Federal Student Loan Exit Counseling

Presented by:

Financial Aid Office,

Thomas Jefferson School of Law

November 18, 2010

Disclaimer

Federal regulations require that the name of the entity who developed and paid for the entrance counseling materials be disclosed. The material presented here was prepared by TG and the U.S. Department of Education. The completed document was reviewed for accuracy by the Financial Aid Office at Thomas Jefferson School of Law

Why do I need to attend?

• Federal regulations require schools to provide exit counseling for students: −Who have borrowed a Stafford and/or Grad

PLUS loan under the Federal Direct Loan Program (Direct Loan) and/or the Federal Family Education Loan Program (FFELP) and

−who are graduating, have withdrawn or have dropped below half-time enrollment.

Stafford Loan Master Promissory Note (MPN)

• An agreement to pay back loan(s)• Multi-year feature vs. new MPN per year• Details borrower rights and responsibilities

Stafford MPN

• Used for subsidized and unsubsidized Stafford Loans −Subsidized — need-based loan; government pays

interest while enrolled−Unsubsidized — non-need based loan; student

responsible for all interest

PLUS MPN

Used for:• Student PLUS loans (FDLP) • Grad PLUS loans (FFELP)

When repayment begins

• Stafford loans have a grace period; repayment begins six months after student graduates, withdraws, or drops below half-time enrollment.

• PLUS loans have a deferment period; repayment begins six months after student graduates, withdraws, or drops below half-time enrollment.

−Direct Loan Servicing Center or lender will send notification of your first payment due date during your grace/deferment period.

Borrower 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.

• Even if you did not complete your program, didn't complete your program within the regular time for program completion, are dissatisfied with quality of education, or can’t find a job, you must pay back the loan(s).

Consequences of default

• Loss of federal financial aid eligibility• Withholding of federal income tax refunds• Inability to renew professional license

(e.g., lawyer, State Bar Licensure)• 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

Attachment A: Sample monthly repayment amounts

Loan Amount

4% 5% 6% 7% 8% 9%

$70,000 $708.72 $742.46 $777.14 $812.76 $849.29 $886.73

$80,000 $809.96 $848.52 $888.16 $928.87 $970.62 $1013.41

$90,000 $911.21 $954.50 $999.18 $1044.98 $1091.95 $1140.08

$100,000 $1012.45 $1060.66 $1110.21 $1161.08 $1213.28 $1266.76

$110,000 $1113.70 $1166.72 $1221.23 $1277.19 $1334.60 $1393.43

$120,000 $1214.94 $1272.79 $1332.25 $1393.30 $1455.93 $1520.11

$130,000 $1316.19 $1378.85 $1443.27 $1509.41 $1577.26 $1646.79

Interest Rates

Attachment A: Sample monthly repayment amounts

Loan Amount

4% 5% 6% 7% 8% 9%

$140,000 $1417.43 $1484.92 $1554.29 $1625.52 $1698.59 $1773.46

$150,000 $1518.68 $1590.98 $1605.31 $1741.63 $1819.91 $1900.14

$160,000 $1619.92 $1697.05 $1776.33 $1857.74 $1941.24 $2026.81

$170,000 $1721.17 $1803.11 $1887.35 $1973.84 $2062.57 $2153.49

$180,000 $1822.41 $1909.18 $1998.37 $2089.95 $2183.90 $2280.16

$190,000 $1923.66 $2015.24 $2109.39 $2206.06 $2305.22 $2406.84

$200,000 $2024.90 $2121.31 $2220.41 $2322.17 $2426.55 $2533.52

Interest Rates

Repayment plans

Offered under both FDLP & FFELP • Standard • Graduated • Extended • Income-based

Specific to loan program • Income-contingent (FDLP)• Income-sensitive (FFELP)

Repayment plans

• For all repayment plans, student can:−Prepay loans without penalty; −Pay on a shorter schedule; and −Change repayment plans once per year.

Standard Repayment Plan

• Lowest total loan cost• Regular payments of both principal and

interest are due monthly, excluding periods of deferment and forbearance

• Minimum monthly payment is $50 • 10-year repayment term

Graduated Repayment Plan

• Monthly payments are smaller at the start of the repayment period and gradually increase

• 10-year repayment term• Total amount paid in interest will be greater

than under the standard repayment plan

Extended Repayment Plan

• Lengthens repayment term up to 25 years• Available to borrowers with more than

$30,000 in federal student loans• Total interest costs may be higher over life

of the loan, although monthly payment amount may be lower

Income-Based Repayment Plan (IBR)

• Borrowers may qualify for lower monthly payments as determined by adjusted gross income, federal student loan debt, and family size

• After 25 years (300 payments), remaining balance and accrued interest is forgiven

• Must reapply annually

Income-Contingent Repayment Plan

• Offered only to borrowers under the Direct Loan Program

• Monthly payment based on adjusted gross income, family size, and total Direct Loan debt

• If payment does not cover interest accrued, unpaid amount is capitalized annually.

