Extended Exit: Now More Than Ever

1. Extended Exit:Now More Than Ever ANZFAA – Sydney 2010 Tony Glad

2. Debt Management 8 Strategies for Managing Student Loan Debt • Know your rights and responsibilities • Know your loan portfolio – loan types and relative costs • Know your grace, deferment and forbearance options • Know your decision dates and keep a calendar • Know the cost before choosing your repayment plan • Keep good records • Understand the consequences of delinquency and default • Know your resources

3. Rights and Responsibilities Borrower Rights: • Disclosure statement • Copy of Promissory Note and actual note when paid in full. • Repayment schedule • Interest benefits, if eligible • Grace period • Prepayment without penalty • Notice of loan sale or transfer (if payments sent to a new location) • Deferments, when eligible • Forbearance requests

4. Rights and Responsibilities Borrower Responsibilities: • Notify lender/servicer of addresses changes • Notify servicer of other demographic changes (change of name) • Repay loan on schedule (including interest and fees) • Attend Exit Counseling

5. Rights and ResponsibilitiesRepayment • The Master Promissory Note (MPN) you signed is a legally binding agreement where you promised to repay all federal loans you received. • Loans must be repaid in full even if you: • Do not finish school. • Are not satisfied with your school or program. • Do not find a job after graduation. • You must repay your loan—even if you don’t receive a bill—so make sure your servicer has your current contact information.

6. Rights and Responsibilities Repayment • Each loan will begin in Standard Repayment - you may change your repayment plan once per year, or once you qualify for income related plans). • You can pay loans on a shorter schedule—there’s no penalty for prepaying your federal student loans. • If you’re having trouble repaying, call your servicer to discuss option

7. Loan TypesDirect /Stafford • Subsidized Loan: • Based on a borrower’s need (per FAFSA). • Interest is paid by the government while at university, during grace period, and during deferments. • Unsubsidized Stafford Loan: • Available regardless of a borrower’s financial need. • Interest accrues from disbursement, and you are responsible for paying it. • Interest payment may be deferred while you’re at university, in grace or deferment. • Interest is capitalized (added to the loan principal) at repayment

8. Direct Stafford Loan: Interest Rates • All Stafford Loans disbursed between July 1, 1998, and June 30, 2006, have a variable rate based on a 91-day T-bill + 1.7% in-school, grace and deferment and 91-day T-bill + 2.3% in repayment, capped at 8.25%. Currently 1.87% and 2.47%, respectively. • All Stafford Loans disbursed after July 1, 2006, and before June 30 , 2012, have a fixed interest rate of 6.8 percent, with the following exception: • The College Cost Reduction and Access Act of 2007 cut the fixed rates on new sub Stafford loans for undergrad students to 6.0% (2008-09), 5.6% (2009-10), 4.5% (2010-11) and 3.4% (2011-12), with a return to 6.8% in 2012-13. These cuts are available only to undergrad students and only for subsidized loans.

9. PLUS Loan Interest Rates • Direct PLUS Loans disbursed after 1 July 2006 are fixed at a rate of 7.9%. • FFEL PLUS Loans disbursed after July 1, 2006 have a fixed interest rate of 8.5% for loans • PLUS Loans disbursed from 7/1/1998 through 6/30/2006 : 91-day T-bill + 3.1, capped at 9%, currently 3.27%.

10. Grace Period • Grace periods begin the day a student withdraws, graduates, or drops below half-time enrollment. • Payments are not required during grace periods. • Direct Stafford Loans have a 6-month grace period. • Direct Subsidized Stafford stays subsidized in grace.

11. Deferment • Deferment allows you to postpone payments on your federal student loans. • If you’re approved for a deferment, the federal government will pay the interest on a subsidized Stafford Loan for a specified period; however, interest on unsubsidized loans will be added to your principal balance. • If you meet any of the following conditions, you may qualify for a deferment: • Economic hardship • Unemployment • Enrollment in school • Graduate fellowship • Rehabilitation training • Military • If you borrowed any of your outstanding federal student loans before July 1, 1993, you may be eligible for additional types of deferments, check with servicer.

12. Forbearance • Forbearance is similar to deferment because it’s a temporary postponement to your repayment schedule—usually from 6 months to 12 months in length. • During forbearance, interest accrues on both subsidized and unsubsidized loans and you must repay it eventually. • There are several types of forbearances, including the following: • Economic hardship • Internship or residency • Excessive debt • Disaster • Military mobilization • National and community service • Temporary disability • Contact your loan servicer for exact forbearance eligibility requirements and to apply.

