Managing My Student Loans On My Salary

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Managing My Student LoansOn My Salary
TITLE

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We Will Discuss

• Student loans 101
• What if Im having difficulty making the full
  monthly payment?
• What if my loan is about to go into default?
• What if I have defaulted but want to begin paying
  back my loan?

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Student loans 101
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Student loans 101

• Student financial aid for college expenses
  includes
• Grants and scholarships
• Federal Student Loans
• Perkins Loans
• Direct Student Loans (DL)
• Federal Family Education Loans (FFEL)
• Alternative or Private Loans

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Student loans 101

• Managing the Repayment Cycle
• Delaying repayment while a student (deferment)
• Becoming established after leaving school (grace
  period)
• Navigating the years while paying back my loan
  (repayment)

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What if Im having difficulty making the full
monthly payment?
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Difficulty making payment?

• You may have been receiving calls and letters
  from folks eager to assist you
• Your school
• Your lender
• The folks helping your lender service your
  repayment
• NOTE Payments may be made on-line or over the
  phone with Great Lakes Higher Education
  Corporation and most servicers

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Difficulty making payment?

• Lets review five different repayment plans
• Standard Repayment Plan (Perkins, Direct
  Loans-DL, Federal Family Education Loans-FFEL)
• Graduated Repayment Plan (DL, FFEL)
• Income Sensitive Repayment Plan (FFEL)
• Income Contingent Repayment Plan (DL)
• Extended Repayment Plan (DL, FFEL)
• NOTE You may change repayment plans as your
  ability to repay changes.

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Difficulty making payment?

• Standard Repayment Plan
• The amount of your monthly payment remains the
  same for each month
• Your monthly payment will be at least 40 for
  Perkins and 50 for DL and FFEL
• You have 10 years to repay your loan
• NOTE Your monthly payment will be about 11.51
  for every 1,000 that youve borrowed at 6.8
  interest.

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Difficulty making payment?

• Graduated Repayment Plan
• Your monthly payments will be lower at first
• Your payment must be at least as much as the
  interest charged to you during the past month
• Your payments will increase over time
• You are allowed 10 years to repay your loan

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Difficulty making payment?

• Income Sensitive Repayment Plan (FFEL)
• Your monthly payment will be based on your total
  yearly income and your loan amount
• Your payment must be at least as much as the
  interest charged to you during the past month
• Your payment will change as your income changes
• The time for repayment may be up to 10 years
• NOTE This plan expires June 30, 2009.

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Difficulty making payment?

• Income Based Repayment Plan (FFEL)
• Effective July 1, 2009 for Stafford and Grad-PLUS
  loans
• Designed for borrowers with a partial financial
  hardship
• Monthly payment is 15 of X
• X is monthly Adjusted Gross Income (AGI) less
  150 of monthly poverty level (PL)
• At the end of 25 years of repayment, any
  remaining balance is discharged

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Difficulty making payment?

• Examples of Income Based Repayments
• This would be the monthly payment amount

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Difficulty making payment?

• Assume 40,000 borrowed at 6.8
• NOTE The first months interest is 227

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Difficulty making payment?

• Income Contingent Repayment Plan (DL)
• Your monthly payment will be based on your
  adjusted gross income, family size, interest rate
  and amount of Direct Loan debt
• Your payment will change as your income changes
• At the end of 25 years of repayment, any
  remaining balance is discharged

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Difficulty making payment?

• Extended Repayment Plan
• 30,000 minimum outstanding debt required
• Your monthly payment will be at least 50 but
  less than if you used the Standard Repayment Plan
• You will be repaying your loan over a period of
  up to 25 years in order to have a lower monthly
  payment
• NOTE You will be paying more interest during
  repayment since you will be renting the money for
  a longer period of time!

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Difficulty making payment?

• Assume 30,000 borrowed at 6.8
• NOTE Monthly payments will increase to 405.90
  for last 8 years of repayment.
• For a loan repayment calculator, go to
  studentaid.ed.gov, click on Repaying, then
  click on here under Paying Back Your Loan.

