Overview of student loan repayment options Capital University Law School Managing Student Debt

To successfully manage loan repayment, you should… Know how much you have to repay and to whom Understand the terms and conditions of your loans Define your short- and long-term financial goals Develop an affordable budget plan and estimate how much you can afford to pay each month on your debt Keep good financial records Select the repayment plan that best achieves your goals given what you can afford to pay each month Take advantage of loan forgiveness programs when you qualify for them

Looking Ahead What Happens after graduation? Does loan have a GRACE period? YES (e.g. Stafford, Perkins) NO (e.g., Grad PLUS, Consolidation) Repayment begins After grace period: 6 mos – Stafford 9 mos - Perkins Repayment resumes after graduation Start making payments Postpone repayment

Federal Student Loan Database National Student Loan Data System (NSLDS) Information about your Federal Student Loans Toll-free telephone FED-AID Web site You can access NSLDS with your SSN, first 2 letters of your last name, birth date and Dept. of Education PIN

What if I can’t afford to make loan payments? Deferment and Forbearance – Options to Postpone Payments Deferment – Temporary postponement of your monthly student loan payments Forbearance – Temporary postponement or reduction of your monthly student loan payments Contact your loan holder/servicer for more information and to apply

Current deferment types In-school (at least half-time) Unemployment Economic hardship Military Post-enrollment (for Grad PLUS made on/after 7/1/2008) Contact your current loan holder/servicer for information about loan deferment eligibility if you first borrowed a FFELP loan prior to 7/1/93

Unemployment deferment To qualify… – You must be: “Diligently seeking but unable to find full-time employment in the U.S. in any field or at any salary or responsibility level: AND Registered with a public or private employment agency (school placement offices and “temporary” agencies do not qualify as public or private employment agencies) OR Eligible for unemployment benefits

Economic Hardship Deferment New Rules as of July 1, 2009 Generally, you’re eligible if you’re: Receiving benefits from federal or state public assistance programs (such as food stamps) OR Employed full-time, but your household Adjusted Gross Income (AGI) is less than 150% of the HHS poverty guideline for your household size and state of residence For 2009, this is an AGI of less than $16,245 for a household size of one (1) living in the 48 states

Forbearance Temporary postponement or reduction of monthly payments, or extension of time for making payments 1.You’re responsible for all accrued interest 2.Must request a forbearance from your current loan holder/servicer 3.Must provide whatever documentation is requested 4.Mandatory forbearance may be available in certain cases including periods of economic hardship

Capital university law school – Class of Graduates Average student loan borrowing FSL = $25,500; UFSL = $36,000; Grad PLUS = $36,500 $98,000 Estimated capitalized interest FSL = $0; UFSL = $5,200; Grad PLUS = $6,600 $11,800 Estimated total debt at repayment$109,800 Estimated monthly loan payment Standard 10-year fixed Repayment Plan $1,301 Estimated monthly loan payment Extended 25-year fixed Repayment Plan $809 Assumptions: Federal Stafford Loan interest rate = 6.8% Federal Grad PLUS Loan interest rate = 8.5%

Comparing Payment plans Federal Student Loan Balance = $109,800 StandardGraduatedExtended Monthly Payment$1,301$683 (2 yrs) $1,523 (8 yrs) $809 (fixed) OR $683 (2 yrs) $834 (23 yrs) Maximum Payment Period10 yrs 25 yrs Total Paid$156,177$162,572$242,724 Or $246,506

Income-based repayment option

$40,000 $24,000 $3,600 $16,000 $300/month

Income-Based Repayment (IBR ) Example #1 Eligible federal student loan debt$109,800 Estimated monthly payment (Standard plan – 10 years) $1,301 Annual amount due ($1,301 x 12)$15,612 Household size1 Household AGI$60,000 Poverty line for household size$10, % of poverty line$16,245 AGI – 150% of poverty line$43,755 15% of calculated amount$6,563 Partial financial hardship – YES or NOYES IBR monthly payment, if eligible$547

Income-Based Repayment (IBR ) Example #2 Eligible federal student loan debt$109,800 Estimated monthly payment (Standard plan – 10 years) $1,301 Annual amount due ($1,301 x 12)$15,612 Household size1 Household AGI$40,000 Poverty line for household size$10, % of poverty line$16,245 AGI – 150% of poverty line$23,755 15% of calculated amount$3,563 Partial financial hardship – YES or NOYES IBR monthly payment$296

Ibr PLAN Estimated Monthly Payment in 2009 AGI Monthly Payment HH Size = 1 Monthly Payment HH Size = 2 $0 $10,000$0 $20,000$47$0 $30,000$172$102 $40,000$297$227 $50,000$442$352 $60,000$547$477 $70,000$672$602 $80,000$797$727 $90,000$922$852 $100,000$1,047$977

Loan Forgiveness Example #1 – Assume starting salary of $60,000 with 3% annual salary increases – Years in repayment = 20.8 – $0 Forgiven Example #2 – Assume starting salary of $40,000 with 2% annual salary increases – Years in repayment = 10 – Government forgives entire principal + $27,000 interest

Choosing a Repayment Plan Steps to consider… Identify your financial goals Determine your monthly budget View your debt as a “portfolio” Evaluate trade-offs Select your repayment plan

Loan Prepayment You can prepay federal loans without any penalty When prepaying a loan, you should: – Verify where to mail payment – Include written explanation on how it’s to be applied – Request that it be applied to principal – Target payment at loans having highest interest rate

What’s new? Income-Based Repayment Provisions – Married individuals may either: File income taxes separately, or File income taxes jointly and include spouse’s income and student debt – In either case, household size includes all family members

What’s new… Forgiven loan balance is not a taxable event under the Public Service Loan Forgiveness Program; However, it remains taxable under the general 25 year loan cancellation

What’s coming? For loans issued after July 1, 2014… – Income-based Repayment Option reduces payment from 15% to 10% of discretionary income – Loan balance is forgiven after 20 years rather than 25 Effect on current graduates is unclear at this time.