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Helping Students Succeed in Repayment

Helping Students Succeed in Repayment

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Helping Students Succeed in Repayment. Objectives. Discuss repayment options available to students. Share how you can help prepare your students for repayment. Discuss the consequences of delinquency and default. Non income-driven. Income-driven. Income-Based - PowerPoint PPT Presentation

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Page 1: Helping Students                  Succeed in Repayment

Helping Students Succeed in Repayment

Page 2: Helping Students                  Succeed in Repayment

Objectives

Share how you can help prepare your students for repayment

Discuss repayment options available to students

Discuss the consequences of delinquency and default

Page 3: Helping Students                  Succeed in Repayment

Repayment Plans

• Standard• Graduated• Extended• Alternative

Non income-driven

Income-driven• Income-Based• Pay As You Earn• Income-Contingent• Income-Sensitive

Page 4: Helping Students                  Succeed in Repayment

Standard Repayment

• Direct and FFELP loan borrowers• Equal monthly payments of at least $50 for

up to 10 years• Borrowers will automatically be enrolled in

the standard repayment plan

Option for borrowers who want to repay loans in the shortest time with the lowest amount of interest accrued

Page 5: Helping Students                  Succeed in Repayment

Standard Repayment

1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.

Loan Amount

MonthlyPayment

Total Interest

PaidTotal Paid1

(Loan + Interest)

$30,000 $345 $11,428 $41,428

Page 6: Helping Students                  Succeed in Repayment

Graduated Repayment

• Direct and FFELP loan borrowers• Monthly payments start lower and gradually

increase over time for up to 10 years• The monthly payment will never be less than

the amount of interest that accrues between payments

Option for borrowers who have less cash flow early on, but expect that their incomewill increase steadily over time

Page 7: Helping Students                  Succeed in Repayment

Graduated Repayment

1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.

Repayment Plan

Loan Amount

Monthly Payment

Total Interest

PaidTotal Paid1

(Loan + Interest)

Graduated $30,000

1–2: $234 3–4: $288 5–6: $350 7–8: $425 9–10: $517

$13,666 $43,666

Standard $30,000 $345 $11,428 $41,428

Page 8: Helping Students                  Succeed in Repayment

Extended Repayment

• Direct and FFELP loan borrowers• Payments that are fixed or gradually

increase over 25 years for loan debt that exceeds $30,000 in Direct or FFELP loans

• More interest is paid over the life of the loan

Option for borrowers who have larger loan debt and need a lower monthly payment

Page 9: Helping Students                  Succeed in Repayment

Extended Repayment

1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.

Repayment Plan

Loan Amount

Monthly Payment

Total Interest

PaidTotal Paid1

(Loan + Interest)

Extended $30,000 $208 $32,466 $62,466

Standard $30,000 $345 $11,428 $41,428

Page 10: Helping Students                  Succeed in Repayment

Alternative Repayment

• Direct loan borrowers • Must demonstrate exceptional

circumstances• Minimum monthly payment of $5• Maximum 30-year repayment term

Option for direct loan borrowers who cannot meet payment obligations with any of the other plans due to their exceptional circumstances

Page 11: Helping Students                  Succeed in Repayment

Income-Based Repayment

• Designed to help borrowers with unmanageable payments relative to income– Available for borrowers on or after

July 1, 2009

Option for someone who is looking for the lowest possible monthly payment based on their income

Page 12: Helping Students                  Succeed in Repayment

Income-Based Repayment

• Direct and FFELP loan borrowers – Perkins loan eligible, if included in a FFELP

or Direct Consolidation loan– Excludes Parent PLUS loan or Consolidation

loan that repaid a Parent PLUS loan

Page 13: Helping Students                  Succeed in Repayment

Partial Financial Hardship Defined

• Borrowers must demonstrate a partial financial hardship (PFH)

• PFH exists when the annual amount on the borrower’s eligible loans exceed 15% of the difference between the borrower’s AGI and 150% of the poverty guidelines based on borrower’s family size

Page 14: Helping Students                  Succeed in Repayment

Partial Financial Hardship Defined

• PFH factors:– Adjusted Gross Income (AGI)– Poverty guidelines– Family size– Standard loan payment

Page 15: Helping Students                  Succeed in Repayment

– $1,437 150% of poverty line $3,000 Monthly AGI

15% of $1,563 =$1,563

Standard payment = $345

How IBR Works

Family size = 1

$234

YesQualify =

Page 16: Helping Students                  Succeed in Repayment

Income-Based Repayment

• Borrowers must reapply each year• At the end of 25 years of repayment any

remaining balance may be forgiven • Any loan amount forgiven is taxable

income• Payments count towards Public Service

Loan Forgiveness

Page 17: Helping Students                  Succeed in Repayment

Income-Based Repayment

1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.