13. Repayment Options • Standard • Graduated • Extended • Income-Sensitive (FFELP loans only) • Income-Contingent (Direct Loans only) • Income-Based • Consolidation

14. Standard Repayment • 10 year (120 months) repayment term • Minimum monthly payment is $50. • Monthly payment will typically be more than $50 to ensure your loan is repaid within 10 years. • Keeps finance charges to minimum. • Most cost-effective repayment option—you pay the least interest.

15. Graduated Repayment • Payments start smaller—$30 is the minimum monthly payment—and gradually increase throughout repayment. • A good alternative if you anticipate your income will increase in the future. • Maximum repayment term is 10 years; however, the lender/holder may extend the term up to 4 additional years in certain cases. • Remember: increased interest cost.

16. Extended Repayment • For borrowers with more than $30,000 in loan debt. • Payment amounts can be either fixed or graduated. • Extends your repayment term. • Maximum repayment term is 25 years. • Minimum monthly payment is $50. • More expensive because extending your term increases the time you pay interest. • Available to borrowers whose oldest loan was originated on or after October 7, 1998.

17. Income-Sensitive Repayment • FFELP loans only • Monthly payment is adjusted annually so payment is between 4 percent and 25 percent of your gross monthly income (must be greater than the accruing interest). • Maximum repayment period is 10 years; however, the lender/holder may extend the term up to 5 additional years in certain cases. • Again, smaller up-front payments mean higher back-end payments and more interest.

18. Income-Contingent Repayment • Direct Loans Only • Payments are based on the borrower's income and the total amount of debt. • Monthly payments are adjusted each year as the borrower's income changes. • The loan term is up to 25 years. At the end of 25 years, any remaining balance on the loan will be discharged. • The write-off of the remaining balance at the end of 25 years is taxable under current law.

19. Income-Based Repayment • Available beginning July 1, 2009. • Monthly payments are capped at no more than 15 percent of your discretionary income, which is based on your income, family size, and total amount borrowed. • Maximum repayment period is 25 years. • Any remaining debt after 25 years is forgiven. • Must display partial financial hardship to qualify.

20. Consolidation • Multiple loans combined to make one new loan • Underlying loans are paid in full • New, usually longer term of payment • Fixed interest rate • No fees associated with consolidating • Cannot “un-consolidate”

21. ConsolidationEligible Loans - • Direct Sub, Unsub & PLUS Loans (DL) • Sub, Unsub Stafford & PLUS Loans (FFELP) • Direct and Federal Consolidation Loans (prior to 7/1/06) • Guaranteed Student Loans (GSL) • Supplemental Loans for Students (SLS) • Federal Perkins Loans • National Defense Student Loans • Health Education Assistance Loans • Health Professions Student Loans • Loans for Disadvantaged Students • Nursing Student Loan

22. Ineligible Loans • Any loans made by individuals, states or private alternative lenders that are not guaranteed by the federal government, for example: • Primary Care Loans – due to work requirements • State loans • Defaulted Loans – unless the borrower has made satisfactory repayment arrangements • Credit card debt, home mortgages, car loans etc.

23. When can you consolidate? • After you graduate • Things to consider: • Impact on grace • Higher loan costs due to interest rate and/or longer repayment term

24. How is it calculated? • Weighted average of interest rates rounded up to nearest 1/8 point and capped at 8.25% • Example: • $8,500 * 7% = $595 • $10,000 * 5% = $500 • $8,500 * 9% = $765 • $27,000 $1860 $1860 ÷ $27,000 = 6.888 (.0688) So 6.888% , nearest 1/8% (.125) = 7.00%

25. Repayment Length • Amount of Loan Repayment Length • Less than $7,500 10 years • $7500 - $9,999 12 years • $10,000 - $19,9999 15 years • $20,000 - $39,9999 20 years • $40,000 - $59,999 25 years • Over $60,000 30 years

26. Consolidation Pros • Convenience of one monthly loan payment • Single point of contact for all customer service needs • Lower monthly payment amount • Long-term payment relief – up to 30 years to repay • Fixed interest rate – ability to lock in fixed rate and protected against future rate increases • You’ll retain the option of choosing different repayment plans. • You can still prepay your loan at any time -keep in mind that payments above your billed amount will help pay down your principal.

