Loan A, B, Cs

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Loan A, B, Cs!

• Presented by
• Sharon Platt, Director of Financial Aid
• La Roche College
• Michelle Hauze, Assistant Director of Financial
  Aid
• La Roche College

GO STEELERS!
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Topics To Be Covered

• Loan Participants and Key Terms
• Academic Based Year vs. Borrower-Based Year
• Federal Student Loan Programs
• Private Education Loans
• Consolidation Loans
• Loan Repayment Options
• What if you cant pay?
• Trends in Borrowing
• The Future

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Loan Participants

• Borrower
• School
• Lender
• Guarantee Agency
• Servicer

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Key Terms

• Master Promissory Note (MPN)
• Binding legal document that must be signed by the
  borrower and certified by the school before loan
  funds are disbursed
• States terms and conditions of the loan
• Interest rate
• Disclosures
• Valid up to 10 years

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Key Terms

• Origination Fee
• Fee collected by the lender on behalf of the DOE
• Used to offset the cost of administering the FFEL
  Program
• Not to exceed 3 of the total loan amount

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Key Terms

• Federal Default Fee
• Percentage of the loan amount that is paid to the
  guarantee agency to insure the loan against
  default
• Typically 1 of the loan amount

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Standard Academic Year vs. Borrower-Based Year

• Standard Academic Year is July 1 June 30
• Fall/Spring
• Summer
• Borrower-Based Year is two semesters at a time
• Fall/Spring
• Spring/Summer
• Summer/Fall

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Federal Loan Programs

• Federal Family Education Loan Program (FFELP)
• Private lenders provide funds that are guaranteed
  by the federal government
• Federal Direct Student Loan Program (FDSLP)
• Eligible students and parents borrow directly
  from the Department of Education

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Types of Federal Loans

• Federal Perkins Loan
• Stafford Loans
• Subsidized
• Unsubsidized
• Parent PLUS Loans
• Graduate PLUS Loans

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Federal Perkins Loan

• Made through participating schools to
  undergraduate, graduate, and professional degree
  students
• Must complete the FAFSA
• Must demonstrate financial need
• Must be making SAP
• Must be enrolled at least half time
• Must complete an MPN and Entrance Counseling
• Awards dependent on availability of funds at the
  school

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Federal Perkins Loan

• Award Amounts
• Undergraduate
• Up to 5,500 per year (27,500 aggregate)
• Graduate
• Up to 8,000 per year (60,000 aggregate,
  includes undergraduate loan aggregate)
• Interest Rate Fixed at 5
• Repaid to the school
• Repayment period up to 10 years

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Federal Stafford Loans

• Available to undergraduate, graduate, and
  professional students
• Must complete a FAFSA
• Must be enrolled at least half-time
• Must be making SAP
• First-time borrowers must complete an MPN and
  Entrance Counseling prior to receiving their
  first loan disbursement (disbursements cannot be
  made until 30 days after to the first day of the
  enrollment period. A school whose cohort default
  rate is less than 10 for each of the three most
  recent fiscal years for which data are available
  is exempt from the requirement to delay delivery
  of funds to first-year undergraduate students who
  are first-time borrowers)
• Must complete an Exit Counseling upon graduation
  or students enrolled less than half-time

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Stafford Interest Rates

• Undergraduate Subsidized Stafford Loans
• Graduate Subsidized and all Unsubsidized Loans
  have an interest rate of 6.8

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Subsidized Stafford Loans

• Must demonstrate financial need
• US Department of Education pays the interest
  when
• Student is enrolled at least half-time
• During the grace period
• During a period of deferment
• Generally disbursed in two equal installments

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Unsubsidized Stafford Loans

• Does not require students to demonstrate
  financial need
• Borrower is responsible for paying the interest
  from the time the loan is disbursed
• Interest can be paid while a student is in school
  or can be deferred until after the student
  graduates
• Unpaid interest is typically capitalized before
  repayment begins
• Generally disbursed in two equal installments

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Maximum Annual/Aggregate Stafford Loan Limits
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Parent PLUS Loans

• Available to parents, step-parents, and adoptive
  parents of eligible dependent, undergraduate
  students each academic year
• Student must be enrolled at least half-time
• Student must be making SAP
• Student may be required by the school to complete
  a FAFSA
• Other borrower eligibility requirements
• US Citizen or eligible noncitizen
• Not be in default on a federal student loan
• Not owe a refund on a federal education grant
• Be creditworthy (or a cosigner with good credit
  history)

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Parent PLUS Loans

• Award Amount
• Up to the students cost of attendance minus any
  other financial aid the student receives
• Who receives the money?
• Applied to students account and any refund is
  sent to the parent borrower
• Interest Rate
• FFEL PLUS Fixed at 8.5
• Direct PLUS Fixed at 7.9