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Difficulty making payment?

• Additional helpful options
• Combine several student loans into one new loan
  (Consolidation)
• Temporarily postpone payments (Deferment)
• Temporarily reduce or postpone the amount of the
  monthly payments (Forbearance)

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Difficulty making payment?

• Why might I be ahead consolidating my student
  loans into a single loan?
• You may lower your monthly payments which would
  allow for more disposable income
• You may reduce your payment problems and damage
  to credit ratings
• You will obtain a fixed interest rate during the
  life of your repayment
• NOTE Interest rates will drop on variable rate
  loans on July 1, 2008

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Loan Consolidation Example
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Difficulty making payment?

• Why might I NOT be ahead by consolidating my
  student loans?
• There is no grace period
• Deferment options may change
• You lose Perkins cancellation benefits
• You lose repayment incentives with original
  lender
• Total interest to be paid may increase

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Difficulty making payment?

• Consider the benefits of a deferment
• No payments are required when you are approved
  for a period of deferment
• All interest during the deferment is paid on your
  behalf on your Perkins and subsidized Stafford
  loans
• NOTE You may make unscheduled payments anytime
  without penalty

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Difficulty making payment?

• Conditions that may qualify you for a period of
  deferment
• At least half-time study in college
• Inability to find full-time employment
• Economic hardship
• Study in an approved graduate fellowship program
  or rehabilitation training program for the
  disabled
• Active duty during war, military operation, or
  national emergency
• NOTE Save documentation of the condition
  qualifying you for a deferment

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Difficulty making payment?

• Forbearance also has its benefits
• You may be allowed to make reduced payments for a
  period of time because you have been granted a
  forbearance
• Request a forbearance when you have an extreme
  financial hardship and you do not qualify for a
  deferment
• NOTE You are responsible for all interest
  charges during the period of forbearance

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Financial Impact of Forbearance

• 46,000 of student loans placed in forbearance
  for twelve months
• Repayment period is 10 years
• Interest rate is 6.8
• Additional interest for the year will be 3,128
• Monthly payment after forbearance will increase
  by 36

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Financial Impact of Forbearance

• There is a forbearance calculator available in
  the Borrowers section of
• mygreatlakes.org

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Difficulty making payment?

• In a few circumstances, your loan may be
  partially or fully cancelled
• 100 cancellation in the event of a borrowers
  total and permanent disability or death
• NOTE Check your Perkins promissory note for
  additional cancellation opportunities for
  nursing, teaching, law enforcement or military
  service.

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NHSC Loan Repayment Program

• The National Health Service Corps may pay up to
  50,000 of outstanding loan balance
• Requirements include
• Two years of full time service serving the needs
  of underserved populations at approved sites as a
  clinical social worker
• Information available at 1-800-221-9393 or
  http//nhsc.bhpr.hrsa.gov

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Difficulty making payment?

• Be cautious about bankruptcy
• In rare cases, the courts may cancel your
  indebtedness only if repayment would cause severe
  undue hardship
• Bankruptcy will have an extreme negative impact
  on your credit rating
• One consequence of a lower credit rating is
  increased difficulty in obtaining consumer loans

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What if my loan is about to go into default?
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About to go into default?

• Default occurs when
• You have not made a scheduled payment for 270
  days and
• You have not made special arrangements with your
  lender or servicer for a deferment or forbearance

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About to go into default?

• Avoiding default is in your best interest
• Defaulting has serious consequences
• Your entire loan balance becomes due
• Your federal and state tax refunds may be
  directed to repay your loan
• Your employer may be required to use a part of
  your wages to pay on your loan

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About to go into default?

• Even more consequences of default
• You will be unable to obtain student aid if you
  return to school or a parent loan to help with
  your childrens college expenses
• You are no longer eligible for a deferment or
  forbearance
• Your loan may be turned over to a collection
  agency which may charge you up to 24 of your
  loan to collect the defaulted amount from you

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About to go into default?

