Student Loans 101: Know Before You BorrowRevised 9/2013
Agenda
Financial Aid Overview
Types of Student Loans
Getting a Student Loan
After the Loan: Rights and Responsibilities
Financial Aid: Education Pays
High School Diploma Some College Associate Degree Bachelor's Degree$0
$200
$400
$600
$800
$1,000
$1,200
Postsecondary degrees lead to greater weekly earnings
Source: Bureau of Labor Statistics, Current Population Survey, 2012.
Financial Aid: Education Costs
2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Rising Cost of Tuition and Fees Since 2000
Academic School Year
4-yr Private
4-yr Public
2-yr Public
Financial Aid
Paying for College
Family Financing
=
Financial Aid: The Hierarchy
Low Low
HighHigh
Private Loans
PLUS Loans
Unsubsidized Stafford Loans
Subsidized Stafford Loans
Perkins Loans
Self-Help Aid: Work Study
Gift Aid: Scholarships
COST
AVAILABILITY
Gift Aid: Grants
*Need-based
*Available to everyone*On financial aid award letter
Agenda
Financial Aid Overview
Types of Student Loans
Getting a Student Loan
After the Loan: Rights and Responsibilities
Student Loans: Misconceptions
Some say… But really…College is not worth the cost
College graduates are more likely to obtain higher-paying jobs and keep them during periods of high unemployment.
Student debt is bad If you borrow responsibly and take advantage of applicable repayment options, you can manage student debt. Remember, it’s an investment!
Dropping out of college=no more student debt
Student loans don’t away just because you don’t finish.
Low-income students don’t have to borrow money to go to college
Every student has to invest to go to college. Need-based aid often doesn’t cover the entire cost of attending college.
Student Loans: FFELP vs. Direct
Before July 1st, 2010: After July 1st, 2010 (today)
Federal Family Education Loan Program (FFELP) Federal Direct Student Loans:
Higher interest rates on PLUS loans Different repayment options
Must be repaid, with interest Origination fee No co-signer required Multiple payment options Not discharged in bankruptcy
Student Loans: Federal Overview
Low Low
HighHigh
Private Loans
PLUS Loans
Unsubsidized Stafford Loans
Subsidized Stafford Loans
Perkins Loans
Self-Help Aid: Work Study
Gift Aid: Scholarships
COST
AVAILABILITY
Gift Aid: Grants
Student Loans: Perkins
Perkins
Availability Need Based
Interest 5% Fixed
Subsidized? Yes
$/year Maximum $5,500 (undergraduate)$8,000 (graduate)
Total Maximum $27,500 over 4 years (undergraduate)$60,000 (graduate)
Grace Period 9 months
Options Loan forgiveness or cancellation for certain careers
Fixed Rate: Interest rate does not change from year to year, but remains constant over the life of the loan
Grace Period: The period of time between full-time enrollment and when you are required to make your first payment.
Student Loans: Subsidized Stafford
Subsidized Stafford/Direct
Availability Need Based
Interest 3.86% Fixed
Subsidized? Yes (while in-school only)
$/year Maximum Varies depending on year in school
Total Maximum $23,000
Grace Period 6 months
Options Unavailable for graduate studentsInterest not subsidized during grace period
Subsidized: The amount borrowed does not accrue interest until you graduate, leave school, or drop below full-time enrollment.
Student Loans: Unsubsidized Stafford
Unsubsidized Stafford
Availability Available to Everyone
Interest 3.86% fixed (undergraduate)5.41% fixed (graduate)
Subsidized? No
$/year Maximum Varies depending on year in school
Total Maximum $ 31,000 (undergrad)$138,500 (graduate)
Grace Period 6 months
Options Loan forgiveness available for certain careers
Unsubsidized: Interest will accrue on the loan amount while you are in school.
Calculating Interest:Principal amount - $3,000 w/ 3.86% interest
Year 1: $3,000Interest for 1st year: 3000 x 0.0386 = $116Interest payment: $5/monthRemaining Interest for 1st year: $116 - $60 = $56
Year 2: $3,000 + $56 = $3,056Interest for 2nd year: 3084 x 0.0386 = $119 No interest payments during 2nd year
Year 3: $3,056 + $119 = $3,175Interest for 3rd year: 3,175 x .00386 = $123
Student Loans: Stafford Limits
Dependent Undergraduate
Independent Undergraduate
Graduate Student
1st Year $5500 $3500 subsidized
$9500 $3500 subsidized
$20,500
2nd Year $6500 $4500 subsidized
$10,500 $4500 subsidized
$20,500
3rd Year + $7500 $5500 subsidized
$12,500 $5500 subsidized
$20,500
Maximum Total of Stafford Loans
$31,000 $23,000 subsidized
$57,500 $23,000 subsidized
$138,500
Stafford Loan Limits per Year in School
Student Loans: PLUS Loans
PLUS
AvailabilityNo, Credit Check Required
Interest6.41% Fixed
Subsidized?No
$/year Maximum
Gap in Financial Aid
Total MaximumGap over period you are in school
Grace PeriodNone, repayment beings immediately
OptionsFor parents and graduate studentsRepayment begins immediately
Gap: The difference between the financial aid offered to you and the cost of attendance.
