MoneyCounts: A Financial Literacy Series

1. MoneyCounts: A Financial Literacy Series Getting Student Loans Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214

2. Learning Objectives • Types of Loans available to college students • Steps to take before students borrow loans • Relationship between future income and current loan borrowing • Forecasting future budget including loan debt payment plan

3. Myths about Financial Aid Federal Student Aid and Myths about Financial Aid (YouTube)

4. The Search for College Financing • Consider Grants and Scholarships first, file FAFSA as early as possible (Free Application for Federal Student Aid) Federal Student Aid (U.S. Department of Education) • Federal Pell Grants • Federal Supplemental Educational Opportunity Grants (FSEOG) • Teacher Education Assistance for College and Higher Education (TEACH) Grants • Iraq and Afghanistan Service Grants • State available Grants

5. The Search for College Financing • Scholarships • University • External Scholarships • How do I find Scholarships? • the student aid office • the U.S. Department of Labor’s FREE scholarship search tool • federal agencies • your state grant agency • your library’s reference section • foundations, religious or community organizations, local businesses, or civic groups • organizations (including professional associations) related to your field of interest • ethnicity-based organizations • your employer or your parents’ employers

6. The Search for College Financing • Scholarships search engines • fastweb.com • collegeboard.com • scholarships.com • Be careful of scholarship scam sites! • Never pay money • Do your own research

7. The Search for College Financing • Consider alternative sources • Saving • Spousal or family support • Federal Work-Study (need based, need to qualify) • Work on campus/community • 15-20 hours/week

8. Type of Student Aid Types of Student Aid (Youtube)

9. Types of Student Loans • What types of federal student loans are available to a degree seeking undergraduate student? • The U.S. Department of Education has two federal student loan programs: • Federal Perkins Loan Program • The William D. Ford Federal Direct Loan (Direct Loan) Program is the largest federal student loan program. Under this program, the U.S. Department of Education is your lender. • Direct Subsidized Loans • Direct Unsubsidized Loans • Direct PLUS Loans No credit history check is necessary for the student borrower Credit history check is required for PLUS (Parent or Graduate)

10. Types of Student Loans • Federal Perkins Loan • The Federal Perkins Loan Program is a school-based loan program for undergraduates and graduate students with exceptional financial need. Under this program, the school is lender • For undergraduate students who are enrolled at least half-time* and demonstrate financial need • Funds depend on student’s financial need and availability of funds at the college • Interest is 5% • College is the lender; payment is owed to the college that made the loan • Undergraduate students: up to $2,500 fall/spring

11. Types of Student Loans • Direct Subsidized Loan • Direct Subsidized Loans are loans made to eligible undergraduate students who demonstrate financial need to help cover the costs of higher education at a college or career school. • For undergraduate students who are enrolled at least half-time* and demonstrate financial need • Interest is 4.66% • Origination fee 1.072% • Student is not charged interest on the loan while in school • The U.S. Department of Education (ED) is the lender; payment is owed to ED • Between $3,500 and $5,500 depending on year in school • Aggregate limit $23,000

12. Types of Student Loans • Direct Unsubsidized Loan • Direct Unsubsidized Loans are loans made to eligible undergraduate, graduate, and professional students, but in this case, the student does not have to demonstrate financial need to be eligible for the loan. • For undergraduate enrolled at least half-time* • Interest is 4.66% • Origination fee 1.072% • Student is responsible for interest during all periods • Student can (and should) pay the interest while in school • ED is the lender; payment is owed to ED • Between $6,000 - $7,000 depending on year in school • Aggregate level $34,500

13. Interest Rate Changes!

14. Dependency Status • Dependent Student • A student who does not meet any of the criteria for an independent student. • If you’re a dependent student, you will report your and your parents’ information. • Independent Student • An independent student is one of the following: at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, someone with legal dependents other than a spouse, an emancipated minor or someone who is homeless or at risk of becoming homeless. • If you’re an independent student, you will report your own information (and, if you’re married, your spouse’s).

15. Types of Student Loans • Direct PLUS • Direct PLUS Loansare federal loans that graduate or professional degree students and parents of dependent undergraduate students can use to help pay education expenses. • The U.S. Department of Education makes Direct PLUS Loans to eligible borrowers through schools participating in the Direct Loan Program. • The U.S. Department of Education is the lender. • The borrower must not have an adverse credit history. • Loans have a fixed interest rate of 7.21% • Origination fee is 4.288% • The maximum loan amount is the student’s cost of attendance (determined by the school) minus any other financial aid received.

16. Types of Student Loans Parent PLUS/ Dependent Student • If the parent borrower is denied a Parent PLUS loan, an additional unsubsidized Stafford loan will be awarded automatically to the dependent student. However, if the parent borrower appeals the credit decision and is later approved for the PLUS loan, or another parent borrower is later approved, the dependent student will no longer be eligible for the additional Unsubsidized Stafford loan.

17. Federal Student Aid PIN Federal Student Aid PIN • Your electronic personal identification number that serves as your identifier to allow access to personal information in various U.S. Department of Education systems and acts as your digital signature on some online forms. • If you do not already have a PIN, you can request one online at Federal Student Aid PIN Web site at www.pin.ed.gov.