• Your default will be reported to the national
  credit bureaus which will
• Lower your credit score
• Make borrowing for a car, home or other items
  more expensive or impossible
• Influence potential employers when considering
  you for employment
• Influence landlords decision to rent to you

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About to go into default?

• Since you have not yet defaulted, your lender has
  many tools to help you
• Four types of repayment plans
• Deferments and forbearances
• Consolidation and cancellation benefits
• NOTE Most of these tools will not be available
  once you have defaulted.

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About to go into default?

• In order to avoid the consequences of default,
  contact your lender or servicer immediately for
  guidance.
• If you do not know your loan provider or need
  other loan information, you may go to
  nslds.ed.gov

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About to go into default?

• Contact your loan provider
• Perkins loans call your school
• Direct Loans 1-800-848-0979 or www.dl.ed.gov
• Federal Family Education Loans contact your
  lender or call 1-800-433-3243

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What if I have defaulted, but want to begin
paying back my loan?
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Resolving defaulted loans

• How can I find out which agency is holding my
  defaulted loans?
• You may call 1-800-433-3243 for the agencys
  address and phone number

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Resolving defaulted loans

• Most financial aid professionals consider Loan
  Rehabilitation to be the best option for paying
  back your defaulted loan.
• Loan Rehabilitation is an opportunity for you to
  move your loans out of default and back into good
  standing in a short period of time.
• NOTE Loan Rehabilitation removes the default
  status from your credit report.

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Resolving defaulted loans

• How do I rehabilitate my Perkins loan?
• First, contact the agency holding your defaulted
  loan or the U. S. Department of Education at
  1-800-621-3115
• You may then arrange to make 12 voluntary,
  consecutive, on-time monthly payments in an
  amount you have agreed upon with the Department.

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Resolving defaulted loans

• How do I rehabilitate my Direct Student Loan?
• First, contact the U. S. Department of Education
  at 1-800-848-0979
• You may then arrange to make 9 voluntary,
  consecutive, full on-time monthly payments within
  10 consecutive months in an amount you have
  agreed upon with the Department.

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Resolving defaulted loans

• How do I rehabilitate my Federal Family Education
  loan?
• First, contact the agency holding your defaulted
  loan or the U. S. Department of Education at
  1-800-621-3115 or at dcshelp_at_pearson.com
• You may then arrange to make 9 voluntary,
  consecutive, full on-time monthly payments within
  10 consecutive months in an amount you have
  agreed upon with the agency holding your loan.

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Resolving defaulted loans

• Why is it to my advantage to rehabilitate my
  defaulted student loans?
• Your loans will no longer be considered in
  default
• The default status of your loans will be erased
  from the national credit bureaus records
• You will again be eligible for student financial
  aid
• You will regain your original benefits that came
  with your student loans

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Resolving defaulted loans

• Are there additional advantages to rehabilitating
  my student loans?
• The IRS will stop using your tax refunds to pay
  on your loans
• Your employer will no longer hold back some of
  your earnings to pay on your loans.

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Resolving defaulted loans

• If you would consolidate your defaulted loans
  rather than rehabilitate them,
• Your consolidated loan would be in good standing,
  however
• National credit bureaus would report your old
  defaulted loans as paid in full defaulted loans

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To summarize

• If you are having difficulty making the full
  monthly payment, contact your loan provider or
  servicer. They have many tools available to
  assist you in keeping your loan in good standing
  and are eager to help you.

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To summarize

• If your loan is about to go into default, dont
  delay one more day. Contact your lender or
  servicer and make use of the many rights that you
  have to prevent default, rights which will be
  lost if your loan goes into default.

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To summarize

• If you have defaulted but want to begin paying
  back your loan, you are to be commended for your
  desire to keep your promise to repay your loan.
  The U. S. Department of Education will assist you
  in the process known as Rehabilitation. Your
  defaulted loans will return to good standing in
  nine to twelve months.

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Any Questions or Comments?Ed
Schroedereschroeder_at_glhec.org