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Parent PLUS Loans

• Repayment
• PLUS loans issued after 7/1/08 have the option of
  beginning repayment 60 days after the loan has
  been disbursed or six months after the student
  ceases to be enrolled at least half-time

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Graduate PLUS Loans

• Available to graduate and professional students
• Student must be enrolled at least half-time
• Student must complete a FAFSA
• Student must sign an MPN every loan period
• Must complete Entrance Counseling
• Eligibility requirements, award amounts and
  interest rates same as Parent PLUS loans
• Many lenders offer automatic in-school deferment
  while a student is enrolled part-time

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Private Education Loans

• Available to undergraduate and graduate students
  regardless of financial need
• Lender determines approval, fees,
  terms/conditions, and loan limits based on
  applicants credit
• Requires school certification
• Up to the students cost of attendance minus any
  other financial aid the student receives

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Private Loan Approval Factors

• Lenders may evaluate various factors to determine
  an applicants creditworthiness
• Credit Score (FICO)
• Credit History
• Assets
• Income
• Debt-to income ratio
• May require a co-signer

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Private Education Loan Fees

• Lender determines loan fees. Types of fees may
  include
• Application
• Origination
• Disbursement
• Default

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Parent PLUS vs. Alternative Loans

• Parent PLUS

• Alternative Loan

• Fixed interest rate of 8.5 for all loan first
  disbursed on or after 7/1/2006
• 3 origination fee and 1 default fee may be
  deducted
• Credit check based on federal standards
• Loan discharge for total and permanent
  disability, death of parent or death of dependent
  student
• Deferment/Forbearance available
• May be consolidated at a fixed interest rate not
  to exceed 8.25

• Variable interest rate determined monthly or
  quarterly based on PRIME or LIBOR rate plus a
  margin
• Fees vary by lender and may go up to 9
• Terms vary by lender, most use credit scores or
  debt-to-income ratios to determine
  creditworthiness, interest rates, and fees
• Not insured against death or disability
  (insurance may be available at an additional
  cost)
• Deferment options vary (generally less flexible
  than PLUS)
• Consolidation may be offered by lender, but
  interest rates are variable and scaled to credit

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Why Repayment?

• Meeting a federal government requirement
• Saves taxpayers money
• Lowers school cohort default rate
• Improves credit history and credit score

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Loan Repayment Options

• Consolidation
• Standard Repayment
• Graduated Repayment
• Extended Repayment
• Income-Contingent
• Income-Sensitive
• Income-Based

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Federal Consolidation Loan

• Combine multiple federal student loans with
  various repayment schedules into one loan
• Direct Consolidation Loan
• New terms and conditions

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Pros and Cons of Consolidation

• Pros
• Monthly payment may be lower
• Repayment period may be extended (up to 30 years
  depending on loan amounts)
• One fixed interest rate (based on the weighted
  average of all interest rates on loans
  consolidated, rounded up to the nearest 1/8 of
  1. Will not exceed 8.25.)

• Cons
• May lose borrower benefits , including rebates
• May pay more over the total period of repayment
• May lose discharge or cancellation benefits (if
  Perkins loan is included)

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Standard Repayment

• Most common (defaulted to if no other choice is
  selected)
• Fixed annual repayment amount paid over a fixed
  period of time not to exceed 10 years
• Lowest overall cost

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Graduated Repayment

• Paid over a fixed period of time not to exceed 10
  years
• Payments start with a relatively low amount and
  then increase gradually, generally every two
  years (later tiers can become unaffordable if
  income doesnt also increase)

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Extended Repayment

• Fixed annual or graduated repayment amount to be
  paid over a period not to exceed 25 years
• Current loan balance of 30,000 or higher in one
  loan program (cannot combine FFEL and DL loans to
  total 30K)
• Fixed monthly payment is lower than it would be
  under the Standard Plan, but ultimately the
  borrower pays more over the life of the loan
  because of the interest that accumulates during
  the longer repayment period

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Income Contingent (Direct Loans)

• Borrowers have 25 years to repay (unpaid portion
  after 25 years is forgiven)
• May have to pay income tax on amount that is
  forgiven
• Monthly payments based on annual income (student
  and spouse, if married), family size, total
  amount of DL
• As of 7/1/09 graduate and professional PLUS
  borrowers in the DL program are eligible
• Parent PLUS borrowers not eligible for ICR

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Income Sensitive (FFEL Loans)

• Monthly loan amount is based on the borrowers
  annual income and student loan debt
• Maximum repayment period is 10 years
• Contact lender for additional information

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Income Based (IBR)

• NEW as of 7/1/09
• Designed to help borrowers experiencing a
  partial financial hardship
• Available to all FFEL and DL borrowers who may be
  experiencing financial hardship manage their
  monthly payments
• Not available to Parent PLUS borrowers or
  Consolidation Loan borrowers

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Income Based (IRB)

• May extend the repayment period past the standard
  10-years
• Offers loan forgiveness to borrowers who have
  made 300 qualifying payments (25 years) on/after
  July 1, 2009
• To qualify for IBR, your initial monthly payment
  amount on all of your eligible loans calculated
  on a standard 10-year repayment plan must be more
  than 15 of the difference between the borrowers
  AGI and 150 of the poverty line for the
  borrowers family size

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Cant Pay?

