1. New Aid Officer Workshop 2013 LOAN BASICS

2. Angelika Williams Assistant Director of Financial Aid and Scholarships Texas State University- San Marcos

3. LOAN BASICS Loan Requirements

4. LOAN REQUIREMENTS Entrance Counseling Promissory Note Exit Counseling

5. ENTRANCE COUNSELING First-time borrowers www.studentloans.gov Inform them of their rights and responsibilities in taking out this loan Contains information on managing educational expenses and financial resources to consider that may help pay for the borrower’s education Must be completed prior to the first disbursement

6. PROMISSORY NOTE Document signed by borrower, which includes terms and conditions of the loan disbursements, use, and repayment Master Promissory Note Good for ten years Covers multiple loan periods and varying loan amounts of the same type of loan

7. EXIT COUNSELING All borrowers that leave an institution must complete exit counseling www.nslds.ed.gov Is required before a student graduates, withdraws, or drop below half-time attendance (even if the student plans to transfer to another school) Helps student understand rights and responsibilities as a student loan borrower Provides useful tips and information to help student’s manage their loans

8. LOAN NOTIFICATION The institution is required to notify the borrower, within 14 or 30 days, that a loan disbursement has been made and that the borrower may reduce or cancel the disbursement

9. LOAN BASICS Types of Loans

10. FEDERAL LOANS Federal Direct Subsidized Loan Federal Direct Unsubsidized Loan Perkins PLUS Grad PLUS

11. FEDERAL DIRECT SUBSIDIZED LOAN Need-based Loan Interest rate: 3.4%* Origination Fee: 1.051%** Grace Period: 6 months Department of Education pays interest In-School Deferment Interest begins to accrue at grace period*** Only undergraduate students are eligible Student must be enrolled at least half time Student must be meeting SAP

12. FEDERAL DIRECT UNSUBSIDIZED LOAN Non-Need based Loan Interest rate: 6.8% Origination Fee: 1.051%* Grace period: 6 months Student pays interest Interest is capitalized Student can choose to pay interest while enrolled Undergraduates and Graduates are eligible Student must be enrolled at least half time Student must be meeting SAP

13. FEDERAL LOAN LIMITS Dependent Undergraduate Student Base Eligibility (Sub or Unsub) Additional Unsubsidized Loan Freshman$3,500$2,000 Sophomore$4,000$2,000 Junior/Senior$5,500$2000 Maximum Total (Aggregate) Limit: $31,000 ($23,000 can be subsidized) Independent Undergraduate Student Base Eligibility (Sub or Unsub) Additional Unsubsidized Loan Freshman$3,500$6,000 Sophomore$4,000$6,000 Junior/Senior$5,500$7,000 Maximum Total (Aggregate) Limit: $57,500 ($23,000 can be subsidized)

14. SUBSIDIZED LOAN LIMITATION Public Law 112-141 states an undergraduate student may receive subsidized loans for a limited number of years. Applies to “new borrowers” on or after July 1, 2013 “New borrowers” – Borrowers with no balance on a FFEL or Direct Loan on July 1, 2013 When a student has received subsidized loans for 150% of the published length of the academic program- Student may not receive additional subsidized loans for enrollment in that program. Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

15. SUBSIDIZED LOAN LIMITATION Program LengthLimitation on Subsidized Loan Eligibility 4- Year Bachelor’s Degree6 Years of subsidized loan eligibility 2- Year Associates Degree3 Years of subsidized loan eligibility 1- Year Certificate Program1 ½ Years of subsidized loan eligibility 10 Week Certificate Program15 Weeks of subsidized loan eligibility

16. SUBSIDIZED LOAN LIMITATION Transfer Students – Student maximum time to receive subsidized loans is established based on the length of the program the student is currently enrolled in Remaining subsidized eligibility is determined by subtracting from the maximum eligibility for the program, the time the student has already received subsidized loans while enrolled in any program Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

17. SUBSIDIZED LOAN LIMITATION Examples – Student receives two years of subsidized loans while enrolled in a two-year program Student transfers to a four-year BA program Student has four years of remaining subsidized loan eligibility Student receives three years of subsidized loans while enrolled in a four-year BA program Student transfers to a two-year AA program Student has no remaining subsidized loan eligibility Examples provided by Information for Financial Aid Professionals (IFAP) ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

18. FEDERAL LOAN LIMIT Graduate/Professional Student Unsubsidized Loan$20,500/academic year Maximum Total (Aggregate) Limit:$138,500 ($65,500 may be subsidized)

19. PERKINS Need-based loan Federal Loan, Institution acts as Lender and Servicer Interest Rate: 5% Grace period: 9 months Maximum repayment term: 10 years Undergraduate and Graduate students are eligible Student must be enrolled at least half time Student must be meeting SAP

