Student Loans 201: Repayment Options Revised 9/2013

Agenda Review: Student Loan BasicsRights and ResponsibilitiesRepayment OptionsContingency Options

Student Loans: FFELP vs. Direct Before July 1 st, 2010:After July 1 st, 2010 (today) Federal Family Education Loan Program (FFELP)Federal Direct Student Loans:  Higher interest rates on PLUS loans  Different repayment options  Must be repaid, with interest  Origination fee  No co-signer required  Multiple payment options  Not discharged in bankruptcy

Student Loans Types of Student Loans PerkinsSubsidized Stafford Unsubsidized Stafford PLUS AvailabilityNeed-Based Everyone Everyone, Credit Check Required Interest5% fixed3.86% fixed 6.41% fixed Subsidized?YesYes (while in school)No $/year Maximum $5,500 (undergrad) $8,000 (graduate) Varies depending on year in school Gap in Financial Aid Total Maximum $27,000$23,000 $31,000 (undergrad) $138,000 (grad) Gap for 4 years Grace Period9 months6 months None, repayment immediate Options Loan Forgiveness or cancellation for certain careers Unavailable for grad students. Interest not subsidized during grace period Loan Forgiveness available for certain careers For parents and graduate students. Repayment begins immediately.

Student Loans: NSLDS Retrieve your student loan data from the National Student Loan Data System. nslds.ed.gov Retrieve your student loan data from the National Student Loan Data System. nslds.ed.gov Lists all loans you’ve had Indicates which types of loan Shows principal and interest amounts Identifies loan servicer

Student Loans: Servicers LOAN SERVICER What does a loan servicer do? Billing Repayment Options Loan Consolidation Keep your contact info up to date with your loan servicer and make sure to monitor communication so you don’t miss important updates about your loans.

Student Loans: Loan Servicer vs. Financial Aid Office Who do I contact for what? For loans disbursed in a past school year, contact your LOAN SERVICER if you: Need help making a loan payment Change your name or contact info Have billing questions Have questions about loan terms, features or repayment options Graduate Drop below half-time enrollment Stop going to school Transfer to another school For loans disbursed in the current or upcoming year, contact your FINANCIAL AID OFFICE if you: Have questions about loan status Want to cancel a loan within 120 days of disbursement Have questions about loan disbursement amounts or timing

Sam takes out a Federal Direct Loan from the Dept of Ed for college Sam graduates from college After the 6 month grace period, Sam enters repayment with the Dept of Ed The Dept of Ed transfers the loan servicing duties to Nelnet (a loan servicer) Nelnet now services Sam’s loan. Sam is notified of the transfer. Sam will now send payments, questions and updates to Nelnet. Student Loans: Servicers The Dept of Ed may or may not assign you a loan servicer. It could also happen multiple times. Remember that repayment can also be triggered if you stop going to school or drop below ½-time credits

Agenda Review: Student Loan BasicsRights and ResponsibilitiesRepayment OptionsContingency Options

Rights  Copies of your promissory notes  Loan disbursement notification  Loan disclosure statement  Repayment schedule  Grace period  Deferment or forbearance  Prepay without penalty  Notification if loan is sold or transferred (FFELP)  Consolidate loans  Notification when loan is paid in full

Responsibilities  Pay back your loan in full  Stay informed about:  Loan balances  Payment amounts  Notify your loan servicer:  Name or contact info changes  Graduation, leaving school, transferring to another school or dropping below half-time enrollment  Trouble with loan payments

Agenda Review: Student Loan BasicsRights and ResponsibilitiesRepayment OptionsContingency Options

Responsibilities: Repayment Terms Repayment The process of paying back your loans or the period in which you pay back your loans. Different options may be available to fit your situation. Consolidation Creates one large loan with a potentially longer term out of your smaller loans. Deferment Suspends repayment for in-school periods, periods of military service, and economic hardship. ForbearanceSuspends repayment due to financial difficulty. DischargeEliminates any further repayment. ForgivenessReduces any remaining repayment. Default When you fail to make payments on your loan as scheduled according to your promissory note.

