Life after Graduation

1
Life after GraduationDebt Management and Loan
Repayment Strategies

• Presented by Sharon Gifford
• Vice President
• Graduate Health Professions Programs

2
Types of Loans

• Stafford
• Subsidized
• government pays interest during eligible periods
• Unsubsidized
• borrower pays interest
• 10 year repayment
• 50 minimum monthly payment
• 6 month grace period

• Grad PLUS
• Fixed interest rate 8.5
• 10 year repayment
• 50 minimum monthly payment
• Immediate repayment (no grace period)

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Loan Repayment

• Repayment
• Standard
• Graduated
• Income Sensitive
• Extended
• Consolidation
• Prepayment
• Loan Cancellation
• Death
• Total permanent disability
• Some courses of study (check with FAO or guaranty
  agency)

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What is capitalization?

• Repayment begins 6 months after graduation
• Interest accrues on unsubsidized debt during
  in-school, grace and deferment
• Lenders retain the right to periodically add this
  unpaid accrued interest to the total outstanding
  unsubsidized principal, usually done once at
  repayment
• The Result - borrowers are technically paying
  interest on capitalized interest that was added
  to principal

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Standard Repayment 8.25
Tip you will repay approximately 12.25/month
for each thousand you borrow if repayment is at
the cap of 8.25
6
Standard Repayment 6.8
Tip you will repay approximately 11.51/month
for each thousand you borrow if repayment is at
6.80
7
What If I Cant Make My Monthly Payment?

• Contact your servicer to discuss
• Deferment Options
• Forbearance Options
• Consolidation Loans

8
Avoid Delinquency, Defaultand Bankruptcy

• Delinquency
• Usually occurs when 30 days late making payments
• Late payments are reported to a credit bureau
• Becomes part of your financial history
• May impact eligibility for borrower benefits
• Default
• Occurs when loan payments are 270 days past due
• Serious consequences

9
What happens if I default?

• Bad credit
• May impact employment opportunity
• Income tax refunds withheld through Federal
  Offset
• Lottery winnings withheld
• Wages can be garnished
• Professional license may be revoked, cancelled or
  not renewed
• Not eligible for future financial aid
• Not eligible for Federal benefits
• You will be responsible for all collection costs
• Youll lose the option of deferment and/or
  forbearance
• Your payments may become larger and your ability
  to pay more strained
• There is NO statue of limitations, so your
  obligation to repay this debt will never go away

10
Talk To Your Lender/Servicer if

• You have questions
• You move or change names
• You transfer to another school
• You can not make your payment
• You want to apply for a deferment or forbearance

11
Helpful Hints

• Open, read, and respond to all correspondence
  sent from your school and lender
• Keep all copies of loan information in one place
• Make all payments on time
• Contact your lender for options during times when
  financial difficulties occur
• Use credit wisely!

12
Auto-Pay and Overdraft

• Most lenders offer incentives for electronic
  repayment of your education loans
• Many offer additional incentives for on-time
  payments (after a certain number of months)
• Why? Electronic payments lower costs AND fewer
  delinquencies
• BUT if you bounce a payment, you lose the
  on-time incentive

13
Auto-Pay and Overdraft

• If you enroll in auto-pay AND then elect
  overdraft protection from your bank, youll never
  again bounce a payment to any of your creditors.
  This saves you overdraft fees (from both your
  bank and your creditor).
• If you have a lender that offers repayment
  incentives, you will also ensure your ability to
  earn them without fear of eliminating yourself.

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Additional Assistance

• Office of the Ombudsman, Student Financial
  Assistance
• U.S. Department of Education
• Room 3012, ROB-3
• 7th D Street
• Washington, D.C. 20202-5144
• 1-877-557-2575
• http//ombudsman.ed.gov

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Consolidation

• Combines eligible loans into a single new loan
• Longer repayment term (up to 30 years)
• Lowest payments
• Highest total cost potential
• The fixed interest rate for a Consolidation Loan
  is based on the weighted average of the interest
  rates of the loans you consolidate (rounded up to
  the nearest 1/8th percent).

