An Exit Program

a

Repayment Plan

CreateManageable

Office of Student Financial AidInformation based on federal regulations in effect through June 30, 2006

Steps To Manageable Repayment

• Gather information and prepare for repayment• Understand repayment plans• Learn options for postponing repayment• Identify opportunities to manage your debt

School’s Average Profile

Student Debt Profile

Note: 3.50% interest rate assumed Values shown are estimates and intended for use as a guideline

Repayment Ability

8.00% 16.00% 24.00% 32.00% 40.00% 48.00% 56.00% 64.00% 72.00% 80.00% 88.00%

6.00% 12.00% 18.00% 24.00% 30.00% 36.00% 42.00% 48.00% 54.00% 60.00% 66.00%

4.80% 9.60% 14.40% 19.20% 24.00% 28.80% 33.60% 38.40% 43.20% 48.00% 52.80%

2.40% 4.80% 7.20% 9.60% 12.00% 14.40% 16.80% 19.20% 21.60% 24.00% 26.40%

1.92% 3.84% 5.76% 7.68% 9.60% 11.52% 13.44% 15.36% 17.28% 19.20% 21.12%

1.60% 3.20% 4.80% 6.40% 8.00% 9.60% 11.20% 12.80% 14.40% 16.00% 17.60%

1.37% 2.74% 4.11% 5.49% 6.86% 8.23% 9.60% 10.97% 12.34% 13.71% 15.09%

1.20% 2.40% 3.60% 4.80% 6.00% 7.20% 8.40% 9.60% 10.80% 12.00% 13.20%

1.07% 2.13% 3.20% 4.27% 5.33% 6.40% 7.47% 8.53% 9.60% 10.67% 11.73%

.96% 1.92% 2.88% 3.84% 4.80% 5.76% 6.72% 7.68% 8.64% 9.60% 10.56%

$200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200

$30,000

$40,000

$50,000

$100,000

$125,000

$150,000

$175,000

$200,000

$225,000

$250,000

Manageable(8% or less)

Challenging(between 8% and 18%)

Complex(18% or greater)

Est

ima

ted

Sa

lary

Educational Payment as a Percent of Gross

Monthly Income

Monthly Student Loan Payment

Gather information and prepare for repayment

Master Promissory Note (MPN) and Promissory Note

• States your promise to repay the loan

• Defines loan terms and your rights and responsibilities

Signed an MPN for Stafford Loan funds

Signed promissory note for other loans

It’s an Obligation

• Do not complete your academic program• Are not satisfied with your education from

the school• Do not find employment after leaving school• Do not receive a payment notice from your lender

You must repay your student loans even if you:

Rights & Responsibilities

For Stafford Loans, you have a right to:• Request a written statement of your loan• Prepay your loan without penalty• Request a deferment or forbearance

You also have a responsibility to:• Participate in an entrance and exit session

• Notify your lender/servicer of changes to your name, address and enrollment status

• Repay the loan and notify the lender/servicer when your ability to repay changes

Review your Exit Handbook for a complete list.

Sorting Through the Information

• Identify your lender(s) and servicer(s)

• A lender or servicer will:– Send interest statements

– Calculate and monitor grace period

– Set your first payment due date

– Process payments

– Write or call if you are late with a payment

• Request an account statement fromeach lender

Keep a File of Information

• Account statements• Lender and servicer contact

information• Promissory notes• Financial aid office correspondence• Lender and servicer correspondence

Phases of Your Federal Loans

Private loan borrowers should contact their lender for details.

They Differ from Federal Loans

• Is there a grace period, and what is the length?• When does repayment begin, and how long does it last?• Can I postpone repayment?• What are my deferment and forbearance options and

requirements?• How and when is interest calculated?• What are your interest capitalization policies?• Is there a repayment incentive?

Private or Institutional Loans: Ask Questions

Understand repayment plans

Thinking Beyond Today

Repayment Plans

Repayment Term

Mo

nth

ly P

aym

en

t A

mo

un

t

Standard

Graduated

Income-Sensitive

Higher monthly payment; lower interest costHelpful option if you initially require smaller paymentsHelpful option if you initially require smaller payments; adjusted regularly

Remember Prepayment

• Make extra payments or pay entire balance at any time without penalty

• It’s an option for every repayment plan• Pay less in interest expense because your principal

balance is decreasing faster

Interest Capitalization

• Lender adds accrued interest to the outstanding principal balance of the loan

• Accruing interest on interest• Frequency of capitalization

varies by lender– Less frequent capitalization

is better

T.H.E. has a borrower-friendly

interest capitalization policy

T.H.E. has a borrower-friendly

interest capitalization policy

Private loan borrowers should contact their lender for details.

Repayment Strategies Calculator

www.theloanprogram.org/tlc/Calculators/RepayStrategyCalc.aspx

Learn options for postponing repayment

Reduce total repayment: pay accrued interest during grace and deferment.