27. Consolidation Cons • Loss of borrower benefits tied to underlying loans • Accrued interest will capitalize when you consolidate • May adversely affect grace, deferments, discharges (particularly Perkins), and interest subsidies • Likely increase in total repayment amount – the longer you take to pay off the loan, the more interest you will ultimately pay • Reconsolidation only possible in certain circumstances

28. Applying • How to choose? Easy – Direct Consolidation is only game in town!! • http://www.loanconsolidation.ed.gov • Monthly payments on underlying loans are still due – keep loans current until consolidation is complete • Make sure you receive “Paid in Full” stamped promissory notes from underlying loans when consolidation process is complete • Keep forever!!

29. How to get started • Expect process to take 30-90 days – start early! • Gather information about underlying loans • www.nslds.ed.govwill have info on all your Federal Loans • Current balance • Interest rates • Holders • Original balance

30. Average Indebtedness • University must provide student with average indebtedness figures and estimated payment examples based either on student’s actual debt or average indebtedness of students at the university or in the student’s program

31. Estimated Standard Repayment Schedule Total amount includes principal and interest. This schedule assumes a 6.8 percent interest rate and a standard repayment term of 10 years.

32. Comparison of Repayment Options

33. RepaymentHow will you know what to do? • During your grace period your servicer will send you a repayment or disclosure statement listing your: • Monthly repayment • Payment due dates • Length of repayment • Current interest rates • If you do not hear from your servicer, call and update them on your location. Even if you do not hear from them you are responsible for making timely loan repayments!

34. Forgiveness for Federal Student Loans US Federal Student loans may be forgiven for the following reasons: • Public Service Loan Forgiveness (Direct Loans only) • Service in Areas of National Need Forgiveness • Teacher Loan Forgiveness • Loan Forgiveness for Civil Legal Assistance Attorneys

35. Loan Forgiveness • New public service loan forgiveness program will discharge remaining debt after 10 years of full-time employment in public service. • Unlike the 25-year forgiveness, the 10-year forgiveness is tax-free due to a 2008 IRS ruling. • Borrower must make 120 payments as part of the Direct Loan program. • Only payments made on or after October 1, 2007 count toward the required 120 monthly payments. • Borrowers may consolidate into Direct Lending in order to qualify for this loan forgiveness program.

36. Loan Cancellation • You die or become totally and permanently disabled. • Your school closed before you could complete your program. • Your school forged your signature on a promissory note, or certified your loan even though you didn't have the ability to benefit from the coursework. • Identity theft. • You file for bankruptcy. (This cancellation is rare and occurs only if a bankruptcy court rules that repayment would cause undue hardship.)

37. Not Making Repayment • Delinquency • Failure to make repayment when due • Reported to credit bureaus, affecting your credit history • After 270 - 360 days becomes…Default. • Default Consequences • After 270 - 360 days, servicer assumes you will not pay • Servicer will garnish wages and tax returns • Collection agencies take over and add15-18% to loan • Universities may withhold records • Licences pulled in growing numbers of US states • Student loans cannot (usually) be discharged in bankruptcy

38. National Student Loan Data System (NSLDS) • NSLDS is the U.S. Department of Education’s central database for federal student aid records. • Visit www.nslds.ed.gov to view a list of all your federal student loans. • To access your account, select “Financial Aid Review” on the home page and enter your Social Security number, the first two letters of your last name, your date of birth, and your personal identification number (PIN). • If you forgot your PIN, wish to change it, or have to apply for a new one, visit www.pin.ed.gov. • NSLDS is the best resource for information on all the federal student loans you have borrowed.

39. Ombudsman U.S. Department of Education Ombudsman 830 First Street N.E., Fourth Floor Washington, D.C. 20202 877.557.2575 www.fsahelp.ed.gov • The FSA Ombudsman is a neutral entity dedicated to helping students resolve disputes and other problems with federal student loans. • The FSA Ombudsman will research your problem in an impartial and objective manner and will try to develop a fair solution. • Be sure to have complete and accurate records, as your lenders, guarantors and servicers certainly will!!

40. Resources • Your Financial Aid Office • Other Resources • www.studentloans.gov • www.nslds.ed.gov • http://www.mapping-your-future.org

41. Credit Advice • Pay your bills on time—1 day late can make a difference. • Don’t max out your credit cards—aim to carry balances no more than 25 percent of your available credit. • Keeping older accounts open and active can increase your credit history and debt-to-income ratio, but don’t open numerous credit cards as a short-term way to increase your credit score. • Establishing good credit now will benefit you later. • Review your credit report frequently and correct mistakes. • Consumer reporting agencies must offer you one free report per year: • Equifax www.equifax.com • Experian www.experian.com • TransUnion www.transunion.com • Visit www.annualcreditreport.com for copies of all three.

42. QUESTIONS?