• Maximum repayment period is 25 years, and any balance after 25 years is forgiven.

Sample Comparison of Repayment Plans

Loan consolidation

• Option to combine federal education loans• Loans must be in grace or repayment status

− Temporary provision to consolidate while in-school (July 1, 2010–June 30, 2011)

• 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

• www.loanconsolidation.ed.gov

Consolidation — factors to consider

• Negatives −Total interest paid may be greater−May extend repayment period −May lose benefits (e.g., grace period, loan

forgiveness, cancellation, deferment, or a reduced interest rate)

Consolidation — factors to consider

• Positives −May significantly lower monthly payments−Simplifies repayment — one monthly payment−No minimum or maximum loan amounts or

fees with Direct Loan consolidation

Consolidation tips

• Compare and weigh all options• For more information on consolidating your

loans, and how to apply go to −www.loanconsolidation.ed.gov

Tax benefits

• For students and parents−Student loan interest deduction

• reduces the taxable income based on the amount of student loan interest paid.

−Tuition and fees deduction • reduces the taxable income based on college

tuition and fees paid during the tax year

Tax benefits

• For students and parents −Hope and Lifetime Learning tax credit

• a credit against federal income taxes for college tuition and fees paid during the tax year

• See IRS publication 970 at www.irs.gov for more information.

Debt management strategies

• Make a budget • Loan payments are a fixed cost like utilities

and rent• Be realistic about expected earnings for

your major • Stick to one credit card. Keep in mind that

credit cards are loans!

Deferments and Forbearances

Deferment

• Contact your lender or servicer to find out if you qualify

• You could postpone your payments for several reasons, such as:−Unemployment−Economic hardship−Student enrollment

Forbearance

• Forbearance is an option that lenders or servicers can offer that permits:−Reduced payments,−An extension of time for making payments, or−The temporary cessation of payments.

• Medical or financial problems that do not meet the requirements for a deferment might qualify you for forbearance, as will other special circumstances.

Public Service Loan Forgiveness

Loans Eligible for Public Service Loan Forgiveness

• Federal Direct Unsubsidized Stafford Loans• Federal Direct Subsidized Stafford Loans• Federal Direct PLUS Loans for parents and

grad/professional students• Federal Direct Consolidation Loans

Loans Eligible for Public Service Loan Forgiveness

• Other Federal loans may qualify for public service loan forgiveness if consolidated into a Direct Consolidation Loan, including:− FFEL Subsidized/Unsubsidized Stafford Loans− FFEL PLUS Loans for parents and

grad/professional students− FFEL Consolidation Loans (excluding joint spousal

consolidation loans)− Federal Perkins Loans −Certain Health Professions and Nursing Loans

Repayment Plans Under Which 120 Payments Must be Made

• Income-based repayment plan (not available for parent PLUS loans)

• Income-contingent repayment plan (except parent PLUS borrower)

• 10-year Standard repayment plan• Any other repayment plan if monthly payment is not

less than that paid under Direct Loan standard repayment plan

Eligible Public Service Jobs for Loan Forgiveness

• Employment, in any position, by a public service organization

• Service in a position in Americorps or the Peace Corps

• Employment or service must meet the definition of “full-time”

Definition of Public Service Organization

• A Federal, State, local, or Tribal government organization, agency, or entity

− A job in government excludes time served as a member of the United States Congress

• A public child or family service agency• A non-profit organization under section 501(c)(3) of the Internal

Revenue Code that is exempt from taxation under section 501(a) of the Internal Revenue Code

• A Tribal college or university

Definition of Public Service Organization (cont.)

• Public service organization is a private organization that provides public services:− Emergency management− Military service− Public safety− Law enforcement− Public interest law services (legal advocacy may be

provided “on behalf of” low-income communities at a nonprofit organization rather than strictly “in” low-income communities at a non-profit organization

Definition of Public Service Organization (cont.)

• Public service organization is a private organization that provides public services:

−Early childhood education (including licensed or regulated health care, Head Start, and state-funded pre-kindergarten)

−Public service for individuals with disabilities and the elderly

−Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner and health care support occupations)

Definition of Public Service Organization (cont.)

• Public Service Organization is a private organization that provides public services:−Public Education−Public Library Services−School Library and other school-based

services

Definition of Public Service Organization (cont.)

