MBA LOANS Loan Workshop for Columbia Business School

Timeline In School Graduation Notify lender/servicer of address or phone number changes Grace period 6 months Repayment begins Deferment options available for internship/ residency Contact your lender/ servicer to discuss deferment and repayment options Deferment ends and active repayment begins Always keep the lender/servicer advised of any changes to your circumstances

How much do you owe? Note: Assumes recent/current interest rates for in-school and grace periods (6 months’ grace for Stafford loans and BEL)

How big will your payments be? * 10 years for Stafford loans, 15 years for BEL **30 years for Federal Consolidation Loan, 25 years for BEL Note: Assumes repayment interest rates of 8.25% for unconsolidated Stafford loans (repayment length or final payment amounts are adjusted when interest rates are lower, as they are now), 4.125% for Federal Consolidation loan (4.06 is the current rate until 7/1/03), 5% for MBA LOANS; payments may not add to totals due to rounding

Post-MBA Money & Debt Management Strategies

Managing Student Loan Repayment Help your loan servicer keep track of you. Your loan promissory note - a promise to repay on time and in full. Failing to repay will put you in financial default. If you’re having problems repaying, call your servicer - right away. Alternate repayment plans can significantly reduce the amount of your monthly payment.

Paying more than the required payment will save money. For a $15,000 student loan: an extra $25/month will save $1331 (over life of loan) an extra $50/month will save $2231 an extra $100/month will save $3375 a double payment/month will save $4415 Real Life-Paying Ahead

What Are Your Options? Standard Repayment Graduated Repayment Extended Repayment Income Sensitive Consolidation

Which Option Is Best For You? Do your education loan payments exceed 8-10 percent of your gross monthly income (and you’re having trouble making payments)?  8-10 percent rule should allow borrowers to have enough income to cover rent/mortgage payment, pay for basic living expenses, and meet other debt service needs Annual Monthly Maximum Student Loan Payment at Income Income 8%10% 15% $ 50,000 $4,167 $333 $417 $ 625 $ 75,000 $6,250 $500 $625 $ 938 $100,000 $8,333 $667 $833 $1,250

How Do You Decide? Is your current income likely to increase soon? If answer is Yes, consider:  Option 1: Tighten your budget--always try this first  Option 2: Explore whether the graduated or income sensitive repayment options offered by your lender will provide sufficient temporary relief

How Do You Decide? Is your current income likely to increase soon? If answer is Yes, consider:  Option 3: See if you qualify for a deferment or forbearance  A temporary deferment or forbearance may be a cheaper option for those who need short-term relief

How To Decide If You Need Consolidation? Is your current income likely to increase significantly within the next few years?  If answer is No, see if you qualify for extended repayment Extended repayment allows eligible borrowers who owe more than $30,000 to repay their loans over 25 years without consolidating  If extended repayment isn’t an option, then explore your consolidation options

Standard Repayment Lowest total loan cost Maximum 10 year repayment period Level monthly payments of principal and interest Variable interest rate

Graduated Repayment Slightly higher cost than standard plan Can be up to 15 year repayment period Variable interest rate Initial interest only payments followed by standard principal and interest

Extended Repayment Higher cost due to smaller initial monthly payment option and extended term Long term repayment relief for borrowers who received first Stafford or Consolidation loan after Up to 25 year repayment period Variable interest rate Initial interest only payment option or standard principal and interest

Income Sensitive Repayment Higher total cost due to smaller initial monthly payments and extended term Up to 15 year repayment period Interest rate is variable Payments are a percentage of gross monthly income and must cover accrued interest

Consolidate? Three key reasons:  Reduce your monthly payment Consolidation can reduce your monthly payment by 40 percent or more- You can drop the initial payment on a $38,577 loan from $ 473 to $187-- or to as low as $133 by choosing graduated repayment (at rates)  Simplify student loan repayment Replace all of your federal education loans with a single loan with a single monthly payment  When interest rates are lower (i.e., NOW) Consolidation interest rate is fixed for the life of loan

