Loan Basics

1. New Aid Officer Workshop 2013 Loan Basics

2. Loan basics Angelika Williams Assistant Director of Financial Aid and Scholarships Texas State University- San Marcos

3. Loan Basics Loan Requirements

4. Loan Requirements • Entrance Counseling • Promissory Note • Exit Counseling

5. Entrance Counseling • First-time borrowers • www.studentloans.gov • Inform them of their rights and responsibilities in taking out this loan • Contains information on managing educational expenses and financial resources to consider that may help pay for the borrower’s education • Must be completed prior to the first disbursement

6. Promissory Note • Document signed by borrower, which includes terms and conditions of the loan disbursements, use, and repayment • Master Promissory Note • Good for ten years • Covers multiple loan periods and varying loan amounts of the same type of loan

7. Exit Counseling • All borrowers that leave an institution must complete exit counseling • www.nslds.ed.gov • Is required before a student graduates, withdraws, or drop below half-time attendance (even if the student plans to transfer to another school) • Helps student understand rights and responsibilities as a student loan borrower • Provides useful tips and information to help student’s manage their loans

8. Loan Notification • The institution is required to notify the borrower, within 14 or 30 days, that a loan disbursement has been made and that the borrower may reduce or cancel the disbursement

9. Loan Basics Types of Loans

10. Federal Loans • Federal Direct Subsidized Loan • Federal Direct Unsubsidized Loan • Perkins • PLUS • Grad PLUS

11. Federal Direct Subsidized Loan • Need-based Loan • Interest rate: 3.4%* • Origination Fee: 1.051%** • Grace Period: 6 months • Department of Education pays interest • In-School • Deferment • Interest begins to accrue at grace period*** • Only undergraduate students are eligible • Student must be enrolled at least half time • Student must be meeting SAP

12. Federal Direct Unsubsidized Loan • Non-Need based Loan • Interest rate: 6.8% • Origination Fee: 1.051%* • Grace period: 6 months • Student pays interest • Interest is capitalized • Student can choose to pay interest while enrolled • Undergraduates and Graduates are eligible • Student must be enrolled at least half time • Student must be meeting SAP

13. Federal Loan Limits

14. Subsidized loan limitation • Public Law 112-141 states an undergraduate student may receive subsidized loans for a limited number of years. • Applies to “new borrowers” on or after July 1, 2013 • “New borrowers” – Borrowers with no balance on a FFEL or Direct Loan on July 1, 2013 • When a student has received subsidized loans for 150% of the published length of the academic program- • Student may not receive additional subsidized loans for enrollment in that program. Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

15. Subsidized loan limitation

16. Subsidized loan limitation • Transfer Students – • Student maximum time to receive subsidized loans is established based on the length of the program the student is currently enrolled in • Remaining subsidized eligibility is determined by subtracting from the maximum eligibility for the program, the time the student has already received subsidized loans while enrolled in any program Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

17. Subsidized loan limitation • Examples – • Student receives two years of subsidized loans while enrolled in a two-year program • Student transfers to a four-year BA program • Student has four years of remaining subsidized loan eligibility • Student receives three years of subsidized loans while enrolled in a four-year BA program • Student transfers to a two-year AA program • Student has no remaining subsidized loan eligibility Examples provided by Information for Financial Aid Professionals (IFAP) ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

18. Federal Loan Limit

19. Perkins • Need-based loan • Federal Loan, Institution acts as Lender and Servicer • Interest Rate: 5% • Grace period: 9 months • Maximum repayment term: 10 years • Undergraduate and Graduate students are eligible • Student must be enrolled at least half time • Student must be meeting SAP

20. Perkins Loan Limits Undergraduate annual limit $5,500 Undergraduate Aggregate limit $27,500 Graduate annual limit $8,000 Graduate Aggregate limit $60,000

21. PLUS loan • Parent Loan for Undergraduate Students (PLUS) • Must be the parent (biological, adoptive, or in some cases, stepparent) of a dependent undergraduate student enrolled at least half-time and meeting SAP • Non-need based loan • Can borrow up to COA • Borrower must not have an adverse credit history  • Interest Rate: 7.9% • Origination fee: 4.204%* • If the parent is denied, the student may receive a Federal Direct Unsubsidized loan at Independent Undergraduate loan limit