Repayment: Overview PlanStandardGraduatedIncome- Contingent ExtendedIncome- Based Pay As You Earn Income- Sensitive Term 10-year term Up to 25- year term Up to 20- year term 10+ year term Minimum Payment Minimum of at least $50/month Interest payments ($25 minimum), gradually increasing over time Minimum of $5/month. Monthly amount depends on family size, adjusted gross income, loan debt Either fixed or graduated payments. Payments depend on family size, adjusted gross income, loan debt Caps monthly payments at 10% of monthly income. Payments between 4- 25% of gross monthly income; minimum payment must cover interest Additional Info “Cheapest” for borrowers Later payments cannot be more than 3x earlier payments Borrower must reapply each year For borrowers with over $30000 in loans Loans must present “partial financial hardship” For those who were new borrowers as of 10/1/07 and received loans after 10/1/11. Borrower must reapply annually.

Repayment: Overview PlanStandardGraduatedIncome- Contingent ExtendedIncome- Based Pay As You Earn Income- Sensitive Term 10-year term Up to 25- year term Up to 20- year term 10+ year term Minimum Payment Minimum of at least $50/month Interest payments ($25 minimum), gradually increasing over time Minimum of $5/month. Monthly amount depends on family size, adjusted gross income, loan debt Either fixed or graduated payments. Payments depend on family size, adjusted gross income, loan debt Caps monthly payments at 10% of monthly income. Payments between 4- 25% of gross monthly income; minimum payment must cover interest Additional Info “Cheapest” for borrowers Later payments cannot be more than 3x earlier payments Borrower must reapply each year For borrowers with over $30000 in loans Loans must present “partial financial hardship” For those who were new borrowers as of 10/1/07 and received loans after 10/1/11. Borrower must reapply annually. DIRECT LOAN repayment options

Repayment: Overview PlanStandardGraduatedIncome- Contingent ExtendedIncome- Based Pay As You Earn Income- Sensitive Term 10-year term Up to 25- year term Up to 20- year term 10+ year term Minimum Payment Minimum of at least $50/month Interest payments ($25 minimum), gradually increasing over time Minimum of $5/month. Monthly amount depends on family size, adjusted gross income, loan debt Either fixed or graduated payments. Payments depend on family size, adjusted gross income, loan debt Caps monthly payments at 10% of monthly income. Payments between 4- 25% of gross monthly income; minimum payment must cover interest Additional Info “Cheapest” for borrowers Later payments cannot be more than 3x earlier payments Borrower must reapply each year For borrowers with over $30000 in loans Loans must present “partial financial hardship” For those who were new borrowers as of 10/1/07 and received loans after 10/1/11. Borrower must reapply annually. FFEL repayment options

Repayment: $40,000 Loan PlanStandardGraduatedIncome- Contingent ExtendedIncome- Based Pay As You Earn Income- Sensitive Monthly Payment $402.32$ $ $ $ $208.05$ $ $ $ $ $ Loan Term10 years 12.6 years25 years11.9 years18.8 years10 years Total Paid$48,278.93$50,322.35$50,933.73$62,416.49$50,449.49$57,687.38$48, Interest Paid $8,278.93$10,322.35$10,933.73$22,416.49$10,449.49$17,687.38$8,799.30

Repayment: Standard  Fixed monthly payments  Minimum repayment amount of $50/month  Maximum 10-year repayment period  Borrower pays least interest Loan Amount $40,000 Term10 years 120 months Monthly Payment $ Total Paid$48, ** Assumes 3.86% interest rate

Repayment: Graduated  Payments increase over time  Minimum repayment amount of $25/month  Repayment period: years  Loan term depends on amount borrowed Loan Amount$40,000 Term10 years 120 months Initial Monthly Payment $ Final Monthly Payment $ Total Paid$50, ** Assumes 3.86% interest rate

Repayment: Income-Contingent  Payments based on income, family size, loan debt  Reapply annually  Minimum repayment amount of $5/month  Loan balance discharged after 25 years  Parent PLUS and FFELP ineligible Loan Amount$40,000 Term12.6 years 152 months Initial Monthly Payment $ Final Monthly Payment $ Total Paid$50,933.73

Repayment: Extended  Borrowers with over $30K in student loans  25-year maximum repayment term  Either fixed or graduated payments Loan Amount $40,000 Term25 years 300 months Monthly Payment $ Total Paid$62, ** Assumes 3.86% interest rate