18. How Important is my PIN • A Federal Student Aid PIN can be used for many federal student aid activities, such as to: • Electronically sign a Free Application for Federal Student Aid (FAFSA) • Renew your FAFSA (if you applied last year) • Make corrections to a processed FAFSA • View and Print your electronic Student Aid Report (SAR) • Transfer your tax return information into your FAFSA using the IRS Data Retrieval Tool • Access the National Student Loan Data System (NSLDS) at www.nslds.ed.gov to view your financial aid information, if you have previously received student financial aid • Access the Direct Loan Consolidation Web site at www.loanconsolidation.ed.gov • Complete Entrance Counseling at www.studentloans.gov • Complete Exit Counseling at www.nslds.ed.gov • Complete the PLUS Request Process at www.studentloans.gov • Electronically sign a Master Promissory Note at www.studentloans.gov • Electronically sign a TEACH Grant Agreement to Serve at www.teach-ats.ed.gov

19. Master Promissory Note Master Promissory Note • A binding legal document that you must sign when you get a federal student loan. • The MPN can be used to make one or more loans for one or more academic years (up to 10 years). • It lists the terms and conditions under which you agree to repay the loan and explains your rights and responsibilities as a borrower. • It’s important to read and save your MPN because you’ll need to refer to it later when you begin repaying your loan or at other times when you need information about provisions of the loan, such as deferments or forbearances.

20. National Student Loan Data System National Student Loan Data System (NSLDS) • A centralized database, available at www.nslds.ed.gov, which stores information on federal grants and loans. NSLDS contains information on how much aid you've received, your enrollment status, and your loan servicer(s). • You can access NSLDS using your Federal Student Aid PIN. • National Student Loan Data System Student Access

21. Entrance/Exit Counseling • Complete Entrance Counseling at • www.studentloans.gov • Complete Exit Counseling at • www.nslds.ed.gov

22. Responsible Borrowing • Responsible Borrowing (YouTube)

23. Steps to do before you borrow! • Find out the total cost of education and what you can do to contribute to it? • A college degree is usually about 120 credits, calculate how many you need to graduate • Example you need 45 credits to graduate, cost will be (504X45= $22,680) add 20% for fees and books, total cost is $28,350

24. Steps to do before you borrow! • Set up a future earning budget • Project your future net earning – based on market research and not what you “would like it to be” – be realistic! • Project your future spending including a plan to pay back debt, possibly buy a home, a car, get married, etc.,

25. Steps to do before you borrow! • Analyze your budget to quantify how much you can afford to borrow • Borrow only to cover cost of education not living expenses! • Rule of thumb: total borrowing should not exceed first year salary (net) • i.e.: first year gross salary is $40,000, (net is $28,000); Debt should not exceed $28,000 total

26. Cost of Attendance • An independent adult learner taking 6 credit hours online • Tuition & Fees 3,207 • Books 300 • Pell (need to qualify) 1,388 • Subsidized Loan (need to qualify) 1,750 • Unsubsidized Loan 3,000 • Cost = 3,507 • Financial aid = 6,138 • Need to return 2,631 from the unsubsidized loan and only borrow 369 • Cost = 3,507 • Financial aid = 1,388+1,750+369 = 3,507

27. How much can/should I borrow? Subsidized • First year = $3,500 • Second year = $4,500 • Third year = $5,500 • Beyond = $ 5,500 • Maximum = $23,000Loan • 6.8% (2013) • Summary$264.68 • Monthly Principal & Interest • $31,762.00 • Total of 120 Payments • $8,761.60 • Total Interest Paid

28. How much can/should I borrow? Unsubsidized • First year = $6,000 • Second year = $6,000 • Third year = $6,000 • Beyond = $7,000 • Maximum = $34,500 • Plus accrued interest @ 6.8% (2013) • Loan Summary$383.02 • Monthly Principal & Interest • $45,962.49 • Total of 120 Payments • $11,462.49 • Total Interest Paid

29. What can I afford to borrow? Expected Salary** Net Income/Year Total Debt (except housing) $20,000 Net = $16,000 Debt =<$16,000 $25,000 Net = $20,000 Debt =<$20,000 $30,000 Net = $23,000 Debt = <$23,000 $40,000 Net = $28,000 Debt = <$28,000 $50,000 Net = $35,000 Debt = <$35,000 $75,000 Net = $55,000 Debt = <$55,000 $100,000 Net =$65,000 Debt = <$65,000

30. Expected Yearly Salaries • Retailing $28,800 • Teacher $35,900 • Marketing $40,000 • Investment Banking $42,400 • Accountant $48,200 • Nuclear Engineer $59,100 • **based upon finaid.org • My smart borrowing site at Education Planner.org

31. 5 Tips for Smart Borrowing My Smart Borrowing site at Education Planner.org The 5 Tips for Smart Borrowing • Research job availability in your chosen field, before selecting your major • Research your expected salary in your future career, calculate cost for your degree, and borrow realistically. • Consider all types of financial aid carefully. • Educate yourself on the many loan options available before borrowing. • Inconsistent or untimely loan repayment could affect your future.

32. Budget After Graduation

33. MoneyCounts: A Financial Literacy Series Thank You! Comments and Questions Dr. Daad Rizk MoneyCounts: A Financial Literacy Series 301 Outreach Building University Park PA 16802 dar39@psu.edu 814-863-0214