The Smart Approach to Consumer Debt

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The Smart Approach to Consumer Debt Student
Loans

• Park University
• April 15, 2008

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Executive Order02-08

• Over the past decade, the U.S. has averaged
  nearly 1 million bankruptcies a year
• Two-thirds of all families had credit card debt
  in 2002
• The average credit card debt has increased from
  2,400 to 9,000
• Children today will inherit 12 trillion over the
  next twenty years

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Its a financial jungle out there!What do you
need to know to survive?
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Start Saving Now
The road to wealth begins with saving,then
investing.
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Time Value of Money
The earlier you save
the more s you will have.
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Consider saving 100 per month at 5 interest
compounded annually.
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Take Charge of Your Spending

• The little things can really add up!
• Take for instance the cost of lattes.
• 3.00 (5 times a week) X 4 year 3,120
• Thats 780 each year!!!

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Budget

• Identify income
• Calculate expenses
• Subtract expenses from income
• Follow the 8 percent rule to determine your
  discretionary income
• Borrow only what you need

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Decrease Your Expenses

• Eliminate or reduce spending for unnecessary
  items
• Find a roommate
• Carpool or public transportation
• Library for books, magazines, and videos
• Take your lunch
• Clip coupons

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Understand the Costs of Credit

• You will get tons of credit card offers.
• Know how interest rates and other fees affect the
  amount you owe.
• Learn how to find the credit card thats right
  for you.
• Compare at least 3 offers before you choose a
  credit card.
• Dont select a card simply by what issuer is
  giving away.
• Read the fine print! If it sounds too good to be
  true, it probably is.
• Look for low interest rates that last until
  youve paid off the balances.
• If you have a balance and cant pay it off in
  full, always pay more than the minimum balance.

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What do you do if you get in trouble with credit?

• Stop making new charges and pay with cash.
• Set priorities and find ways to increase income
  and cut expenses.
• Pay more than the minimum balance if possible.
• Transfer balances to a lower interest rate credit
  card.
• Contact your lender and try to negotiate a lower
  interest rate.
• Contact a reputable consumer credit counseling
  office.

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Facts about Student Loans

• Loans must be repaid
• If you have several different lenders, you will
  be responsible for making payments to each one
  separately
• The amount of money you decide to borrow can
  affect your lifestyle later
• Your ability or inability to repay these loans
  can affect your credit worthiness

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The Life of a Loan

• MPN
• Disbursement
• Interim Period
• Grace Period
• Repayment
• Deferments and Forbearances
• Delinquency
• Default

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The Players

• Financial aid office
• Lender
• Loan holder (servicer/secondary market)
• Guarantor

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Keep In Touch

• Contact your loan holder and guaranty agency any
  time you change your address or telephone number
• Contact your loan holder if you are having
  problems making your payments
• Contact your school if you are having problems
  communicating with your loan holder.

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Time to Repay

• Congratulations! Youve received your
  undergraduate degree.

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Grace Period

• Six-months
• Begins the day after you graduate, leave school,
  or drop below than half-time enrollment
• Interest accrues on unsubsidized loans
• If you are nearing repayment and have not
  received repayment information, contact your
  lender

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Repayment Options

• Prepayment Great if you can do it!
• Standard Repayment Lowest total cost (if not
  prepaying)
• Graduated Repayment Short-term relief
• Income-Sensitive Repayment Temporary safety net
• Extended Repayment Plan

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Prepayment

• No penalties
• May substantially decrease your total interest
  costs
• Indicate that the payment should be applied to
  principal, not considered paid ahead

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Standard Repayment

• Fixed schedule of equal monthly payments
• Maximum 10-year repayment period

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Graduated Repayment

• Payments increase gradually
• Maximum 10-year repayment period
• Assumes your income will grow
• Higher total interest

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Income-sensitive Repayment

• Monthly payment schedule with fixed payments over
  one year at a time
• Maximum 10-year repayment period
• Loan holder sets monthly payments
• Payments 4 to 25 of income
• Substantially increases total debt

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Loan Consolidation

• Combines all of your existing student loans into
  one new loan
• Allows you to make only one payment
• Could extend your repayment period and lower your
  monthly payments
• Usually results in greater total debt

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Extended Repayment

• First loan must be received by Oct. 7, 1998
• Total loan debt must exceed 30,000
• Fixed or graduated repayment plan
• Maximum 10-year repayment period
• Minimum annual payments / 600
• Substantially increases total debt

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Paying the Price
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Student Loan Ombudsman

• The Ombudsmans Office was established to work
  with student loan borrowers to help informally
  resolve student loan disputes and problems
• [phone]
• Office of the OmbudsmanStudent Financial
  AssistanceU.S. Department of Education830 First
  Street NE, Mailstop 5144Washington, D.C. 20202
• http//ombudsman.ed.gov

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Deferment

• A temporary period of time when you are not
  required to make loan payments
• Interest will continue to accrue on unsubsidized
  and PLUS loans which will increase your total
  debt
• Deferment eligibility criteria are very specific
  and are outlined by the U.S. Department of
  Education

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Forbearance

• A temporary period of time when you either do not
  have to make a payment or you are allowed to make
  lower payments
• Interest will continue to accrue
• It is up to your loan holder to grant a
  forbearance

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Loan Forgiveness

• Your student loan may be cancelled if
• you become totally and permanently disabled
• you die
• your school falsely certifies your eligibility
  for a loan
• your school closes
• Teacher
• Child care provider
• Law enforcement or corrections officer
• Nurse/medical technician
• http//mappingyourfuture.org/paying/forgiveness.ht
  m

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Avoid Loan Default

• Reported to national credit bureaus
• Severe credit rating
• Remains on credit report for seven years AFTER
  loans are paid in full
• Affects obtaining future financing
• Entire loan amount immediately due and payable in
  full
• Collection costs
• Administrative wage garnishment

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Avoid Loan Default (contd.)

• Federal Treasury offset
• Federal income tax returns
• Social Security benefits and other federal
  payments
• State tax offset
• No additional financial aid
• No deferments or forbearances
• May be denied employment

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Remember

• Your students loans are your responsibility
• Loans must be repaid
• Even if you do not complete your program
• Even if youre unhappy with the quality of your
  program
• Even if you are not able to obtain employment

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Reminder

• Keep a file of your student loan records and know
  about what you owe
• Your ability or inability to repay your loan can
  affect your credit worthiness
• Failure to repay may increase your total debt

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Understand How Credit Use Affects Your Future

• Good debt
• Student loans
• Mortgage
• Car loans
• Bad debt
• Credit cards
• Credit Reports
• Credit Scores
• Be in control
• Pay your bills on time
• Dont carry an excessive number of credit cards
• Keep balances low

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Protect Your Credit Financial Future

• Securely store your financial information.
• Review statements and notify creditors
  immediately of errors.
• Be careful when giving out financial information
  (i.e.
  friends, cell phones, and the Internet).
• Invest in a shredder and Shred! Shred! Shred!
• Know whats in your wallet or purse.
• Protect your SSN.

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Questions?

• 3515 Amazonas Drive
• Jefferson City, MO 651O9
• (8OO) 473-6757
• [phone]
• Fax [phone]
• Info_at_dhe.mo.gov
• www.dhe.mo.gov