• A private organization is not:

−A for-profit business −A labor union −A partisan political organization or −An organization engaged in religious activities

unless activities are unrelated to religious instruction, worship services, or any form of proselytizing

Eligible Public Service Jobs for Loan Forgiveness

• Americorps position means:−A position approved by the Corporation for National

and Community Service under section 123 of the National and Community Service Act of 1990

• Peace Corps position means:−A full-time assignment under the Peace Corps Act as

provided for under 22 U.S.C. 2504

Treatment of Lump Sum Payments from Americorps or Peace Corps

• If a borrower makes a lump sum payment using all or part of an Americorps service award or Peace Corps transition payment, qualifying payments equal lesser of:− # of payments resulting after dividing the amount of

lump sum by monthly payment amount required under appropriate repayment plan or

− Twelve payments

Definition of “Full-time” for Qualifying Employment

• Full-time means working in qualifying employment in one or more jobs for the greater of:−An annual average of at least 30 hours weekly, or− For a contractual or employment period of at least 8

months, an average of 30 hours per week; or−Unless the qualifying employment is with two or more

employers, the number of hours the employer considers full-time.

Definition of “Full-time” for Qualifying Employment

• Definition of full-time (cont.):−Vacation or leave time provided by the

employer or leave taken for a condition that is a qualifying reason for leave under the Family and Medical Leave Act is not considered in determining the average hours worked on an annual or contract basis.

Public Service Loan Forgiveness Process

• Borrower requests loan forgiveness after making 120 qualifying payments

• Generally, borrowers repaying under IBR or ICR will have outstanding balances left to forgive after 120 qualifying payments

• ED will determine borrower’s eligibility and notify borrower accordingly• In the interim, ED will:

− Develop a forgiveness application form − Develop a process to review, maintain and track borrower’s

employment and payments

INCOME-BASED REPAYMENT§682.215 FFEL

§685.221 Direct Loans

Income-Based Repayment

• New repayment plan that began July 1, 2009 for FFEL and Direct loan borrowers

• Caps monthly payments on eligible loans to an affordable amount, based on income and family size

Loans Eligible for IBR

• FFEL or Direct −Stafford loans

• Subsidized and Unsubsidized

−Grad PLUS loans; not Parent PLUS−Consolidation loans, except consolidation

loans that paid off Parent PLUS loan

• Loans must not be in default

Borrower Eligibility

• Determined by comparing monthly payment for all eligible loans under 10-year Standard repayment plan to the calculated IBR payment

• If IBR amount is less than Standard repayment, borrower is eligible (deemed to have “partial financial hardship”) and may choose to make IBR payment

Calculating the IBR payment

• Annual IBR payment is 15% of the difference between borrower’s income and 150% of the HHS Poverty Guidelines, adjusted for family size and state of residence

Calculating the IBR payment Borrower’s Income

• Adjusted Gross Income (AGI), as reported to IRS

• If married and filed joint return, combined AGI is used as borrower’s AGI for IBR calculation

Calculating the IBR Payment Borrower’s Income (cont.)

• Other documented proof of current income may be accepted if AGI is not available or AGI reported to IRS does not reasonably reflect current income

Calculating the IBR Payment HHS Poverty Guidelines

• Income amounts based on family size and state of residence

• Published annually in Federal Register• Posted on IFAP as an Electronic

Announcement

Calculating the IBR Payment Family size

• Borrower and borrower’s spouse• Borrower’s children who receive more than

half their support from borrower− includes children expected to be born in year

of certification

• Other individuals who live with, and receive more than half their support from the borrower

Calculating the IBR Payment Sample Maximum Payments

1 2 3 4 5 6

10,000 $0 $0 $0 $0 $0 $0

20,000 $47 $0 $0 $0 $0 $0

30,000 $172 $102 $32 $0 $0 $0

40,000 $297 $227 $157 $87 $16 $0

50,000 $442 $352 $282 $212 $141 $71

Family Size

Ann

ual I

ncom

e

Calculating the IBR PaymentSpecial Rules

• If calculated IBR amount is less than $5.00, monthly payment is $0.00

• If calculated IBR amount is equal to or greater than $5.00 but less than $10.00, monthly payment is $10.00

Calculating the 10-year Standard Repayment

• Based on 10-year repayment of aggregate amount of IBR-eligible loans outstanding at point of entering repayment

Comparison of IBR and Standard Repayment Amount

• If monthly amount calculated under 10-year Standard repayment plan is LESS than IBR monthly amount, borrower is not eligible for IBR

• If monthly amount calculated under 10-year Standard repayment plan is MORE than IBR monthly amount, borrower is eligible and may choose to repay under IBR

Example 1: Eligible for IBR

AGI: $50,000

Family size: 4

State of residence: California

Eligible student loan debt: $20,000

Interest rate: 6.8%

10-year Standard repayment: $230

IBR repayment: $212

Example 2: Not Eligible for IBR

AGI: $30,000

Family size: 1

State of residence: New York

Eligible student loan debt: $10,000

Interest rate: 6.8%

10-year Standard repayment: $115

IBR repayment: $172

Online help

• Calculator available to estimate amount of IBR payment and borrower eligibility: www.ibrinfo.org

• NSLDS available to borrower to obtain complete Federal student loan information - www.NSLDS.ed.gov

• Websites of individual loan holders

IBR Process

• Borrower must annually provide the loan holder with information needed to determine eligibility and calculate IBR payment amount

• Proof of AGI−Borrower authorizes IRS verification of AGI−Alternative documentation required if AGI

does not reflect current income

IBR Process (cont.)