• Grace Period
• Deferment
• Forbearance

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Grace Period

• Begins when the student graduates, withdraws, or
  drops below half-time status
• One grace period allowed
• Perkins nine months
• Stafford six months
• Parent PLUS six months
• GradPLUS no grace period
• Private consult lender

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Deferment

• Period of time during which no payments are
  required and interest does not accrue on
  subsidized loans (interest continues accruing on
  unsub loans)
• Types of Eligible Deferments
• In School (must be enrolled at least half-time)
• Active Duty Military Deferment
• Inability to find full-time employment (up to 3
  years)
• Economic Hardship (up to 3 years)
• Must apply and qualify for deferment

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Forbearance

• Occurs when the lender or loan-servicing agency
  agrees to either temporarily reduce or postpone a
  students loan payments
• Must apply and be eligible for forbearance
• Granted up to 12 months at a time (up to 3 years)
• Must provide documentation to support request
• Interest continues to accrue
• Student MUST pay this interest during any period
  of forbearance (for all loans)

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Loan Discharge

• Cancellation of student loan
• Permanent and total disability
• Death
• School closure
• False certification

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Loan Forgiveness for Public Service Employees

• Remaining outstanding balance on an eligible
  Direct Loan will be forgiven if
• Loan is not in default
• Student makes 120 monthly payments on the loan,
  under certain repayment plans, after 7/1/07
• Employed in certain public service fields (must
  be employed full-time during the same period in
  which 120 payments are made)
• http//studentaid.ed.gov/PORTALSWebApp/students/en
  glish/PSF.jsp

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Loans Eligible for Public Service Loan Forgiveness

• Federal Direct Unsubsidized Stafford Loans
• Federal Direct Subsidized Stafford Loans
• Federal Direct PLUS Loans for parents and
  grad/professional students
• Federal Direct Consolidation Loans
• FFELP loans consolidated in Federal Direct
  Consolidation Loans on or after 7/1/08

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Delinquency

• Failure to make a payment on time
• Reported to credit bureaus, which will negatively
  impact credit

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Default

• Failure to repay loans according to the terms set
  forth in the MPN (270 days past due for federally
  backed student loans)
• Legal action may be taken by the lender to
  recover the money
• Garnished wages or state lottery winnings
• Notify the credit bureaus (affect credit rating
  for up to 7 years)
• IRS can withhold income tax refund
• Liable for collection expenses
• Entire unpaid balance, including interest and
  fees, becomes due immediately
• Cannot be discharged through bankruptcy
• Borrower is ineligible for future federal
  financial aid, unless a satisfactory repayment
  schedule is arranged (provide the school
  evidence of 6 months worth of payments made)

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Ten-Year Trend in Student Aid and Nonfederal
Loans Used to Finance Postsecondary Education
Expenses in Constant (2007) Dollars (in
Billions), 1997-98 to 2007-08
Source. College Board, Trends in Student Aid 2008
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Growth of Stafford, PLUS, and Nonfederal Loan
Dollarsin Constant (2007) Dollars, 1997-98 to
2007-08
Source. College Board, Trends in Student Aid 2008
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What the Future Holds

• Student Aid and Fiscal Responsibility Act of 2009
  (HR 3221)
• No more FFELP loans after June 30, 2010 (unless
  expressly authorized by an Act of Congress)
• All federal loans will be processed through the
  Direct Lending Programs (Perkins, Stafford,
  Parent PLUS, GradPLUS)

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What the Future Holds (contd)

• Graduate and professional students will not be
  eligible for Subsidized Stafford loans beginning
  on or after 7/1/2015
• Reduced interest rates for undergraduate FDSL
• The bond equivalent rate of 91-day Treasury bills
  auctioned at the final auction held prior to June
  1 plus 2.3, not to exceed 6.8

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Resources

• College Board, Trends in Student Aid 2008
• Field, K. (2009) Senate's Draft Student-Loan Bill
  Differs From House Version. The Chronicle of
  Higher Education.
• Funding Education Beyond High School 2009-2010
• Student Aid on the Web (www.studentaid.ed.gov)

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• QUESTIONS
• ????