Repayment Plan

Loan Amount

Monthly Payment

Total Interest

PaidTotal Paid1

(Loan + Interest)

Income-Based $30,000

$234 – first year

payment$345 –

maximum monthly payment

$17,843 $47,843

Standard $30,000 $345 $11,428 $41,428

Page 18: Helping Students                  Succeed in Repayment

IBR Changes

For new Direct loan borrowers on or after July 1, 2014• Cap monthly payment to 10% of

discretionary income (as opposed to 15%)• Forgive remaining debt after 20 years

of qualifying repayment (as opposed to 25 years)

Page 19: Helping Students                  Succeed in Repayment

Pay As You Earn

• Designed to help borrowers with unmanageable payments relative to income– Available for borrowers

as of December 21, 2012

Option for someone who is looking for the lowest possible monthly payment based on their income

Page 20: Helping Students                  Succeed in Repayment

Pay As You Earn

• Direct borrowers – Perkins loan eligible, if included in a Direct

Consolidation loan– Excludes Parent PLUS loan or Consolidation

loan that repaid a Parent PLUS loan

Page 21: Helping Students                  Succeed in Repayment

Who Qualifies for Pay As You Earn?

Must meet the definition of a new borrower:• No outstanding DL or FFELP balance as of

10/1/07, or no outstanding balance on the date a borrower receives a new loan after 10/1/07; and

• Receive a disbursement of a DL on/after 10/1/11

• Must receive a Direct Consolidation loan based on application received on/after 10/1/11, unless it repays a DL or FFELP loan that was outstanding as of 10/1/07

Page 22: Helping Students                  Succeed in Repayment

Partial Financial Hardship Defined

• Borrowers must demonstrate a partial financial hardship (PFH)

• PFH exists when the annual amount on the borrower’s eligible loans exceeds 10% of the difference between the borrower’s AGI and 150% of the poverty guidelines based on borrower’s family size

Page 23: Helping Students                  Succeed in Repayment

Partial Financial Hardship Defined

• PFH factors: – Adjusted Gross Income (AGI)– Poverty guidelines– Family size– Standard loan payment

Page 24: Helping Students                  Succeed in Repayment

– $1,437 150% of poverty line $3,000 Monthly AGI

10% of $1,563 =$1,563

Standard payment = $345

Determining Pay As You Earn Eligibility

Family size = 1

$156

YesQualify =

Page 25: Helping Students                  Succeed in Repayment

Pay As You Earn

• Borrowers must reapply each year• At the end of 20 years of repayment any

remaining balance may be forgiven • Any loan amount forgiven is taxable

income• Payments count towards Public Service

Loan Forgiveness

Page 26: Helping Students                  Succeed in Repayment

Pay As You Earn

1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.

Repayment Plan

Loan Amount

Monthly Payment

Total Interest

PaidTotal Paid1

(Loan + Interest)

Pay As You Earn $30,000

$156 – first year

payment$345 –

maximum monthly payment

$24,145 $54,145

Standard $30,000 $345 $11,428 $41,428

Page 27: Helping Students                  Succeed in Repayment

Income-Contingent Repayment

• Direct borrowers – Perkins loan eligible, if included in a Direct

Consolidation loan– Excludes Parent PLUS loan or Consolidation

loan that repaid a Parent PLUS loan (except a Direct Consolidation Loan that repaid a Parent PLUS loan after 7/1/06)

Page 28: Helping Students                  Succeed in Repayment

Income-Contingent Repayment

• Payments are based on income and family size

Option for borrowers who need a reduced payment but may not be eligible for IBR or Pay As You Earn

Page 29: Helping Students                  Succeed in Repayment

Income-Contingent Repayment

• Borrowers must reapply each year• At the end of 25 years of repayment any

remaining balance may be forgiven • Any loan amount forgiven is taxable

income• Payments count towards Public Service

Loan Forgiveness

Page 30: Helping Students                  Succeed in Repayment

1Example assumes a gross monthly income of $3,000. 2 Example has a loan term of 170 months in repayment.