Deferment Basics

• Postponement of repayment for a specific time period

• Apply and meet criteria• Borrower responsible for interest on unsubsidized

loans– Accrues or can be paid

• Interest rate lower than in repayment (Stafford only)

Common Deferments

In-School Deferment

Economic Hardship Deferment

Graduate Fellowship Deferment

Unemployment Deferment

Forbearance Basics

• Use only if you are not eligible for deferment or have exhausted deferment benefits

• Temporary postponement or reduction of payment• Apply and meet criteria

In-School Deferment

• Enrolled at least half-time at an eligible school

• No limit, as long as you continue to be enrolled

Economic Hardship Deferment

• Qualification based on a ratio of income to monthly student loan payments

• Ideal for early years of medical residency• Must apply and qualify each year• Available for up to 3 years

Find out if you may qualify by using our online calculator: www.theloanprogram.org/tlc/Calculators/HardshipCalc.aspx

Find out if you may qualify by using our online calculator: www.theloanprogram.org/tlc/Calculators/HardshipCalc.aspx

Unemployment Deferment

• Apply with documentation of employment status• Granted in six-month intervals• Up to 24 or 36 months of deferment

– Depending on date received Federal Stafford Loans

Forbearance Basics

• Use only if you are not eligible for deferment or have exhausted deferment benefits

• Temporary postponement or reduction of payment

• Apply and meet criteria

• Interest accrues on both subsidized and unsubsidized loans

• Interest rate equals current repayment rate

• Interest capitalization occurs at the end of each forbearance period with some lenders

T.H.E. has a borrower-friendly

interest capitalization policy

T.H.E. has a borrower-friendly

interest capitalization policy

Repayment Timeline

Federal Stafford LoansSubsidized & Unsubsidized

Federal Perkins Loanson or after July 1, 1993

6-month Grace Period

9-month Grace Period

Economic HardshipApply each year, up to three years

Economic HardshipApply each year, up to three years

Repayment or Forbearance

Repayment or Forbearance

Private & Institutional Loans

Contact your lender (private) or school (institutional) for details

App

ly

App

ly

App

ly

Gra

duat

ion

App

ly

App

ly

App

ly

Gra

duat

ion

6-mo. Post-

Deferment Grace Period

Loan Discharge

• Release of a borrower’s obligation to repay his or her federal loan, either in whole or in part– Death

– Disability

• Application process differs according to discharge situation

Private/Alternative Loan discharge terms vary by lender.

Identify opportunities to manage your debt

Budgeting for Success

• Prevent financial trouble• Learn how to be a smart consumer• Prepare a secure future by setting

and achieving goals

Wise borrowing and smart financial habits can help lower your debt.

Smart Financial Habits

• Get organized• Determine your income• Identify your expenses• Balance your budget

Get Organized

• Collect information– Bills

– Account statements

– Receipts

• Know your income• Track expenses with a

spending journal

Determine Your Income

Total the Sources:

• Employment• Personal Savings• Family Contribution

Identify Your Expenses

Fixed Expenses

• Rent/Mortgage/Association Dues• Car payments• Insurance premiums• Child care • Taxes• Student loan payments

Identify Your Expenses

Variable Expenses• Utilities

• Food

• Clothing

• Medical/Dental

• Household

• Transportation

• Credit card

Using credit cards is not a good option for covering expenses you cannot handle.

You have the power to control your expenses.

Is Your Budget Balanced?

Expenses Exceeding Funds?

Eliminate or modify budget items that you control:• Necessity vs. need• Share — split the cost• Get a roommate• Planned buying• Loan consolidation• Refinance your mortgage• Consider automobile options

Managing Credit

• Understand what is included in your credit report

• Maintain a high FICO® score

• Pay all bills on time

• Open new accounts over time, not all at once

• Pay off debt, rather than moving it around to other credit cards

Federal Consolidation Loan

• Simplify multiple student loans with one point of contact

• Reduce your monthly payment amount

• Lock in a fixed interest rate for up to 30 years

A Federal Consolidation

Loan can make things easier!

Federal Loan

Consolidation

Will Be

Changing

Information based on federal regulations in effect through June 30, 2006

• Must be in grace period or have entered repayment on loans selected for consolidation– Includes loans in deferment or forbearance

– In-school loans are eligible after student requests early repay

• Eligible loans include:– Federal Stafford

– Perkins

– Others in handbook

Consolidation Requirements

Private loans are not eligible for Federal Consolidation.

Repayment Term

• Extending the term lowers monthly payments

• Length is limited based on your total outstanding student loan debt

Amount Owed Loan Term (Years)

Less than $7,500 10

$7,500 - $9,999 12

$10,000 - $19,999 15

$20,000 - $39,999 20

$40,000 - $59,999 25

$60,000 or more 30

Interest Rate

• Interest rate is the weighted average of consolidated loans’ rates – rounded up to the nearest 1/8%

• Grace period and deferment ideal times to apply• Direction of rates around July 1 can

influence timing

Eligible Deferments

Economic Hardship

Pursuing a Graduate Fellowship

Enrolled at Least Half Time

Unemployment

Gain peace of mind and simplify your student loan debt today.