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Eligible Federal Loans

• Federal Stafford Loans
• Federal Perkins Loans
• Health Professions Student Loans (HPSL)
• Federal Nursing Student Loans (NSL)
• Health Education Assistance Loans (HEAL)
• Federal Graduate PLUS Loans
• Federal PLUS Loans
• Federal Consolidation Loans
• must consolidate at least one additional
  eligible loan

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Ineligible Loans

• Private education loans
• Spouses education loans

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Program Guidelines

• Borrower may consolidate
• During grace period application may be submitted
  and consolidation delayed until end of grace
• When in repayment
• Loans in deferred status deferment continues, if
  consolidated

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Program Guidelines

• Cannot consolidate again with competing program
  unless you have a new loan that has not been
  consolidated
• Exceptions to repeat consolidation
• Borrower needs income-contingent repayment plan
• Initial consolidation loan has been submitted to
  the guarantor for default aversion assistance

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Program Guidelines

• If you omitted a loan, it can be added to initial
  consolidation within 180 days
• If you return to school and obtain a new eligible
  federal loan AND are no longer in in-school
  status you can re-consolidate

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What Happens to Borrower Benefits?

• Consolidation creates a new loan with total loan
  balances and has new terms and conditions
• Could lose certain benefits that were on the
  original loans
• Can choose which loans to include in consolidation

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Things to Consider

• Look at individual loan programs and benefits
  offered
• Perkins Loan offers forgiveness for
• Teaching in shortage or low-income area
• Social work
• Nurse or medical technician
• Law enforcement or corrections officer
• AmeriCorps VISTA or Peace Corps volunteer
• Service in Armed Forces

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Interest Rate Comparison

• Perkins Loans
• Fixed interest rate at 5
• Stafford Loans Disbursed prior to July 1, 2006
• During Grace 6.62 (variable rate)
• In Repayment 7.22 (variable rate)
• Stafford Loans Disbursed on or after July 1,
  2006
• 6.8 (fixed rate)
• Consolidation Loans
• Fixed interest rate for life of loan
• Weighted average of underlying loans (rounded up
  to next 1/8 of a percent)

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Weighted Average
Multiple loans (currently in repayment)
Amount Loan Type Interest Rate
10,000 Perkins Loans 5.00
20,000 Stafford Loans (variable rate) 7.22
30,000 Stafford Loans (fixed rate) 6.80
60,000 Consolidation Loan 6.75
Current variable rate, subject to change each
July 1.
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Repayment Periods
Total Amount of Loans Maximum Repayment Period
Under 7,500 10 years (120 months)
7, 5009,999.99 12 years (144 months)
10,00019,999.99 15 years (180 months)
20,00039,999.00 20 years (240 months)
40,00059,999.99 25 years (300 months)
More than 60,000 30 years (360 months)
Based on outstanding amount of all education
loan debt, regardless of whether or not the loan
is eligible and/or if you choose to consolidate
the loan.
26
Monthly Payments

• Typically reduced after consolidation
• May make monthly costs more reasonable
• Costs more in the long run
• Repayment term extended up to 30 years

27
Repayment Example
60,000 student loan debt with various
lenders/servicers
Amount Loan Type Term Payment
10,000 Perkins Loans (undergraduate) 120 106.07
20,000 Stafford Loans (7.22) 120 234.49
30,000 Stafford Loans (6.8) 120 345.24
Loan Type Balance Payment Term Total Repayment
Not Consolidated 60,000 684.97 120 82,196.40
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Repayment Example with Consolidation

• Consolidation extends the repayment term
• You pay more if you use the full term
• You can pay the loan off early with no penalty

Loan Type Balance Payment Term Total Repayment
Not Consolidated 60,000 684.97 120 82,196.40
Consolidated 60,000 526.80 180 94,823.00
Consolidated 60,000 384.19 360 138,307.00
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Interest Subsidy

• Portion of Consolidation Loan that was subsidized
  remains subsidized for
• FFELP and FDLP Stafford Loans
• Does not retain subsidy on portion of FFELP
  Perkins Loans or FDLP Perkins Loans

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Consolidation Repayment Options

• Standard
• Same payment each month
• Graduated
• Payments start low and gradually increase
• Income-sensitive or income-contingent
• Monthly payments based on income
• Adjusted annually

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Think Twice Before You Consolidate

• If ALL of the following are true
• You only have eligible federal student loans with
  FIXED interest rates
• You qualify for Extended Repayment
• You qualify for on-time payment incentives on
  Federal Stafford/PLUS Loans
• Then, you could have both a lower monthly payment
  and pay less over the life of repayment by NOT
  consolidating

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40,000 Stafford Fixed 6.8
Extended Repayment Consolidation
Interest Rate 6.8 6.875
Term 25 yr 30 yr
Monthly Payment 277.63 262.77
Total Amount Paid 83,289 94,598
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100,000 Stafford Fixed 6.8
Extended Repayment Consolidation
Interest Rate 6.8 6.875
Term 25 yr 30 yr
Monthly Payment 694.07 656.93
Total Amount Paid 208,222 236,494
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40,000 Stafford Combination 6.8 7.14
Extended Repayment Consolidation
Interest Rate 6.97 7.0
Term 25 yr 30 yr
Monthly Payment 281.95 259.44
Total Amount Paid 84,584 93,398
35
100,000 StaffordCombination 6.8 7.14
Extended Repayment Consolidation
Interest Rate 6.97 7.0
Term 25 yr 30 yr
Monthly Payment 704.87 665.30
Total Amount Paid 211,460 239,509
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What should you do?