Repayment Plan

Loan Amount

Monthly Payment

Total Interest

PaidTotal Paid1

(Loan + Interest)

Income-Contingent $30,0002

$260 (Initial

Payments)$298(Final

Payments)

$17,431 $47,431

Standard $30,000 $345 $11,428 $41,428

Income-Contingent Repayment

Page 31: Helping Students                  Succeed in Repayment

Income-Sensitive Repayment

• FFELP loan borrowers• Monthly payments are based on income

and total loan amount• Repayment term is 10 years• Must reapply for this plan every year

Option for borrowers who need their monthly payments to fluctuate with their income

Page 32: Helping Students                  Succeed in Repayment

1Example assumes a gross monthly income of $3,000. 2 Example has a loan term of 170 months in repayment.

Repayment Plan

Loan Amount

Monthly Payment

Total Interest

PaidTotal Paid1

(Loan + Interest)

Income-Sensitive $30,0002

$120(Year 1)

$380(Years 2–10)

$12,462 $42,462

Standard $30,000 $345 $11,428 $41,428

Income-Sensitive Repayment

Page 33: Helping Students                  Succeed in Repayment

Counseling on Repayment

• Borrowers pay the lowest amount of interest under the standard 10 year repayment

• Borrowers can change their plan annually

However, they should choose another payment plan if they

have cash flow problems early on

Page 34: Helping Students                  Succeed in Repayment

Direct Consolidation Loan

Page 35: Helping Students                  Succeed in Repayment

Direct Consolidation Loans

• Combining federal loans into a single loan– Existing loans are paid in full and replaced

with a new loan• May give borrowers a lower monthly

payment

Option for borrowers with multiple servicers and who want to make one payment each month

Page 36: Helping Students                  Succeed in Repayment

Direct Consolidation Loan

• New interest rate, repayment schedule, and terms– Weighted average of underlying loans

rounded up to the next 1/8th percent• Borrower must complete a Direct

Consolidation Loan Application and Promissory Note– loanconsolidation.ed.gov

Page 37: Helping Students                  Succeed in Repayment

Direct Consolidation Loan

Borrower must be in grace period or repayment to consolidate – grace period may be lost

Consolidation process takes 30–60 days

Repayment begins approximately 60 days after consolidation process is completed

Borrowers have 180 days to add to a Direct Consolidation loan once it’s been made

Page 38: Helping Students                  Succeed in Repayment

Direct Consolidation Loan

• Repayment options are available for Consolidation loans

• Subsidized Stafford loans retain the interest subsidy during deferments

• Perkins loans lose interest subsidy and some cancellation options

• FFELP borrower’s benefits may be lost• Private loans may not be included in a

Direct Consolidation loan

Page 39: Helping Students                  Succeed in Repayment

Deferment

Page 40: Helping Students                  Succeed in Repayment

Deferment

Postponement of loan payments that a borrower is entitled to receive as long as he/she meets eligibility requirements

Borrower’s eligibility depends on meetingspecific criteria, the loan type, and the datethe borrower received his/her first loan

Page 41: Helping Students                  Succeed in Repayment

Deferment

In most cases, borrowers must request a deferment and provide documentation necessary to support eligibility—some deferments are automatic (e.g., in-school deferment)

Page 42: Helping Students                  Succeed in Repayment

Most deferments are borrower-specific –Time limits are enforced for each borrower

Deferment

The federal government pays the accruing interest on subsidized loans

Page 43: Helping Students                  Succeed in Repayment

Deferment Criteria

Types of Deferment Length of DefermentIn-school No time limit

Graduate Fellowship No time limitRehabilitation

Training Program No time limit

Unemployment Up to 36 monthsEconomic Hardship Up to 36 months

Military No time limit

Page 44: Helping Students                  Succeed in Repayment

Forbearance

Page 45: Helping Students                  Succeed in Repayment

Forbearance

• Temporary postponement, reduction, or repayment extension of loan payments

• Interest accrues on all loans during the forbearance

• Offered at the discretion of the lender (except mandatory forbearance)

Page 46: Helping Students                  Succeed in Repayment

Forbearance

• Typically granted for up to 12-month intervals, but the loan servicer sets the maximum amount of forbearance time allowed

• Borrower’s first payment is due no later than 60 days after the date the forbearance expires

Page 47: Helping Students                  Succeed in Repayment

Forbearance

• Four types of forbearance

Discretionaryforbearance

Mandatoryforbearance Administrativeforbearance

Mandatoryadministrative forbearance

Page 48: Helping Students                  Succeed in Repayment

Loan Forgiveness Programs

Page 49: Helping Students                  Succeed in Repayment

Loan Forgiveness

• Public Service Loan Forgiveness

Borrowers who hold a public service job may be eligible to have a portion of their Direct Loan debt forgiven after making 120 qualifying monthly payments beginning on or after October 1, 2007