Selecting the Right Lender

The only differences between consolidation lenders are service and incentives

Selecting the Right Lender

• Knowledge and experience• Accessibility• Credibility• Long-term commitment

Service

Compare Incentives

T.H.E. Repayment Bonus:• Monthly credit• Starts immediately upon

repayment• Will not lose benefit• Deferments/forbearances do

not harm availability• More than 95% of our

borrowers in repayment receive the bonus

Ask the Lender:• What is the incentive?• Is there a waiting period?• What happens if I miss a

payment? • What happens if I request a

deferment?• How many of your borrowers

receive it?

Compare Incentives

From U.S. News & World Report

I consolidated some of my loans while I was enrolled in school this past year.

Now what?

Need to Know

• No grace period on existing consolidation loan• Options

– Deferment

– Forbearance

– Minimum Payment

• Be proactive, contact your lender regarding repayment

Consolidation Options

Second Consolidation Loan• Consolidate outstanding eligible loans separate

from previous consolidation loan

Re-Consolidate• Combining previous consolidation loan with other

outstanding eligible loans

How to DecideKeeping them separate vs. re-consolidation

Separate:

• If you made the right choice on who holds your first consolidation loan, then it makes sense to create a second consolidation loan with that same lender

Why? —

• Maximize your savings– Pay down the higher rate loan faster as finances allow

How to DecideKeeping them separate vs. re-consolidation

Re-consolidation:• If you find that another lender has a better reputation of service and

a deliverable incentive, then bring all your loans together with that new lender (previous consolidated debt with recent consolidated debt)

Why? —• Simplification and savings

– Loans at one place, one point of contact and one payment– Minimize your monthly payment by maxing out your

repayment term

Second Consolidation Loan

Application Process• Submit your Consolidation Application

– List loans to be consolidated (e.g. recent Stafford) on page 2

– List previous consolidated debt on page 3

– To retain grace period, complete question #26

• Separate interest rate• Typically one consolidation account with one payment

Second Consolidation LoanRemember Your Repayment Strategy

Minimize Interest Expense

• Maximize your repayment term • Pre-pay consolidation loan with

higher interest rate as finances allow

Re-Consolidation

Application Process

• Submit your Consolidation Application – List loans to be consolidated, including previous consolidated debt

on page 2

– To retain grace period, complete question #26

– Manage repayment on previous Consolidation Loan during Stafford grace: make payments, request deferment or forbearance

• Interest rate re-calculated• New payment schedule issued

Create Your Repayment Strategy

Consolidation Extend Term Interest Only Deferment/ForbearanceComplexChallengingManageable

8.00% 16.00% 24.00% 32.00% 40.00% 48.00% 56.00% 64.00% 72.00% 80.00% 88.00%

6.00% 12.00% 18.00% 24.00% 30.00% 36.00% 42.00% 48.00% 54.00% 60.00% 66.00%

4.80% 9.60% 14.40% 19.20% 24.00% 28.80% 33.60% 38.40% 43.20% 48.00% 52.80%

2.40% 4.80% 7.20% 9.60% 12.00% 14.40% 16.80% 19.20% 21.60% 24.00% 26.40%

1.92% 3.84% 5.76% 7.68% 9.60% 11.52% 13.44% 15.36% 17.28% 19.20% 21.12%

1.60% 3.20% 4.80% 6.40% 8.00% 9.60% 11.20% 12.80% 14.40% 16.00% 17.60%

1.37% 2.74% 4.11% 5.49% 6.86% 8.23% 9.60% 10.97% 12.34% 13.71% 15.09%

1.20% 2.40% 3.60% 4.80% 6.00% 7.20% 8.40% 9.60% 10.80% 12.00% 13.20%

1.07% 2.13% 3.20% 4.27% 5.33% 6.40% 7.47% 8.53% 9.60% 10.67% 11.73%

.96% 1.92% 2.88% 3.84% 4.80% 5.76% 6.72% 7.68% 8.64% 9.60% 10.56%

$200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200

$30,000

$40,000

$50,000

$100,000

$125,000

$150,000

$175,000

$200,000

$225,000

$250,000

Est

ima

ted

Sa

lary

Monthly Student Loan Payment

Remember:

Consequences of Delinquency/Default

Delinquent: late monthly payment– Collection activity

– Damage to credit rating

Default: failure to pay for 270 days– Collection and legal activity

– Damage to credit rating for seven years or more

– Wages could be garnished

– Professional license could be suspended or revoked

Update your address and phone number with lenders/servicers.

Don’t ignore mail.

Delinquency/Default terms may differ for private and other federal loans.

An Exit Program

Questions & Discussion

Contact Us:

888-843-0004www.northstar.orgOffice of Student Financial Aid