Repayment: Income-Based  Payments based on income, family size, loan debt  Parent PLUS and Perkins ineligible  Borrower applies annually  Must repay all eligible loans under this plan  Loan balance discharged after 25 years Loan Amount$40,000 Term11.9 years 143 months Initial Monthly Payment $ Final Monthly Payment $ Total Paid$50,449.49

Repayment: Pay As You Earn  Available for those considered “new borrowers” as of 10/1/07 and received a loan disbursement on or after 10/1/11  Payments capped at 10% of discretionary monthly income  Borrower must have a partial financial hardship to qualify  Parent PLUS and Perkins ineligible  Borrower applies annually  Loan balance discharged after 20 years Loan Amount$40,000 Term18.8 years 226 months Initial Monthly Payment $ Final Monthly Payment $ Total Paid$57,687.38

Repayment: Income-Sensitive  FFELP borrowers only  Payments between 4- 25% of gross monthly income  Minimum payment must cover interest  Repayment period may be over 10 years  Borrower must reapply annually Loan Amount$40,000 Term10 years 120 months Monthly Payment $ (3 years) Monthly Payment $ (7 years) Total Paid$48,799.30

Repayment: $40,000 Loan PlanStandardGraduatedIncome- Contingent ExtendedIncome- Based Pay As You Earn Income- Sensitive Monthly Payment $402.32$ $ $ $ $208.05$ $ $ $ $ $ Loan Term10 years 12.6 years25 years11.9 years18.8 years10 years Total Paid$48,278.93$50,322.35$50,933.73$62,416.49$50,449.49$57,687.38$48, Interest Paid $8,278.93$10,322.35$10,933.73$22,416.49$10,449.49$17,687.38$8,799.30

Repayment: Pick a Plan 1.Contact your servicer to get information on available repayment plans. 2.Use repayment calculators to see what you might have to pay with each plan. 3.Compare the planes to determine which plan fits you best. Which plan do I pick? You can switch plans if you need to!

Repayment: Consolidation  Direct (current)  Consolidates all federal student loans into one big loan  Interest rate the “weighted average” of all loans  Same repayment options as Federal Direct  May reduce monthly payments  Consolidating PLUS loans negates eligibility for income- based repayment plans  Direct (current)  Consolidates all federal student loans into one big loan  Interest rate the “weighted average” of all loans  Same repayment options as Federal Direct  May reduce monthly payments  Consolidating PLUS loans negates eligibility for income- based repayment plans Consolidation may lower monthly loan payments.

Repayment: Student Loan Interest Deduction  Up to $2500 of student loan interest  Considered an “adjustment” on federal taxes  Can claim only if you  Are not a dependent  Filing status is not married filing separately

Agenda Review: Student Loan BasicsRights and ResponsibilitiesRepayment OptionsContingency Options

Contingency: Delinquency & Default  Default  Being delinquent for 9 months  Entire loan balance may be demanded  Wages and tax refunds can be garnished  Will have to pay late fees and collection costs  Negatively affects credit rating for 7 years  Denied future financial aid  Delinquency  Being late making payments or missing payments  Begins the first day after the payment is missed  May negatively affect borrower’s credit rating  Allows the lender to charge interest on unpaid interest  Lender may charge late fees

Contingency: Options Deferment Postpones repayment. Interest subsidy resumes on subsidized portion. Requested by the borrower while in school, on active military duty, or experiencing temporary financial difficulties. Forbearance Postpones repayment due to economic hardship. Interest accrues. Requested by the borrower. Forgiveness Portions of your debt are erased (forgiven) if the borrower fulfills certain conditions. Discharge Eliminates any further repayment under very limited conditions.

Contingency: Deferment Programs ** Unlimited duration while continuing to serve on active duty. Extended periods of deferment are available to borrowers after demobilization. Type of Deferment*Time Limit In-school at least half-timeUnlimited Graduate fellowship programUnlimited Disability rehabilitation trainingUnlimited Military serviceUnlimited** UnemploymentUp to three years Economic hardshipUp to three years Post-Active Duty Student13 months

