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Learning objectives

Learning objectives. Explore repayment plans available Understand the basics of consolidation Know the factors you should consider before consolidating. Learning objectives. Review income based repayment (IBR) Outline public service loan forgiveness requirements

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Learning objectives

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  1. Learning objectives • Explore repayment plans available • Understand the basics of consolidation • Know the factors you should consider before consolidating

  2. Learning objectives • Review income based repayment (IBR) • Outline public service loan forgiveness requirements • Discuss resources available to help manage student loan repayment

  3. Overview of repayment plans

  4. What repayment plans are available? • Standard • Graduated • Income Sensitive • Extended • IBR (*available 7/1/2009)

  5. How do the repayment plans work? • Standard • Equal monthly payments • Graduated • Payments increase over time

  6. How do the repayment plans work? • Income-sensitive • Based on expected gross monthly income • Adjusted annually • Extended • Available for borrowers with over $30,000 in debt • Allows up to 25 years to repay loan

  7. Sample monthly payment for $100,000 loan @ 6.8% • Under a standard repayment plan (10 yr term) • Monthly payment: $1150.08 • Interest paid: $38,096.40 • Total cost of loan: $138,096.40 • Under an extended repayment plan (25 yr term) • Monthly payment: $694.07 • Interest paid: $108,221.63 • Total cost of loan: $208,221.63

  8. The basics of consolidation

  9. Overview • Consolidation enables you to bundle one or more federal student loans into a single new loan • At time of consolidation, your consolidating lender pays off the outstanding balances of the loans you include in the consolidation

  10. Who can consolidate? • Any federal student loan borrower, including: • Borrowers with student loans • Borrowers with student and parent loans

  11. How do I qualify? • You must be in your grace period or in repayment on each loan being consolidated • You can still obtain a Consolidation loan if you are delinquent or in default on one or more of your existing loans

  12. What if I’m in default? • To be allowed to consolidate, you must do one of the following: • Make satisfactory repayment arrangements • Three (3) consecutive, on-time, voluntary monthly payments • Agree to repay the Consolidation loan under an income-sensitive repayment option

  13. What loans may be consolidated? • Federal Family Education Loans • Stafford • PLUS • SLS • Consolidation • Direct Loans • Stafford • PLUS • SLS • Consolidation

  14. What loans may be consolidated, cont’d.? • Federally Insured Student Loans • Federal Perkins Loans • Health Professions Student Loans • Nursing Student Loans • Health Education Assistance Loans

  15. What loans may not be consolidated? • Private (alternative) education loans • Other consumer debt

  16. Is there a minimum? No minimum amount for a Consolidation loan, though a lender can set its own policies

  17. Is there a fee? There is no fee to obtain a Federal Consolidation loan

  18. Can I ever “reconsolidate”? • Generally, no • You may only reconsolidate if you consolidate an existing Consolidation loan with another loan outside the Consolidation loan

  19. Repayment plans • Standard • Equal monthly payments • Graduated • Payments increase over time • Income-sensitive • Based on expected gross monthly income • Adjusted annually • Extended • Available for borrowers with over $30,000 in debt • Allows up to 25 years to repay loan

  20. Repayment periods

  21. How is the interest rate calculated? It is the weighted average of interest rates on loans being consolidated, rounded up to nearest 1/8 of a percent, capped at 8.25%

  22. Example of interest rate calculation • $65,500 in Stafford loans at 6.8% • $54,500 in Perkins loans at 5% Total Consolidation loan debt is $120,000

  23. Example of interest rate calculation $65,500 X .068 = $4,454 $54,500 X .05 = $2,725 $4,454 + $2,725 = $7,179 $7,179 = .0598 $120,000

  24. Example of interest rate calculation 5.98% rounded up to the nearest 1/8 of a percent = 6.00%

  25. Loan Consolidation Calculator Available on TG’s website at www.consolidationstation.org • Put in loan amounts and current interest rates • Provides Consolidation loan interest rate and expected monthly payment