22. Grad Plus • Loan for Graduate Students (meeting SAP) • Non-need based loan • Borrower must not have an adverse credit history • Borrower must be a graduate or professional degree student enrolled at least half-time • Interest Rate: 7.9% • Origination Fee: 4.204%* • Can borrow up to COA • No aggregate limit

23. Alternative Loans • Interest rates are usually variable • Origination and repayment fees vary • Co-signer typically required • Most require school-certification

24. Alternative Loans • Possible solution for • International Students • SAP Ineligible students • Non-degree seeking students • Students who have reached federal aggregate loan limits

25. Loan Basics Loan Processes

26. Direct Loan proration • Must prorate a Stafford Loan limit for an undergraduate program: • A student’s academic program is less than a year in length • A student is remaining period of study is shorter than an academic year • Standard proration formula: • Amount of direct loan student could have for grade level ÷ 24 x enrolled hours

27. Direct Loan proration • Example: • A dependent undergraduate student that is classified as a senior for the Fall 2013 term with 6 hours remaining to graduate • $5500 ÷ 24 = 229.166667 x 6 hours = $1375 Subsidized Loan • $2000 ÷ 24 = 83.33333 x 6 hours = $500 Unsubsidized Loan • If student has no need: • $7500 ÷ 24 = 312.5 x 6 = $1875 Unsubsidized Loan

28. Loan processes • A school may not originate a Direct Loan for a loan period in which the student is not enrolled at least half-time • A school must determine an undergraduates student’s Pell Grant eligibility before originating a subsidized or unsubsidized Stafford Loan • A school may not originate an unsubsidized Stafford loan without first determining the student’s need for the subsidized Stafford loan

29. Loan Basics Loan Repayment

30. Loan Repayment • Single source for all federal loan info including • Borrower info • Loan amounts • Interest accrued • Servicer info • www.nslds.ed.gov

31. Ways to Repay • Standard – Monthly payment remains consistent for up to10 years • Graduated – Monthly payments are lower at first but then increase every 2 years up to 10 years. • Income-sensitive– Monthly payments are based on your annual income and payments change as your income changes. • Extended – Payments may be fixed or graduated for up to 25 years.

32. Ways to repay, cont’d • Income Contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship”; (25 year forgiveness) • Income Based- Monthly payments will not exceed 15% of the amount by which your adjusted gross income exceeds 150% of the poverty guideline for your family size. (25 year forgiveness) • Pay As You Earn – Monthly payments will not exceed 10% of the amount by which your adjusted gross income exceeds 150% of the poverty guideline for your family size. (20 year forgiveness)

33. Other loan Terms • Deferments • Forbearance • Default • Cohort Default Rate

34. Deferment • Period of postponing payments • Federal government will pay interest for the borrower with a Subsidized DL • Deferment request should be submitted to loan servicer • Some possible deferment situations: • Education • Peace Corps/ Military • Unemployment or Inability to find full-time employment

35. Forbearance • Temporary cessation, reduction, or extension of payments • Student is responsible for interest that accrues • Borrower is willing but temporarily unable to pay • Forbearance request should be submitted to loan servicer (in most cases, borrower must provide documentation to support the request)

36. Default • Failure to meet the terms of the promissory note • Failure to repay • Borrower is considered to be in default after being delinquent for 270 days • Borrower is subject to wage garnishment, seizure of income tax refunds, lottery winnings, license non-renewal, sued by DOE • Student not eligible for federal financial aid • Damage to the borrower’s consumer credit score

37. Default • Satisfactory Repayment Arrangements • Six on-time voluntary payments • Rehabilitation • Nine on-time voluntary payments • Consolidation can “fix” a defaulted loan

38. Cohort default rate • Includes DL loans, and loans underlying DL consolidation loans • CDR = % of borrowers who enter repayment in a given federal fiscal year who then default within the next 3 fiscals years • High rate has consequences for schools • >15% = loss of 1 installment/semester • >15% = 30 day hold on 1st time, 1st year borrowers • > 40% = loss of participation in Title IV funding

39. Questions?