Page 50: Helping Students                  Succeed in Repayment

Loan Forgiveness

• Teacher Loan Forgiveness

Borrowers who teach in an elementary or secondary school that is designated as low income may be eligible to have a portion of their Stafford loan debt forgiven

Page 51: Helping Students                  Succeed in Repayment

Preparing Students for Repayment

Page 52: Helping Students                  Succeed in Repayment

Preparing Your Students for Repayment

Help students know who their lenders/servicers are and how to get in touch with them• NSLDS

– nslds.ed.gov• Credit report

– annualcreditreport.com

Page 53: Helping Students                  Succeed in Repayment

Exit Counseling

• Required for subsidized and unsubsidized Stafford and Graduate PLUS borrowers

• May be conducted one of three ways−In person−By audiovisual presentation−By interactive electronic means

Supplemental counseling can help students better understand their borrowing obligations

Page 54: Helping Students                  Succeed in Repayment

What Students Should Do During Their Grace Period

• Sign up for online account access with their loan servicer

• Create a budget to determine affordability• Review all available repayment plans• Use calculators to help them find the plan

they can afford to pay and meet their goals

Page 55: Helping Students                  Succeed in Repayment

During the Grace Period

The lender must offer the borrower a choice of repayment schedules no more than six months before the first payment is due

The borrower must select a repayment schedule within 45 days of the lender’s notification

If the borrower does not select a schedule,the lender will establish the standard repayment schedule

Page 56: Helping Students                  Succeed in Repayment

Counseling Borrowers

Remind them that they:– Can change their plan– Can change their due date– Can postpone with a deferment/forbearance

if they have difficulty making a payment– Will pay more in interest with longer

repayment periods– Should contact their servicer if they have

difficulty making payments

Page 57: Helping Students                  Succeed in Repayment

Delinquency and Default

Page 58: Helping Students                  Succeed in Repayment

Delinquency

A loan is considered delinquent when one payment is missed

Delinquent loans are reported on a borrower’s and co-signer’s credit report

Page 59: Helping Students                  Succeed in Repayment

Technical Default

• Technical default occurs when a borrower does not make payments for 270 days on Stafford, PLUS, or Consolidation loans

Page 60: Helping Students                  Succeed in Repayment

Default

• For Direct loans—the loan is referred to the Debt Management Collection System (DMCS) and considered in default once the borrower is 360 days delinquent

• For FFELP loans—the lender files the claim up to 60 days after technical default; the loan is not considered in default until the claim is paid (up to 60 days later)

Page 61: Helping Students                  Succeed in Repayment

Default Impact to the Borrower

• Consequences of default include:– Damaged credit rating for at least seven years– Federal tax refund revoked– Collection fees assessed on defaulted loans– Wages garnished– Inability to receive additional financial aid

Page 62: Helping Students                  Succeed in Repayment

Default Impact to the School

• Schools receive privileges and sanctions based on the percentage of defaults – Two-Year Cohort Default Rate—percent of

borrowers who enter repayment in one federal fiscal year and default by the end of the next federal fiscal year

Page 63: Helping Students                  Succeed in Repayment

Default Impact to the School

• Schools receive privileges and sanctions based on the percentage of defaults – Three-Year Cohort Default Rate—percent of

borrowers who enter repayment in one federal fiscal year and default by the end of the next two federal fiscal years

– Schools will receive both two-year and three-year Cohort Default Rates until 2014

Page 64: Helping Students                  Succeed in Repayment

Conclusion

Page 65: Helping Students                  Succeed in Repayment

Conclusion

• Help your students prepare for repayment by:

• Utilize available resources from Great Lakes and the Department of Education

Reminding them of their options

Encouraging them to contact their servicer if they cannot pay or need assistance

Stressing that they can change their repayment plan if the one they are on becomes unaffordable

Page 66: Helping Students                  Succeed in Repayment

Resources from Great Lakes

• Online account access– Repayment calculators– Budget calculators

• Webcasts for borrowers– Selecting the Repayment Plan That Works for You– When You Can’t Pay: Explore Deferment and Forbearance

To promote these sessions at your school, visit mygreatlakes.org/smartsessions

mygreatlakes.org

Page 67: Helping Students                  Succeed in Repayment

Resources from the Department of Education

- fsapubs.orgFederal Student Aid Publications

- studentloans.govEntrance and Exit Counseling

Page 68: Helping Students                  Succeed in Repayment

Thanks for Attending