Who Should Consider Consolidation? Borrowers who--  Are having trouble making payments  Have irregular monthly incomes  Need to allocate money to another worthy expenditure Starting a business  Need to pay off more expensive loans Especially credit card balances

Reasons NOT To Consolidate To minimize interest expense  Longer payback periods and lower monthly payments mean higher total interest expense  The rate on your consolidation loan will be slightly higher (because of rounding)  If you consolidate while in grace, you’ll give up your remaining grace period To keep valuable borrower benefits  Many lenders offer 2% reduction in rate after 48 on- time payments (But, generally, only for unconsolidated loans)  Note: The Columbia Cash Back 5% credit on Stafford loans is only given to loans serviced by Sallie Mae (consolidating with another lender loses this)

Who Can Consolidate? Borrowers who:  Have federal education loans AKA Stafford & Perkins loans  Are not in default  Are in default but have met specific requirements for repaying their loans

Who Can Consolidate? Married couples may apply for a joint, spousal consolidation loan  Borrowers must agree to a joint-and-several liability clause  If either spouse dies or becomes permanently disabled, the other spouse is still responsible for repaying the entire amount  If one of the borrowers goes bankrupt, the other borrower is still responsible for repaying the loan  These rules still apply after a divorce!

What Loans Can You Consolidate? Virtually all of your Federal education loans  Federal Stafford Loans  Direct Stafford Loans  Federal Supplemental Loans for Students (SLS loans)  Perkins Loans  Most federal health education loans Federal loans you received at anytime during your academic career  Undergraduate loans  Graduate school loans

What Loans Can You Consolidate? Existing Federal Consolidation Loans  Although FFELP eligibility rules generally require you to have at least one other FFELP loan to consolidate as well  The additional FFELP loan does not have to be a “new” loan Existing Direct Consolidation Loans

What Loans Can’t Be Consolidated? Your parents’ PLUS loans  Even if you’re making the payments Private education loans (with Sallie Mae - other lenders may offer this) Any other type of private loan Defaulted federal education loans  Unless you meet specific rules designed to help defaulted borrowers

When Can You Consolidate? All borrowers may consolidate:  Anytime during the post-school, six-month grace period But you’ll give up any remaining grace period You can ask your lender to hold your application until just before grace period ends  Anytime during repayment Borrowers* with at least one direct loan or who are attending a DL school may obtain a Direct Consolidation Loan while still in school *Special rules apply to borrowers who are delinquent or in default

How Does Consolidation Work? Lender issues new loan and pays off all of the loans put into the consolidation  The individual, consolidated loans no longer exist New loan has different interest rate and payback terms Federal Consolidation Loans still provide deferment and forbearance benefits

What’s The Minimum Balance? Federal rules do not set a minimum balance Lenders are allowed to impose minimum balances Average consolidation balance is over $20,000

How Long Is The Payback Period? 10 to 30 years to repay, depending on how much you owe* Total Education DebtMaximum Payback Period** Less than $7,50010 Years $7,500 to $9, Years $10,000 to $19, Years $20,000 to $39, Years $40,000 to $59, Years $60,000 or more30 Years * Including federal and private education loans not included in consolidation loan **Slightly different payback schedule applies to Direct Consolidation Loans

Can You Have a Shorter Payback Period? Yes -- you can ask for a repayment period that is shorter than the maximum allowed  Make sure to ask your lender about this option when you apply You can prepay your loan in part or in full at any time  You won’t be charged any prepayment penalties or fees

How Is The Interest Rate Determined? Consolidation rate is weighted average of the current rates on the loans being consolidated rounded up to the nearest 1/8th of a percent LoanBalance Rate Subsidized Stafford $20, %* Unsubsidized Stafford$30, %* Perkins Loan$ 4, % Weighted-Average Rate4.43% Consolidation Rate 4.50% * Rate is for the year and will be set again for on July 1, 2003 This borrower would receive a fixed rate of 4.5% for a 25-year consolidation loan with an initial balance of $54,000

How Is Monthly Payment Determined? Monthly payment amounts are based on--  Length of payback period  Interest rate  Repayment plan selected by borrower  $50 minimum for level repayment plan Three basic types of repayment plans  Level repayment  Graduated repayment  Income sensitive repayment