Student Loans
Types of Student Loans Perkins Subsidized Stafford Unsubsidized
Stafford PLUS
Availability Need-Based Need-Based Everyone Everyone, Credit Check Required
Interest 5% fixed 3.86% fixed3.86% fixed5.41% fixed (grad)
6.41% fixed
Subsidized? Yes Yes (while in school) No No
$/year Maximum
$5,500 (undergrad)$8,000 (graduate)
Varies depending on year in school
Varies depending on year in school
Gap in Financial Aid
Total Maximum $27,000 $23,000
$31,000 (undergrad)$138,000 (grad)
Gap for 4 years
Grace Period 9 months 6 months 6 months None, repayment immediate
OptionsLoan Forgiveness or cancellation for certain careers
Unavailable for grad students. Interest not subsidized during grace period
Loan Forgiveness available for certain careers
For parents and graduate students. Repayment begins immediately.
Student Loans: Private Loans
Low Low
HighHigh
Private Loans
PLUS Loans
Unsubsidized Stafford Loans
Subsidized Stafford Loans
Perkins Loans
Self-Help Aid: Work Study
Gift Aid: Scholarships
COST
AVAILABILITY
Gift Aid: Grants
Private Loans
Student Loans: Private Loans
Compare interest rates Large loans sometimes required to access lower interest
rates Private interest rates more likely to be variable
Compare fees Private loans usually associated with higher fees
Compare grace periods You may not be able to predict what will happen during
your college career. Some private loans may have you paying back before you are finished with school.
Compare repayment options Government loans offer options for repayment, deferment,
forbearance, forgiveness, consolidation. Private loans don’t.
Consider the sustainability Will I have to continue borrowing private loans?
Should I consider a private loan?
Agenda
Financial Aid Overview
Types of Student Loans
Getting a Student Loan
After the Loan: Rights and Responsibilities
Financial Aid Overview
•Loan Entrance Counseling•Master Promissory Note •Disbursement
notice
Agenda
Financial Aid Overview
Types of Student Loans
Getting a Student Loan
After the Loan: Rights and Responsibilities
Rights
Copies of your promissory notes
Loan disbursement notification Loan disclosure statement Repayment schedule Grace period Deferment or forbearance Prepay without penalty Notification if loan is sold or
transferred Consolidate loans Notification when loan is paid
in full
Responsibilities
Pay back your loan in full Stay informed about:
Loan balances Payment amounts
Notify your loan servicer: Name or contact info changes Graduation, leaving school,
transferring to another school or dropping below half-time enrollment
Trouble with loan payments
Responsibilities: Borrow Responsibly!
Cabinet Maker History Teacher Dentist
What do you expect to earn when you graduate? Also consider, depending on the demand for your career, how long it may take you to find a job.
Entry-level salary: $25,100/year
$2,091/month
Entry-level salary: $44,500/ year
$3,708/month
Entry-level salary: $118,300/year
$9,858/month
How much do you expect to have to borrow? What kind of school will you attend and for how long? How much will you have to borrow each year?
$3,000/year for a 2- year program @ a community college = $6,000 total
$5,500/year for 4 years @ a state school = $22,000 total
$5,500/year for 4 years @ a state school + $20,500/year for 4 years @ a state school =$104,000 total
Calculate what your estimated monthly payments will be once you start repayment. Look online for student loan calculators to help with this.
$69.75/month $255.73/month $1,208.92/month
Calculate between 8-10% of your monthly income.
$167.28-$209.10 $296.54-$370.80 $788.64-$985.80
Responsibilities: Borrow Responsibly!
Cabinet Maker History Teacher Dentist
What do you expect to earn when you graduate? Also consider, depending on the demand for your career, how long it may take you to find a job.
Entry-level salary: $25,100/year
$2,091/month
Entry-level salary: $44,500/ year
$3,708/month
Entry-level salary: $118,300/year
$9,858/month
How much do you expect to have to borrow? What kind of school will you attend and for how long? How much will you have to borrow each year?
