increase your emergency fund from 10% to 20% of your net income Start paying into the fund as soon as you start earning income (3 months payments) Pay off credit card debt before you enter student loan repayment Remain in touch with your servicer and notify them of any financial problems, do not default at any cost Depending on your income level, speed pay your student loans so you can free money for other future commitment

Loan-Debt repayment chart Amount Borrowed Number of Payments Estimated Monthly Payments* Recommended Annual Salaries** $ 5,000 120 $55.51 $8,326.50 $10,000 $111.02 $16,653.00 $15,000 $166.53 $24,979.35 $20,000 $222.04 $33,306.00 $25,000 $277.55 $41,632.50 $30,000 $333.06 $49,959.00 $35,000 $388.57 $58,285.50 $40,000 $444.08 $66,612.00 $45,000 $499.59 $74,938.50 $50,000 $555.10 $83,265.00 $55,000 $610.61 $91,591.50 $60,000 $666.12 $99,918.00

Repayment Plan Term (years) Monthly Payment Interest Paid Total Paid Standard 10 $575 $19,048 $69,048 Graduated Standard $395 (initial) $863 (final) $22,778 $72,778 Graduated Extended 25 $283 (initial) $496 (final) $62,770 $112,770 Extended $347 $54,112 $104,112 Income-Contingent 15.8 $403 (initial) $443 (final) $32,397 $82,397 Income-Based $234 (initial) $477 (final) $74,341 $104,812 ($21,722 forgiven) *Loan of $50,000 *AGI $35,000

National Student Loan Data System Allows borrowers to look up information about their Title IV federal student loans 800-433-3243800-433-3243 FREE www.nslds.ed.gov Federal Student Aid Information Center/Student Aid on the Web Provides information on federal student loans 800-433-3243800-433-3243 FREE www.studentaid.ed.gov Direct Loan Servicing Center Allows borrowers with Direct loans to make payments online and manage their account 800-848-0979800-848-0979 FREE www.dl.ed.gov Department of Education’s Default Resolution Group Provides information on defaulted student loans 800-621-3115800-621-3115 FREE www.ed.gov/offices/OSFAP/DCS/index Federal Direct Consolidation Loans Information Center Provides information on the Direct consolidation loan program 800-557-7392800-557-7392 FREE www.loanconsolidation.ed.gov

MoneyCounts: A Financial Literacy Series Comments and questions 11A Grange Building University Park, PA 16802 financialliteracy.psu.edu finlit@psu.edu 814-863-0214