• May still want to consolidate the federal student
  loans with variable interest rates
• Can consolidate only the variable rate loans as a
  separate Federal Consolidation Loan
• Can retain fixed rate loans as separate loans
• May not want to include a prior consolidation
  loan as part of a new consolidation so that any
  prepayments can be targeted at the highest cost
  debt

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Consolidating Private LoansFactors to Consider

• Interest rate may be higher
• Increasing repayment period increases total costs
• Grace period may be lost
• Additional fees may be assessed
• Borrower benefits will be lost

38
Consolidating Private LoansMORE Factors to
Consider

• If you have good credit
• If you dont have borrower benefits to lose
• If you have loans from multiple lenders

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Graduation -Time for a Budget Update

• How much will you earn?
• What are your new expenses?
• Education loan payments start soon.
• Build savings into your budget.
• Be prepared for emergency expenses.
• Your money earns more money - for you.

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Taxpayer Relief Act of 1997 Highlights

• Interest Deductions
• Potential education loan interest deduction if
  income less than 40M single filers, 60M married
  filers.
• Tax Credits
• Students and families may be eligible for either
  HOPE (1500 maximum for 1st two years of
  post-secondary study) or Lifetime Learning Credit
  (1000 maximum annually) certain income
  limitations apply.
• Contact a tax advisor to determine your personal
  eligibility

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Debt Management Strategies

• Create a spreadsheet showing the following
• type of credit balance mo pmt APR
• student loan 87,000 361 6.8
• car loan 14,000 350 8.9
• Visa 7,200 144 15.9
• MasterCard 2,400 48 18.9
• mortgage 95,000 750 6.3
• TOTALS 292,000 1653

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Debt Management Strategies

• Now sort by APR - highest to lowest
• type of credit balance mo pmt APR
• MasterCard 2,400 48 18.9
• Visa 7,200 144 15.9
• car loan 14,000 350 8.9
• mortgage 95,000 750 6.3
• student loan 87,000 361 6.8
• TOTALS 292,000 1653

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Credit

• The only reason a great many American families
  dont own an elephant is that they have never
  been offered an elephant for a dollar down and
  easy weekly payments.
• -Mad Magazine

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Credit Cards

• Free t-shirts arent free.
• Low rates wont stay low.
• Airline miles are paid for somehow.
• Cash saved is better than cash back.

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How bad is the current crisis?

• Top Credit Card Interest Rate?
• 35.20
• Average Credit Card Debt?
• 8,000
• 2003 Profits by Credit Card companies?
• 1.5 trillion globally / 60 billion nationally
• Elizabeth Warren, Harvard University School of Law

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But Worse Yet

• Fees have doubled.
• Income from over-limit charges, calendar
  manipulation and returned checks has far outpaced
  actual interest rates.

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Interest Rates

• One late payment can eliminate all low teaser
  rates, raising interest from 3.9 to over 20.
• Cash advance interest rates may capitalize daily,
  not monthly.
• Annual fees, points program fees, authorized user
  fees all add up.

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Lets talk about those rates . . .

• There are no regulations which prevent credit
  card companies from changing your rate at any
  time for any reason
• Failing to make a timely payment to another
  creditor
• Account balances deemed too high (sufficiently
  obligated)

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The lure of the minimum payment

• 2,500
• At an interest rate of 24, making only the
  minimum payment
• 304 payments over 25 years (to 2031)
• Interest payments of 7,625.48
• Increase the cost to 10,125.48

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Why not the day to day?

• Snacks at coffee shop (5 x 4) 20.00
• Gum or mints (1.20 x 4) 4.80
• Soda or bottled water (1.25 x 4) 5.00
• Movie snacks (12.00) 12.00
• Occasional magazine (4.50) 4.50
• Gas 25.00
• A music CD 15.00
• The costs of the Little Things 86.30
• Total over 52 weeks? 4,487.60

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Who looks at credit?