How Long Does Consolidation Take? Typically, 4-6 weeks In the meantime, keep making the payments on the loans you want to consolidate

When Is First Consolidation Payment Due? The repayment period typically begins 30 days after the loan is disbursed That means your first payment is due within 60 days after disbursement If you consolidate in grace, your grace period ends the day the loan is disbursed

Where Can You Consolidate? For borrowers with loans issued by banks and other private lenders--  If all your Stafford loans are held by the same lender, you should contact that lender  If your loans are held by more than one lender, contact one of your current lenders  If your current lender doesn’t make consolidation loans, you may choose another lender

Where Can You Consolidate? For borrowers with loans issued by banks and other private lenders (cont’d)  Special rules restrict the ability of FFELP-only borrowers to consolidate under the Direct Loan Consolidation program Borrowers with one or more Direct Loans can consolidate with either a FFELP consolidation lender or the Direct Loan Program

Trouble Making Payments? Call your loan servicer or lender right away Explore your options  Lower your monthly payment Graduated repayment Income-sensitive repayment  Temporarily postpone your payments Deferment Forbearance

If You Want To Postpone Your Payments Deferment options include:  Unlimited deferment for borrowers who return to school at least half-time  Up to 3 years of unemployment deferment  Up to 3 years of economic hardship deferment Borrowers must meet income test You keep valuable interest subsidy benefits on any subsidized FFELP loan you consolidate  Better yet, deferment interest rate may be lower than repayment interest rate  Borrowers may pay interest as it accrues or allow it to be capitalized in lump sum at end of deferment

If You Want To Postpone Your Payments If deferment isn’t an option, consider forbearance Lenders may grant forbearance for a variety of reasons, including economic hardship  There is no specific income test Can be granted for up to 1 year at a time Government does not provide interest rate subsidy for any loan during forbearance  Interest accrues at repayment rate  Borrowers may pay interest as it accrues or allow interest to be capitalized in lump sum at end of forbearance

If You Want To Postpone Your Payments? Deferments are granted automatically to borrowers who qualify  But you must submit a deferment application Forbearances also require paperwork Deferment and forbearance forms are readily available via the Internet  Visit

What If You Become Delinquent? Call your lender or loan servicer immediately and ask for help! n Your servicer will contact you. n Your late payments will be reported to a credit bureau. n Delinquency will become part of your financial history.

What If You Become Disabled Or Die? Your federal loans will be discharged if:  You become completely and permanently disabled Unless you have a spousal consolidation loan  You die Unless you have a spousal consolidation loan Private loans seek settlement from the borrower’s estate or co-borrower (technical default)

What If You Default? You could incur collection costs and legal expenses Your credit history will be tarnished for a long time Your wages may be garnished Your federal tax refund can be withheld You may be subject to state-imposed penalties or restrictions (licensing clauses)

What About Bankruptcy? Federal bankruptcy laws now make it very difficult for borrowers to discharge student loans n You’ll have difficulty obtaining credit in the future. n You’ll be unable to meet financial obligations. n Your financial affairs are turned over to a trustee for administration and distribution of your assets to creditors. n It’s the most serious negative for credit reporting. n It will remain on your credit record for 10 years.

Avoid Delinquency, Default & Bankruptcy n Stay in control of your credit from the start. n When trouble arises, take action - immediately! n Seek professional assistance from your local Consumer Credit Counseling Service (CCCS) It’s a free service! n A financial planner can help develop a money management strategy for a fee.

What About Deducting The Interest? Tax rules are a bit complex, but in general you can:  Deduct interest paid during first 5 years of repayment  Up to limit of $2,500 per year  Provided you meet income test $40,000-$55,000 for single taxpayers $60,000-$75,000 for married taxpayers Visit IRS Web site at and seek out Publication 970: Tax Benefits for Higher Education  Another possible resource:

Where Can You Go For Help? Sallie Mae Please visit our Web site at  (Manage Your Loans enrollment necessary for the Columbia Cash Back 5% credit) For consolidation information - please call our consolidation specialists toll free at or apply online Best wishes for your future success!