  26. Factors you should considerbefore consolidating

  27. Pros of consolidation • To bring together loans with multiple loan holders • For convenience of one payment • To lower loan payments • By lengthening repayment period

  28. Pros of consolidation *May* be able to lock in a more favorable interest rate

  29. The interest rate cycle For loans disbursed prior to 7/1/06 • Interest rates change every July 1 • Announced the preceding May • Gives you a chance to see what rates will be and whether to wait • Certain (older) Stafford loan interest rates are lower during grace period and deferment • It may be advantageous for Stafford borrowers to consolidate during one of these times

  30. The interest rate cycle cont’d. For loans disbursed on or after 7/1/06 • Loans have a fixed rate over the life of the loan • Stafford loans have a 6.8% fixed rate • PLUS loans have an 8.5% fixed rate • These rates apply at any time: while in-school, in grace, and in periods of deferment

  31. Cons of consolidation • May lose some or all of grace period • May lose certain borrower benefits

  32. Cons of consolidation, cont’d. • Perkins loans • Lose their deferment subsidy when consolidated • Lose cancellation eligibility when consolidated

  33. Cons of consolidation, cont’d. • Certain deferments may be lost • But these deferments are rarely used • You retain ability to request most major deferments after consolidation • In-school • Unemployment • Economic hardship

  34. Cons of consolidation, cont’d. May increase total cost of loan • If you lengthen your repayment period, you will pay more interest in the long run

  35. A $100,000 Consolidation loan @ 6.00% interest rate. . .

  36. A $125,000 Consolidation loan @ 6.0% interest rate. . .

  37. Choice of lender If you have FFELP loans with one, or with multiple lenders, you may consolidate with the lender of your choice Important note However, due to market conditions, many lenders are not currently offering consolidation loans • Check with your current lender(s) first • May obtain a Direct Loan Consolidation with the Department of Education

  38. Lender incentives • Although rare, some lenders may offer incentives such as: • Interest rate discounts for • Automatic debit of payments • A certain number of months of on-time payments • You should explore these incentives in detail

  39. Are you required to consolidate? • No. Consolidation is just one option to help you manage your student loan repayment

  40. Income based repayment

  41. What is income based repayment? • IBR is a new repayment plan for borrowers designed to help borrowers experiencing a “partial financial hardship” • Available to FFELP and DL borrowers beginning July 1, 2009

  42. What is partial financial hardship (PFH)? • PFH occurs when the annual amount due on all of the borrower's eligible loans (as calculated under a standard 10-year repayment plan) exceeds 15% of the difference between the borrower's adjusted gross income (AGI) and 150% of the poverty guideline for the borrower's family size

  43. IBR illustration from IBRinfo.org • Borrower scenario: • Unmarried with no children • 100K in student loan debt at 6.8% fixed • AGI of $35K • Resides in a state that is not Alaska or Hawaii • Would have monthly repayment of $230

  44. How do I apply? • Contact lender and request an IBR repayment plan • Borrower must: • Provide permission for IRS to disclose AGI "and other tax return information“ • Certify family size • Borrower must apply annually

  45. How long is the repayment term? • The repayment term can exceed 10 years regardless of the amount of the borrower's loan debt • After 25 years (300 eligible payments), any remaining balance and accrued interest will be forgiven

  46. Public service loan forgiveness

  47. What is public service loan forgiveness? • Program that provides forgiveness on a borrower’s Direct Loan • Outstanding balance of principal and accrued interest forgiven after borrower makes 120 monthly payments after 10/1/2007 under one of the following types of repayment plans: • Standard (10 yr term) • Income based • Income contingent

  48. What types of loans may be forgiven? • Direct Stafford loans • Direct PLUS loans • Direct Consolidation loans

  49. What if I have other federal student loans? • The following types of federal loans can be consolidated into the Direct Loan program to take advantage of Public Service Loan Forgiveness • Federal Family Education Loans- • Subsidized and Unsubsidized Stafford loans • Federal PLUS loans • Federal Consolidation loans • Federal Perkins Loans • Certain Health Professional and Nursing Loans

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