Student Loan Repayment

The Perfect Storm Increasing costs of college leads to increasing levels of student debt Tough economic times, few jobs available, jobs are paying less States cutting back on loan forgiveness programs

What is a loan? A loan is when you borrow money from someone else, and must repay the money, usually with interest Purpose of a loan?  Allows the borrower to get the money needed to purchase something they would otherwise not be able to currently afford  Allows the lender to make money through interest

How do you get a student loan? Filling out FAFSA is always step one The Department of Education will determine if you are eligible for a federal student loan, how much, and what type Can also find private loans usually through banks  Private loans may have higher interest rates, fewer payment relief options, and less flexibility

Common Types of Student Loans Stafford: backed by US government, allows lower interest rates than most private loans (subsidized and unsubsidized) Perkins: backed by US government, need based student loan, usually lower interest rates than a Stafford loan, interest is subsidized by government PLUS: backed by US government, become due immediately, usually taken out by a parent Private: loan from a bank or company, not from government

The FAFSA of FAFSA F AFSA application: Step 1 in finding funds for college A ssess you financial needs: decide how much money to take out each year F ind a job: this will help ensure your ability to pay back the loans S tart Repaying: decide on the appropriate repayment plan and any qualifying relief options A ct on time: make your monthly payments on time, and act on relief options if you will not be able to make the payment

Exempt from Bankruptcy Students Loans cannot be discharged in bankruptcy Have to pay back all student loans public and private

Student Loan Statistics

Historical Interest Rates

How much should I take out? VERY Important to figure out the loan amount you need Taking out excessive loans may cause you to spend more than necessary because you have the available funds Taking out not enough loans could leave you without enough money to pay for your education expenses Make It Rain..or should you?

How much should I take out? Develop a budget Budgeting will allow you to easily visualize your financial picture, and how much debt you can to take on Each year determine the difference between your annual income and your annual expenses, any negative difference is the amount of loans you need to take out Remember, student loans should only be considered after an extensive search for grants, scholarships, monetary support from family and friends, and (time permitting) employment.

How much do I owe? To view the total amount of federal loans you have borrowed and the interest incurred go to: nslds.ed.gov To determine the total amount of private loans you have borrowed contact your lender

Repayment Plans For most student loans the standard repayment period is 10 years, meaning you must pay back the entire loan within ten years Some relief programs allow you to extend this period up to 25 or 30 years To calculate your repayment plan go to niu.edu/financialcents

Grace Period Many student loans have grace periods, meaning you do not have to make any payments while in school and usually for several months after graduation PLUS Loans = No Grace Period Stafford Loan Grace Period = 6 months after graduation Perkins Loan Grace Period = 9 months after graduation Private Loan Grace Period: Check with your lender, or terms of the promissory note Subsidized Loans DON’T incur interest during the entire grace period All other loans DO incur interest during the entire grace period

Student Debt Relief Public Service Loan Forgiveness Income-Based Repayment Deferment Consolidation Speak with lender before missing payment, many have payment relief options

Public Service Loan Forgiveness After 10 years, qualified Public Service employees are given forgiveness on any unpaid student loans Eligibility:  Only loans under Direct Loan Program (not FFEL)  May be able to consolidate other federal loans into a Direct Consolidation Loan, making those loans eligible  No default (not behind on payments)  Must be employed full-time by a public service organization when applying, for 120 months, and at the time of forgiveness

Public Service Loan Forgiveness Examples of qualifying public service jobs:  Federal, state, or local government  Public schools and universities  Public child or family service agency  Many non-profit organizations  Military  Emergency Management  Law Enforcement  Early childhood education  Public Health For a complete list visit the Federal Student Aid Website: studentaid.ed.gov

Income-Based Repayment Went into effect July 1, 2009 Lowers monthly payment amount based on income and family size (payment amount recalculated annually) If monthly IBR payments do not cover monthly interest accrued, government will pay that balance for 3 years Loan is cancelled after 25 years 10 Year Public Service Forgiveness eligible

Income-Based Repayment Eligibility:  Loans under Direct Loan or FFEL, EXCEPT loans in default, parent PLUS Loans, or consolidation loans that repaid a parent PLUS Loan (basically all federal loans not made to parents)  Partial Financial Hardship evidenced by:  Enough student loan debt relative to your income. It must take more than 15 percent of whatever you earn above 150% of poverty level to pay off your loans in 10 years.

Loan Deferment Student loan payments may be temporarily suspended. These payment may be deferred for a variety of reasons including, but not limited to:  Economic hardship, unemployment, military deployment, enrollment in school, internship, Peace Corps volunteer, or similar situations (for full list visit studentaid.ed.gov) Federal loans and most private loans are eligible for deferment Only temporary, must still pay back loan

Loan Consolidation One lender means only one monthly payment Potential to decrease interest rate and monthly payment Potential to convert variable interest rates into fixed interest rates New repayment options  Extended loan repayment period (can extend repayment period up to 30 years)  Graduated loan repayment period (smaller payments at first, payments gradually increase  Income contingent (payments rise and fall with income) Advantages

Loan Consolidation Extended repayment period Pay more overall May lose discharge benefits Consolidating federal and private loans turns all your loans into a private loan Lose payback benefits from current lenders (i.e. reduced interest rates for on-time payments) Disadvantages

Salary Expectations

Making Payments Will be contacted by your lender before the end of grace period informing you the amount, due date, and where to send you first payment Payment periods vary between loans  Stafford Loans: monthly payments  Perkins Loans: quarterly payments

Budgeting Create budget to account for the payment expense If payment cant be afforded here are your options:  Cut back on spending, avoid luxuries, etc.  Find additional income  Relief options  Change name and become a drifter  Defaulting is not an option

Defaulting on Student Loans

Should I pay back my student loans early? It Depends! Do you have other, higher interest loans?  As a general rule, it makes sense to pay off the loan with the highest interest rate first, but do not default on other loans Can you invest at a higher interest rate?  Is the interest you can save by paying off your loan less that the interest you can gain by making an investment?

Resources loans/advantagesdisadvantages-on-consolidation/ loans/advantagesdisadvantages-on-consolidation/