$3,000/year for a 2- year program @ a community college = $6,000 total
$5,500/year for 4 years @ a state school = $22,000 total
$5,500/year for 4 years @ a state school + $20,500/year for 4 years @ a state school =$104,000 total
Calculate what your estimated monthly payments will be once you start repayment. Look online for student loan calculators to help with this.
$69.75/month $255.73/month $1,208.92/month
Calculate between 8-10% of your monthly income.
$167.28-$209.10 $296.54-$370.80 $788.64-$985.80Can they afford it? What other financial responsibilities or choices may come into play?
Responsibilities: Debt Levels
Key Points: Choose a school and program wisely. Only borrow what you need. Find out how much your total debt level should
be. How much income will I have? How much of my income am I willing to spend
on loans? How much can I borrow before my loans are no
longer affordable? Student loan payments should be no more than
8-10% of your monthly income. Make and keep a budget to work with those debt
levels.
Responsibilities: Making Informed Choices
Borrow for direct educational costs only
Work during college Pay unsubsidized loan
interest while enrolled Compare repayment
plans and monthly payment amounts based on what you expect to borrow
Reduce expenses Learn to manage money
well
Responsibilities: Repayment Terms
RepaymentThe process of paying back your loans or the period in which you
pay back your loans. Different options may be available to fit your situation.
Consolidation Creates one large loan with a potentially longer term out of your smaller loans.
Deferment Suspends repayment for in-school periods, periods of military service, and economic hardship.
Forbearance Suspends repayment due to financial difficulty.
Discharge Eliminates any further repayment.
Forgiveness Reduces any remaining repayment.
Default When you fail to make payments on your loan as scheduled according to your promissory note.
Responsibilities: Repayment
Repayment Plan
Standard Graduated Income-Contingent
Extended Income-Based
Pay As You Earn
Term 10-year term
10-year term
Up to 25-year term
Up to 25-year term
Up to 25-year term
Up to 20-year term
Minimum Payment
At least $50/month
Interest payments ($25 minimum), gradually increasing over time
At lease $5/month. Depends on family size, adjusted gross income, loan debt
Either fixed or graduated payments.
Payments depend on family size, adjusted gross income, loan debt
Caps monthly payments at 10% of monthly income.
Additional Info
“Cheapest” for borrowers
Later payments cannot be more than 3x earlier payments
Borrower must reapply each year
For borrowers with over $30,000 in loans
Loans must present “partial financial hardship”
Only for new borrowers as of 10/1/07 who received loans after 10/1/11.
All repayment plans except the standard plan require you to apply for them
Repayment: Consolidation
Direct (current) Consolidates all federal
student loans into one big loan
Interest rate the “weighted average” of all loans
Same repayment options as Federal Direct
May reduce monthly payments
Consolidating PLUS loans negates eligibility for income-based repayment plans
Consolidation may lower
monthly loan payments.
Responsibilities: Deferment, Forbearance, Discharge
Deferment
•Postpones repayment. •Interest subsidy resumes on subsidized portion.•Requested by the borrower while in school, on active military duty, or experiencing temporary financial difficulties.
Forbearance•Postpones repayment due to economic hardship. •Interest accrues. Requested by the borrower.
Discharge •Eliminates any further repayment under very limited conditions.
Program Condition
Teacher
Up to $5,000 in Stafford Loans after five consecutive years teaching in elementary or secondary school serving low-income families.
Up to $17,500 in Stafford Loans after five consecutive years in a school serving low-income families as a highly qualified full-time secondary school math or science teacher or as a highly qualified special education teacher.
National Service $5550 scholarship or loan forgiveness per 12-month AmeriCorps term.70% of Perkins loan cancelled for Peace Corps service.
Perkins Loan Cancellation
Up to 100% of loan cancelled for five years of employment in specific positions, including teaching in low-income schools, nursing, and law enforcement.
Public ServiceAfter 120 on-time monthly payments while employed by the federal or state government, or by a 501c3 nonprofit. Loan must be in repayment status. Amount forgiven is not taxable.
Income-Based, Income-Contingent and Pay As You Earn
After 25 years of making on-time payments in these programs any remaining balance will be forgiven. Amount forgiven is taxable under current law. Does not apply to loans currently in default status. For Pay As You Earn, the balance is forgiven after 20 years.
Responsibilities: Forgiveness
Wrap-Up: Summary
Take advantage of “free” money. Complete the FAFSA every year. Borrow wisely. Assess your spending and stick to your budget. You have options with student loans. Know
them! Ask for help!
Resources
Studentaid.gov – Federal Student Aid Website Your college financial aid office Finaid.org StudentLoanBorrowerAssistance.org MappingYourFuture.org IRS.gov Student Loan Ombudsman (info on
studentaid.gov)
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