• Apartment managers
• Employers
• Car dealers
• Retail creditors
• Banks

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All carefully tracked by

• Fair Isaac Corporation
• (FICO)
• www.myfico.com

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How is FICO Measured?

• FICO measures your financial responsibility
  based on your credit history calculated from 5
  categories

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FICO Scores

• 75 of Americans have a recorded credit history
  (225M)
• Median credit score good is 720
• Highest score is 850
• The riskiest population those who will most
  likely charge off debt or file bankruptcy is
  below 600
• According to USA Today, Texas is one of the
  states with the lowest average scores - 649

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Hits Against Your FICO Score

• Late payments
• Uncollected debt
• High debt
• High potential debt
• Frequency of applications inquiries

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Effect of a FICO score on a loans total cost

• A 10,000 loan with no fees at a 15-year
  repayment term.
• Prime rate _at_8.25

FICO Score Interest Rate Formula Interest Rate Monthly Payment Total Cost of Loan
723 Prime 0.25 8.00 95.57 17,201.74
619 Prime 3.5 11.75 118.41 21,314.36

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www.annualcreditreport.com

• Review reports at least once a year.
• Follow instructions to dispute any errors.
• Ask creditors to reduce unnecessarily high
  limits.
• Close unused accounts.
• You dont need a credit repair company!

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Always Opt Out

• 1-888-567-8688
• or
• www.optoutprescreen.com

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What is Identity Theft?

• Wrongful use of your personal identification to
  obtain services in your name can include
  credit, loans, services, rentals or mortgages.
  Crimes may be committed while impersonating you.

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Am I at Risk?

• According to a national survey of students, 49
  discarded credit card applications without
  destroying them and rarely, if ever, reconciled
  their credit card and bank statements.

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Am I at risk?

• The FTC reports identity theft is the fastest
  growing crime today
• Affected more than 9.9 million new victims in
  2003
• Losses to victims were estimated at more than 5
  billion in 2003
• Losses to business and financial institutions
  were estimated at 50 billion in 2003

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Protect Yourself

• Never give any personal information over the
  telephone
• Never mail checks or personal information from
  your home mail box
• Never put phone or social security numbers on
  personal checks
• Never respond to E-mail spam telling you to click
  an address if you dont want to receive further
  e-mails
• Never carry social security cards or pin numbers
  in your wallet
• Never use your SSN for your drivers license or
  medical cards

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Always

• Cover your calling card and ATM pin numbers
• Update virus and firewall software
• Carry only the credit cards and ID that you need
• Shred credit card offers and any form on which
  your signature can be forged

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Protecting Yourself

• Obtain your credit report from each credit bureau
  each year
• Guard your mail! Planning to be away? Request a
  vacation hold or temporary forwarding request
  from the USPS
• Shred charge receipts, ATM receipts, old bank
  statements, obsolete insurance forms, physician
  statements, expired charge cards and credit card
  offers

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If you are a victim of fraud

• The responsibility lies with you to right the
  wrong. Contact
• Your local police and complete a police report
• The Social Security Administration
• Your bank
• Your credit card companies
• Each of the Credit Bureaus

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If you are a victim of fraud

• The responsibility lies with you to right the
  wrong. Contact
• Your local police and complete a police report
• The Social Security Administration
• Your bank
• Your credit card companies
• Each of the Credit Bureaus

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Tonights To-Do List

• Get the beverage of your choice.
• Order a copy of your credit report.
• Ask your credit card companies what your current
• Annual Percentage Rate is, and ask if theyll
  lower it.
• Create a monthly budget, using APR sorting.

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Your Graduation To-Do List

• Consider consolidating all remaining education
  debts,
• weighing how consolidation terms may have
  changed.
• If you need to defer, request deferments from
  your
• loan servicer while still in your grace period.
• Enroll in auto-pay for all possible debts.
• Enroll in overdraft protection.
• Find a good accountant.

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Resources
www.finaid.org/calculators Repayment
calculators www.bankrate.com For competitive
credit card rates www.donotcall.gov
1-888-382-1222 www.tgslc.org TG (State
Guarantor) Sharon Gifford Student Loan
Xpress sharon.gifford_at_slxpress.com

• www.nslds.gov
• National Student Loan Data System
• www.ombudsman.ed.gov
• Office of the Ombudsman
• www.annualcreditreport.com
• One free report from each bureau
• www.optoutprescreen.com
• 1-888-567-8688
• www.myfico.com
• Fair Isaac Corporation

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• Good Luck in All Your Future Endeavors!