What Parents Need to Know Student Loans What Parents Need to Know Jeffrey Hanson Education Services Tulane University

… now graduate with an EDUCATIONAL MORTGAGE Majority of students … … now graduate with an EDUCATIONAL MORTGAGE Copyright © 2013 by Law School Admission Council, Inc.

What do you think? Should you/the student borrow private loans rather than federal student loans to get a lower interest rate? Should you/the student pay the interest on these loans as it accrues while student is in school? Should you/the student borrow the minimum amount needed to achieve student’s goals?

Borrowing money can … … “box you into a corner” financially If payments are based on amount owed: Puts you at risk of damaging your credit (may miss payments if you cannot afford to pay them) May limit career options (may only be able to consider jobs that pay enough to repay your debt) May restrict financial choices (may limit your ability to invest for retirement, save to buy a house, or make other financial/lifestyle choices)

BUT, with federal student loans … … you need NOT get “boxed into a corner”

Not all debt is the same! Federal education loans offer flexibility and choice not available with private loans

Federal student loans are unique … Payments can be based on your income Payment relief options are available Forgiveness may be available on a portion of your debt if not fully repaid within 20-25 years or if doing qualifying public service for 10 years You would lose these unique features if you borrow private student loans—federal student loans offer FLEXIBILITY and CHOICE in ways that no other form of credit is allowed under current credit laws.

Interest on federal loans is SIMPLE interest! Interest accrues on unsubsidized student loans as soon as funds are disbursed, but it is NOT compounding! Accrued interest “capitalizes” when loans enter/re-enter repayment Better to reduce amount you are borrowing if you have funds to pay the accruing interest while in school

Interest Capitalization Unsubsidized Loans What is capitalization? Unpaid interest is added to the principal loan balance Once capitalized, interest starts accruing on the new higher loan balance (i.e., interest starts accruing on that capitalized interest)—thus, total debt increases When is interest capitalized? When loan first enter repayment (after grace period) OR When loan re-enters repayment after a continuous period of deferment and/or forbearance

Did you know? You can return unused loan funds! If you return loan funds within 120 days of disbursement: Total amount owed is reduced Interest and fees charged on loan amount returned are reversed Contact the financial aid staff for more information

Federal Direct PLUS Loan An option for parents 11 Consider: Borrowing a Federal Direct PLUS Loan (Parent PLUS) if additional funds are needed Why? Payments can be postponed while student is enrolled Payment relief (deferment or forbearance) is available when experiencing financial hardship Loan can be “consolidated”—makes debt eligible for “Income-Contingent Repayment” (ICR) plan and “Public Service Loan Forgiveness” (PSLF) Discharge provisions for death or total/permanent disability

For more information … Contact the financial aid office Send an email to: Finaid@Tulane.edu Online resources: Tulane University Financial Aid: http://tulane.edu/financialaid/index.cfm U.S. Department of Education: Federal student loans: StudentAid.gov Federal student loan repayment: StudentLoans.gov

Be strategic: Use federal loans if you/your student need to borrow money for school! Jeffrey Hanson Education Services Tulane University