Loan Basics

1. Loan Basics Kimberly Schwaeble Assistant Director, Rice University Julie Wittmis Financial Aid Advisor, Texas Woman’s University New Aid Officers’ Workshop 2017

2. Agenda • Student loan programs and regulations • Application process and eligibility • Repayment options

3. Federal Student Loans • Federal Direct Subsidized Loan • Federal Direct Unsubsidized Loan • Parent PLUS Loan • Graduate PLUS Loan • Federal Perkins Loan

4. Federal Direct Subsidized Loan • Need based loan for undergraduates only • Origination fee: 1.069% (as of October 2016) • Fixed interest rate: 3.76% (as of July 2016) • July 1 rate is adjusted for new loans • Grace period: 6 months • Interest does not accrue – paid by Dept. of Ed – when… • Enrolled at least half time • During 6 month grace period • If loan was first disbursed between July 1, 2012 and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. • During other times of deferment • Must meet SAP and enroll at least half time

5. 150% Subsidized Usage Limit Applies (SULA) • Effective 7/1/13 and applies to new borrowers or borrowers with a zero balance taking out a new loan • May only receive Sub for 150% of the published program length • MEP-SUP=REP • Maximum eligibility period (MEP) • Subsidized usage period (SUP) • Remaining eligibility period (REP)

6. 150% Subsidized Usage Limit Applies (SULA) • Eligibility lost after students exceeds MEP • Cannot receive any more sub • May receive unsub up to yearly limit in its place • Interest subsidy lost on outstanding Direct Subsidized Loans (including Direct Consolidation Loan that repaid a Direct Subsidized Loan) if borrower attends undergrad program at least half-time when remaining eligibility period is zero or less.

7. Federal Direct Unsubsidized Loan • Non-need based loan • Borrowers are undergrad, grad, or professional • Origination fee: 1.069% (as of October 2016) • Fixed interest rate: 3.76% undergrad, 5.31% grad (as of July 2016) • Grace period: 6 months • Interest accrues while student is in school • Interest capitalizes • Student can elect to pay interest while enrolled • Must meet SAP and enroll at least half time

9. Parent PLUS Loan • Non-need based loan • Can borrow up to cost of attendance (COA) minus other aid • Borrower is parent of dependent undergrad • Student must be enrolled at least half time • Origination fee: 4.276% (as of October 2016) • Fixed interest rate: 6.31% (as of July 2016) • Credit check required • Additional PLUS loan counseling required for low credit • Additional unsub up to independent limit may be awarded if parent does not pass credit check • Repayment begins after loan is fully disbursed

10. Graduate PLUS Loan • Non-need based loan • Can borrow up to COA minus other aid, no aggregate limit • Borrower is graduate or professional student • Origination fee: 4.276% (as of October 2016) • Fixed interest rate: 6.31% (as of July 2016) • Credit check required • Loan payments deferred while at least half time • 6 month grace period, interest continues to accrue • Must be enrolled at least half time

11. Direct Loan Application Process • FAFSA • Eligible student in eligible program with Pell eligibility determination complete • Entrance counseling • First time borrowers informed of their rights and responsibilities • Completed at www.studentloans.gov

12. Direct Loan Application Process • Master Promissory note • Includes terms and conditions of the loan disbursement and repayment • Valid for 10 years and covers multiple loans • Completed on www.studentloans.gov • Exit Counseling • Information on repayment • Must be complete when student drops below half-time or graduates • Completed on www.nslds.ed.gov • PLUS loan application at www.studentloans.gov

13. Direct Loan Notification • Institution is required to notify the borrower within 14 days after disbursement is made and give the borrower the opportunity to reduce or cancel the disbursement.

14. Direct Loan Proration • Applies to subsidized and unsubsidized loans • Required if: • Student’s academic program is less than 1 year in length • Student’s remaining period of study is less than 1 year in length • Standard proration formula: Actual enrolled hours ------------------------------ 24 Amount of direct loan X student could have for grade level

15. Perkins • Need based loan • Borrower is undergrad, grad, or professional • No origination fee • Fixed interest rate: 5% • Interest does not accrue while in school or grace • Grace period: 9 months • Institution is lender and servicer • Must meet SAP and enroll at least half time

16. Perkins • Annual Limit: $5,500 undergrad, $8,000 grad/prof • Lifetime Limit: $27,500 undergrad, $60,000 grad/prof • Maximum repayment period is 10 years • Program ending Sept. 30, 2017 • See DCL GEN-16-05 for specifics (https://ifap.ed.gov/dpcletters/GEN1605.html)

17. Alternative Loans • Non need based loans • Private banks • State loans (College Access Loan, *B-On-Time Loan) • Fees, interest rates, terms vary • Most require school certification • May require credit check or cosigner * No new borrowers for B-On-Time Loan

18. Student Loan Repayment • Single source with record of all federal loans • Borrower info • Loan amounts • Interest accrued • Servicer info www.nslds.ed.gov

19. Repayment Plans • Standard – 10 years; equal monthly payments • Graduated – 10 years; monthly payments start low and increase every 2 years • Income sensitive repayment – monthly payments based on annual income and change as income changes • Extended – 25 years; fixed or graduated monthly payments

20. Repayment Plans • Income contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship” (25 yr forgiveness) • Income Based – monthly payments will not exceed 15% discretionary income (25 yr forgiveness) • Pay As You Earn – monthly payments will not exceed 10% of discretionary income (20 yr forgiveness); must be new borrower on or after 10/1/07 • Revised Pay as You Earn – monthly payments will not exceed 10% of discretionary income (20 yr forgiveness); date limitation does not apply

21. Loan Forgiveness • Teacher Loan Forgiveness – up to $17,500 on sub or unsub (Direct or Stafford) loans if teach full-time for 5 complete consecutive years in certain elementary/secondary schools serving low-income families • https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/teacher • Public Service Loan Forgiveness – forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for qualifying employer • https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

22. Loan Repayment Terms • Forbearance – Period of time payments are postponed, reduced or extended • Interest accrues • Deferment – Period of time payments are postponed for approved set of reasons • Interest on subsidized loans does not accrue* • Default – payments delinquent for 270 days • Consolidation – Combines loans into one, requiring one monthly payment to one servicer • Can fix defaulted loan

23. Cohort Default Rate (CDR) • Includes Direct 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 fiscal 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

24. Resources • Studentaid.gov • FAQs broken down by loan type • Repayment calculators • IFAP – ifap.ed.gov • Handbooks, regulations, current notifications • This site is your best friend!  • YouTube – FederalStudentAid channel • Videos on a variety of topics including repayment

25. Questions?