20. PERKINS LOAN LIMITS Undergraduate annual limit $5,500 Undergraduate Aggregate limit $27,500 Graduate annual limit $8,000 Graduate Aggregate limit $60,000

21. PLUS LOAN Parent Loan for Undergraduate Students (PLUS) Must be the parent (biological, adoptive, or in some cases, stepparent) of a dependent undergraduate student enrolled at least half-time and meeting SAP Non-need based loan Can borrow up to COA Borrower must not have an adverse credit history Interest Rate: 7.9% Origination fee: 4.204%* If the parent is denied, the student may receive a Federal Direct Unsubsidized loan at Independent Undergraduate loan limit

22. GRAD PLUS Loan for Graduate Students (meeting SAP) Non-need based loan Borrower must not have an adverse credit history Borrower must be a graduate or professional degree student enrolled at least half-time Interest Rate: 7.9% Origination Fee: 4.204%* Can borrow up to COA No aggregate limit

23. ALTERNATIVE LOANS Interest rates are usually variable Origination and repayment fees vary Co-signer typically required Most require school-certification

24. ALTERNATIVE LOANS Possible solution for International Students SAP Ineligible students Non-degree seeking students Students who have reached federal aggregate loan limits

25. LOAN BASICS Loan Processes

26. DIRECT LOAN PRORATION Must prorate a Stafford Loan limit for an undergraduate program: A student’s academic program is less than a year in length A student is remaining period of study is shorter than an academic year Standard proration formula: Amount of direct loan student could have for grade level ÷ 24 x enrolled hours

27. DIRECT LOAN PRORATION Example: A dependent undergraduate student that is classified as a senior for the Fall 2013 term with 6 hours remaining to graduate $5500 ÷ 24 = 229.166667 x 6 hours = $1375 Subsidized Loan $2000 ÷ 24 = 83.33333 x 6 hours = $500 Unsubsidized Loan If student has no need: $7500 ÷ 24 = 312.5 x 6 = $1875 Unsubsidized Loan

28. LOAN PROCESSES A school may not originate a Direct Loan for a loan period in which the student is not enrolled at least half-time A school must determine an undergraduates student’s Pell Grant eligibility before originating a subsidized or unsubsidized Stafford Loan A school may not originate an unsubsidized Stafford loan without first determining the student’s need for the subsidized Stafford loan

29. LOAN BASICS Loan Repayment

30. LOAN REPAYMENT Single source for all federal loan info including Borrower info Loan amounts Interest accrued Servicer info www.nslds.ed.gov

31. WAYS TO REPAY Standard – Monthly payment remains consistent for up to10 years Graduated – Monthly payments are lower at first but then increase every 2 years up to 10 years. Income-sensitive – Monthly payments are based on your annual income and payments change as your income changes. Extended – Payments may be fixed or graduated for up to 25 years.

32. WAYS TO REPAY, CONT’D Income Contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship”; (25 year forgiveness) Income Based- Monthly payments will not exceed 15% of the amount by which your adjusted gross income exceeds 150% of the poverty guideline for your family size. (25 year forgiveness) Pay As You Earn – Monthly payments will not exceed 10% of the amount by which your adjusted gross income exceeds 150% of the poverty guideline for your family size. (20 year forgiveness)

33. OTHER LOAN TERMS Deferments Forbearance Default Cohort Default Rate

34. DEFERMENT Period of postponing payments Federal government will pay interest for the borrower with a Subsidized DL Deferment request should be submitted to loan servicer Some possible deferment situations: Education Peace Corps/ Military Unemployment or Inability to find full-time employment

35. FORBEARANCE Temporary cessation, reduction, or extension of payments Student is responsible for interest that accrues Borrower is willing but temporarily unable to pay Forbearance request should be submitted to loan servicer (in most cases, borrower must provide documentation to support the request)

36. DEFAULT Failure to meet the terms of the promissory note Failure to repay Borrower is considered to be in default after being delinquent for 270 days Borrower is subject to wage garnishment, seizure of income tax refunds, lottery winnings, license non- renewal, sued by DOE Student not eligible for federal financial aid Damage to the borrower’s consumer credit score

37. DEFAULT Satisfactory Repayment Arrangements Six on-time voluntary payments Rehabilitation Nine on-time voluntary payments Consolidation can “fix” a defaulted loan

38. COHORT DEFAULT RATE Includes DL loans, and loans underlying DL consolidation loans CDR = % of borrowers who enter repayment in a given federal fiscal year who then default within the next 3 fiscals years High rate has consequences for schools >15% = loss of 1 installment/semester >15% = 30 day hold on 1st time, 1st year borrowers > 40% = loss of participation in Title IV funding

39. QUESTIONS?