• If borrower requests IBR from loan holder, all loans held by that entity must be repaid under IBR unless borrower requests otherwise

• If there are multiple loan holders, the borrower must apply to each loan holder to qualify on all loans

• Loan holders pro-rate payment amounts

Subsequent Years

• Borrower may continue if still eligible for reduced payment based on annual recalculation−Amount of IBR payment may change

Subsequent years (cont.)

• If borrower no longer eligible for IBR reduced payment or chooses to stop making reduced payments under IBR−May stay in IBR program with maximum

monthly payment recalculated on 10-year Standard repayment of amount owed at point borrower initially started IBR

−Repayment period may exceed 10 years

Subsequent years (cont.)

• Any borrower who leaves IBR plan will be placed on Standard repayment−For non-consolidation borrowers, payment

recalculated under 10-year Standard plan, based on time remaining and amount outstanding at the point the borrower discontinued payments under IBR

Subsequent Years (cont.)

• Any borrower who leaves IBR plan (cont.)−For a consolidation loan, payment is

recalculated based on • repayment period remaining in period originally set

for consolidation repayment (up to 30 years), • balance owed on consolidation loan and other

student loans at time borrower discontinued paying under IBR

Subsequent Years (cont.)

• Interest capitalization−Interest is capitalized if borrower is no longer

eligible for reduced IBR payment or if borrower chooses to leave IBR

Interest Subsidy

• If reduced IBR payment does not cover full amount of interest that accrues each month on borrower’s subsidized Stafford loans (or subsidized portion of consolidation loans), Secretary pays remaining interest for borrower for period up to 3 consecutive years from repayment period start date.

Loan Forgiveness

• Amount of accrued interest and principal remaining after borrower makes the equivalent of 25 years of payments through combination of eligible monthly payments and Economic Hardship deferment is forgiven.

• Eligible payments counted towards total of 25 years:− Monthly reduced payments under IBR calculation

Loan Forgiveness (cont.)

• Eligible Payments (cont.)−Monthly reduced payments capped at maximum

payment under 10-year repayment based on repayment of loans outstanding at time entered IBR

−Monthly payments under ICR (DL)−Monthly payments under any repayment plan if

amount is not less than 10-year Standard repayment based on loans outstanding at initial repayment of loans

• Proposed change to calculation of 10-year Standard repayment for purposes of determining IBR eligibility would be based on the greater of the amount due at the time − Borrower initially entered repayment or − Borrower elected repayment under IBR

• Proposed change concerning borrowers filing joint tax return would take into account the combined amount of borrower and spouse’s eligible loan debt

Changes in Regulations

Advantages of IBR

• Affordable payments (including $0)• If borrower’s calculated IBR payment does not cover

the monthly accrued interest, the remaining interest is paid for borrower for three years on subsidized loans

• Remaining principal and interest forgiven after 25 years of payments

• IBR payments count for Public Service Loan Forgiveness

IBR Disadvantages

• More interest paid over time• Repayment period more than 10 years• Annual submission of information on income

and family size to prove continued eligibility for reduced payments under IBR

Accessing your loan information

• National Student Loan Data System (NSLDS)−U.S. Department of Education's central

database for student aid −NSLDS receives data from schools, guaranty

agencies, the Direct Loan program, and other Department of Education programs

−www.nslds.ed.gov−Need a PIN for access

Reminders

• Keep copies of all correspondence• Keep the Direct Loan Servicing Center or

lender informed of status changes (e.g., address change or going to graduate school)

• Direct Loan borrowers −www.dl.ed.gov −1-800-848-0979 or (TTY) 1-800-848-0983.

• FFELP borrowers−Know your lender’s phone number

Problem resolution process

• Federal Student Aid Ombudsman of theDepartment of Education−Helps resolve disputes −When you have  done all you can do yourself

 and haven’t been able to reach a solution, the Ombudsman provides a process and resources to assist you, the student.

− www.ombudsman.ed.gov

Questions

Please e-mail questions or comments to

mberman@tjsl.edu or call me at 619-297-9700 x1353.