Entrance Counseling for Direct Loan Borrowers Presented by Elena Sanderson

Disclaimer T he material presented in this slide presentation was prepared by TG and the Council for the Management of Educational Finance. This presentation is intended to help schools conduct entrance counseling for Federal Direct Loan borrowers. Depending on the types of loans that the borrowers attending the entrance session have, the information in some slides may not apply to all students. To ensure compliance with federal regulations, we request that the remaining slides not be deleted under any circumstances. Also, slides may be rearranged in a sequence that is most appropriate for the presenter.

Why do I have to attend? Federal regulations require that all first-time Direct Stafford loan borrowers receive entrance loan counseling School is unable to release your loan funds until you complete this session Current loan default rate is 14.8%

Direct Stafford Loan-Specific Information

Direct Stafford Loan Eligibility Although there are maximum annual loan limits, how much Stafford loan a student can borrow each year depends on the following calculation: Cost of Attendance – EFC = Need School will determine eligibility for subsidized before determining eligibility for unsubsidized

Impact on Other Financial Aid Accepting a loan may impact eligibility for other types of financial aid, and may affect the amounts of other financial aid.

Direct Stafford Annual Loan Limits – Dependent undergraduate Grade levelAnnual limitSub may not exceed 1 st year$5,500$3,500 2 nd year$6,500$4,500 3 rd year & beyond $7,500$5,500

Direct Stafford Annual Loan Limits – Independent undergraduate Grade levelAnnual limitSub may not exceed 1 st year$9,500$3,500 2 nd year$10,500$4,500 3 rd year & beyond $12,500$5,500

Direct Stafford Career Maximum Limits Dependency Status Subsidized Limit UnSub Limit Maximum Sub and UnSub Dependent$23,000$8,000$31,000 Independent$23,000$34,500$57,500

Direct Stafford Loan Interest Rates Undergraduate students: 6.8% fixed interest rate for Subsidized Stafford 6.8% fixed interest rate for Unsubsidized Stafford

Direct Stafford Loan Fee Origination fee: 1.0% Amounts automatically deducted from each disbursement

Subsidized versus Unsubsidized Subsidized and unsubsidized Direct Stafford Loans − Direct Subsidized Loan– need-based loan; government pays interest while student is enrolled, during grace period, and during periods of deferment − Direct Unsubsidized Loan– non-need-based loan; student responsible for all interest

Interest Capitalization Unpaid interest that is added to the original loan balance Option to repay interest while in school Interest capitalized − When the loan enters repayment − When deferment ends − When forbearance ends

Interest Capitalization Interest accrues during in-school & six-month grace periods New principal balance upon entering repayment increases by amount of interest accrued

Interest Capitalization Example Example: Student borrows $2,000 unsubsidized Stafford and takes 5 years to graduate Original Loan Amount Interest Rate Accrued Interest after 5 years Principal Balance after 5 yrs $ %$748$2748

Direct Stafford Master Promissory Note (MPN) Agreement to pay back the loan(s) Borrower rights and responsibilities detailed on MPN Multi-year feature vs. new promissory note per year You can e-sign your MPN at

Use of Loan Money Authorized educational expenses (cost of attendance) − Tuition, room, and board − Institutional fees − Books, supplies, and equipment − Dependent child care − Transportation and commuting expenses − Rental or purchase of personal computer − Miscellaneous personal expenses

Loan Disbursements Loan amount disbursed in at least two installments − 1 st installment - beginning of enrollment period − 2 nd installment - midpoint of enrollment period Example: First Year Dependent Student 2011/2012 Subsidized Stafford $5,500 − Fall semester: $2,750 (minus loan fee) − Spring semester: $2,750 (minus loan fee) 2011/2012 Unsubsidized Stafford $2000 − Fall semester: $1,000 (minus loan fee) − Spring semester: $1,000 (minus loan fee)

Loan Cancellation Before Disbursement Before the Department of Education sends the money to the school, student may cancel all or part of a loan by notifying school or After Disbursement After school credits student's account, student may still cancel all or part of a loan within 2 weeks