Contingency: Unlimited Deferment Options Type of Deferment In-SchoolGraduate Fellowship Program Rehabilitation Training Military Service PeriodUnlimited ConditionsEnrolled at least half-time; undergraduate or graduate student In graduate fellowship program of at least six months In training program licensed or approved by state officials Called to active duty during war, military operations, or natl emergency RequirementsProgram must require periodic reports from fellow; program official must certify program dates Requires substantial commitment (cannot work full- time); specifies end date Granted on borrower’s request OtherContinues during summer; extended through anticipated graduation date Can be used for course of study at foreign university Borrower can be receiving or scheduled to receive services Limits on Direct Loan interest accrual; deferment can be extended for up to 30 days after return

Contingency: Limited Deferment Options Type of Deferment UnemploymentEconomic HardshipPost-Active Duty Student Period6 months to 3 yearsUp to three years13 months ConditionsUnemployed or employed less than full- time (30 hours/week); granted six months at a time Receiving state or federal public assistance benefits OR income at 150% poverty line; a Peace Corps volunteer; monthly payments equal to or larger than 20% of monthly income For students who are called to active duty while in school or six months post- graduation RequirementsReceiving unemployment benefits or registered with employment agency; ends once employed full-time or after three years Granted one year at a time Granted for 13 months after return from active duty; Expires on return to school OR after 13 months

Contingency: Forbearance  Temporary reduction or suspension of payments  Unpaid interest capitalized  Mandatory  National Service  Applying for loan forgiveness  Teaching in areas that qualify you for loan forgiveness  Payments at or over 20% of monthly income  Up to three years TO DO: Contact your loan servicer about your deferment or forbearance eligibility. Follow your servicer’s instructions to apply for deferment or forbearance. Make scheduled payments until your deferment/forbearance status is confirmed.

Contingency: Forgiveness ProgramCondition Teacher Up to $5,000 in Stafford Loans after five consecutive years teaching in elementary or secondary school serving low-income families. Up to $17,500 in Stafford Loans after five consecutive years in a school serving low-income families as a highly qualified full-time secondary school math or science teacher or as a highly qualified special education teacher. National Service $5550 scholarship or loan forgiveness per 12-month AmeriCorps term. 70% of Perkins loan cancelled for Peace Corps service. Perkins Loan Cancellation Up to 100% of loan cancelled for five years of employment in specific positions, including teaching in low-income schools, nursing, and law enforcement. Public Service After 120 on-time qualified monthly payments while employed by the federal or state government, or by a 501c3 nonprofit. Loan must be in repayment status. Amount forgiven is not taxable. Income-Based, Income- Contingent or Pay As You Earn After 25 years of making on-time payments in these programs any remaining balance will be forgiven. Amount forgiven is taxable under current law. Does not apply to loans currently in default status. For Pay As You Earn, the balance is forgiven after 20 years.

Contingency: Forgiveness  Borrowers must repay their loans using a qualified repayment plan  Standard  Income-contingent  Income-based  Pay As You Earn  The Standard Consolidation Plan is NOT an eligible repayment plan for ANY type of loan forgiveness  Borrowers who consolidate their loans must request an income-driven repayment plan for those loans

Contingency: Discharge Disability Inability to earn sufficient income due to illness or injury expected to continue indefinitely or result in death. Has a three- year conditional period. Death Loan cancelled if family member or representative provides original or certified copy of death certificate to lender School Closure Student unable to complete program due to closure. False Certification Identity theft OR school falsifies eligibility on loan application.

Contingency: In Delinquency SO NOW WHAT?  Contact the servicer  Work out a payment schedule with the servicer  Ask servicer for a statement showing when payments were made  Direct Loans: contact the Student Loan Ombudsman  FFELP: contact your guarantor

Contingency: In Default  Consolidation  Borrower eligible for new loans, grants, deferments  No longer listed as in default on credit records, but default will remain on credit history for seven years  Can choose income- based or income- contingent repayment  Rehabilitation  Have to make nine on- time payments in ten months  Loan moved from default status after 9 months  Default moved off credit record  Eligible for new loans and grants

Summary  You have many different tools and repayment options  Pick a repayment plan that works for your budget  Ask for help if you need it  Know your borrower rights and responsibilities  Stay in contact with your loan servicer

Resources  Studentaid.gov – Federal Student Aid Website  Student Loan Ombudsman  FAFSA  Types of Aid  Loans  Repayment Plans  Finaid.org  Studentloanborrowerassistance.org  IRS.gov  Your loan servicer

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