Repayment Responsibilities Borrowing money is a serious matter and all loans must be paid back Not receiving billing statement is not an excuse for not making payments Student responsible for repaying loan even if student: − Does not find a job, − Is dissatisfied with the school or its services, − Does not graduate or does not complete program of study within the regular time for program completion

When Repayment Begins Direct Stafford loans have a grace period: first payment due six months after student graduates, withdraws, or drops below half- time enrollment, but will start gaining interest after graduation or drops below half time status Repayment generally scheduled for 10 years

Choosing a Repayment Plan The borrower has the right to choose his or her repayment plan The borrower may change to different repayment plan

Available Repayment Plans Standard plan Graduated plan Extended plan Income-contingent plan Income-based repayment plan

Sample Monthly Repayment Amounts Loan Amount 4%5%6%7%8%9% $1,000$10.12$10.61$11.10$11.61$12.13$12.67 $5,000$50.62$53.03$55.51$58.05$60.66$63.34 $10,000$101.25$106.07$111.02$116.11$121.33$ $15,000$151.87$159.10$166.53$174.16$181.99$ $20,000$202.49$212.13$222.04$232.22$242.66$ $25,000$253.11$265.16$277.55$290.27$303.32$ $30,000$303.74$318.20$333.06$348.33$363.98$ Interest Rates

Circumstances for Loan Discharge and/or Forgiveness Teacher Service – teach at low-income school Public Service – applies to specific jobs Death of borrower Total and permanent disability of borrower School fails to pay refund if you withdraw School closes and unable to complete program False certification of loan (e.g. identity theft)

Deferments & Forbearances Deferment − Allows student to postpone payment under certain circumstances (e.g., attending graduate school, economic hardship) Forbearance − Temporarily reduces or stops payments. However, interest continues to accrue during this period. − Most expensive option and should be used as last resort

Consolidation Loans Allows borrowers with loans in grace period or repayment to combine one or more federal education loans Original loans are paid-in-full − New loan for the combined balances is issued with new terms, including a new interest rate that is fixed for the life of the loan

Consequences of Default Loss of federal financial aid eligibility Withholding of federal income tax refunds Inability to renew professional license (e.g. lawyer, doctor) Negative credit history (will affect credit purchase of house, car, etc.)

Consequences of Default Wage withholding May be sued Collection fees and attorney’s fees assessed Enforcement of delinquent debt collection procedures

Change of Status Dropping below half-time enrollment can have serious consequences on your loans: Subsidized and Unsubsidized Stafford: Grace period begins Grad Plus Loans: Deferment period begins Payment will become due at the end of 6 months Half time enrollment = _ hrs fall/spring and _ hrs summer Withdrawing from school Student must follow formal withdrawal procedures Notify the appropriate offices (e.g. financial aid office, registrar, etc.)

Change of Status Student is responsible for notifying the school and Direct Loan Servicing Center about certain changes: − Withdrawal from school − Transfer to another school − Change in graduation date − Address change − Name change − SSN change

School Policies Refund policy Satisfactory academic progress − Appeals process Withdrawal procedures

Accessing Loan Information National Student Loan Data System − U.S. Department of Education's (ED's) central database for student aid − NSLDS receives data from schools, guaranty agencies, the Direct Loan program, and other Department of ED programs − To access loan records visit − Students will need their PIN for access

Managing your money

Make a Budget Take sum of all sources of income − Grants and scholarships − College work-study or part-time job − Student loans Subtract all expenses − Tuition and fees − Books and supplies − Utilities − Credit card payments − Rent or dorm − Groceries or meal plan

Money Management Tips Keep in mind when you’ll get your loan funds − 30-day delay for some first-time Stafford loan borrowers Keep track of how much you borrow Consider making interest and/or principal payments while in school Remember that credit cards are loans!

Money Management Tips Be realistic about earnings after college − Use them wisely − Average salary for teacher vs. engineer Keep all your loan records Do not spend beyond your means – keep a simple lifestyle Consult with your financial aid counselor before dropping a class. It may affect your financial aid eligibility. Ask questions

Last Reminder!! Complete an exit counseling session before you graduate or drop below half time For questions contact: − Elena Sanderson − (361) −