Get Into The Game Understanding Loan Repayment Strategies

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Get Into The Game Understanding Loan Repayment
Strategies
Michele Colson, Sallie Mae Trina Smith, Calhoun
Community College
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Agenda

• Set the stage for the case study session
• Loan portfolio complexity
• Repayment examples
• Debt management strategies
• Complete case studies
• Review each case study
• Identify/factor in the key repayment
  considerations
• Make repayment strategy recommendations

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Learning Objectives

• Understand the complex nature of todays student
  loan portfolios
• Review the key repayment considerations
• Practice applying these concepts to case study
  examples to enhance knowledge and skill level for
  coaching student loan borrowers on how to best
  manage repaying their student loans.

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Loan Portfolio Complexity

• Increased portfolio complexity requires that
  students have a solid understanding of the loans
  in their portfolios
• Loan types Are the loans Stafford, PLUS,
  Perkins, Consolidation, other?
• Are the loans made through a federal program or a
  private loan program? Who is the loan
  holder/servicer?
• Are the loans FFEL or DL?
• Interest rates Are the interest rates fixed or
  variable?
• What are the current interest rates?
• Graduate/Professional Students
• Most likely to have the most complex portfolios
• May need to plan for time period between
  graduating and entering their profession

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Complex Portfolio Consolidation?

• Federal Loan Consolidation is no longer one
  size fits all
• When is consolidation a good option?
• When lower monthly payments are needed to help to
  pay off higher rate debt
• When long term payment relief is necessary
• When variable interest rates are low and can be
  locked-in at a low fixed rate
• When solid borrower benefits make a difference
• When loan forgiveness options are not viable for
  the individual borrowers circumstances

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Loan Portfolio Complexity
Interest Rates
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Repayment Comparison
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Repayment Comparison
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Repayment Timeline Complexities
Grad PLUS and Existing Consolidation loans

FPDD
OSD
Stafford loans (unconsolidated DL in-school
Consolidation loans
EOG
FPDD
OSD
(6 month grace period)
Perkins loans
OSD
EOG
FPDD
(9 month grace period)
Private loans
OSD
(may or may not have a grace period)
FPDD
EOG
Need to manage debt from this time period forward
OSD Out of School Date EOG End of Grace
Period FPDD First Payment Due Date

• Make payments (Full, partial or Interest-only)
• Deferment
• Forbearance

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Debt Management

• Repayment Strategy
• Borrowers should choose a repayment schedule to
  meet their financial goals
• Borrowers should be encouraged to choose a
  repayment strategy for today and tomorrow
• Repayment Amount
• Borrowers need to evaluate all influencing
  factors
• Borrower benefits
• Current and future salary expectations
• Monthly budget
• Personal spending and repayment patterns

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Steps for Developing a Successful Strategy

• Borrowers should
• Review their portfolio and financial habits
• Review goals and identify those important to them
• Prioritize their selected goals and review
  associated strategies
• Research other potential strategies
• Follow through!
• Review their goals periodically
• Other winning steps
• Keep good records!
• Prom notes, notices and disclosures, and
  correspondence from lenders/servicers
• Keep good notes of phone conversations with
  lenders/servicers
• The 411 who, what, when, etc.

S2
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Case Studies Practicing Building a Great Game
Plan for Repayment
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Case Study Process

• Review the information and key facts for each
  case study
• Gather any additional important data
• Discuss the options and possible strategies
• Decide on strategies you would recommend for the
  borrowers situation

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Case Study One Community College Student

• To CC directly from High School
• Lives at home, would like to move out after
  graduation
• Will graduate in May 2008
• Will work full time and take one or two classes
  towards four year degree
• Current private loan interest rate is 8
• Credit card interest rate is 19.5

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Case Study Two Community College Student

• Transfer student with existing loans
• Married with two children
• Will graduate in May 2008
• Current private loan rate is 9
• Will need to replace car soon

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Case Study Thee Four Year College Student

• Liberal Arts Student
• Early Repayment Consolidation May 2006
• Fixed Rate Stafford 2006-07 2007-08
• Graduating May 2008

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Alternate Repayment Option
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Weighted Average Calculation
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Consolidation as a Repayment Option
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Case Study Four Graduate School Student

• Law school student
• Early repayment Consolidation May 2006
• Fixed rate Stafford and Grad PLUS
• Graduating May 2008
• Has a job lined up in a corporate legal
  department
• After passing the Bar exam

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Case Study Four Graduate School Student

• New corporate job paying 62,000 annually
• Has a mortgage and car payment
• Likes to live the good life
• Needs maximum monthly payment relief
• Points to ponder
• Consolidate all loans into one loan?
• Only consolidate newer fixed rate loans?
• Not reconsolidate and take full repayment period
  to repay loans?
• Postpone payments via a deferment or forbearance
  after graduation?

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Alternate Repayment Option Graduate Student
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Alternate Repayment Option - Graduate Student
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Weighted Average Calculation
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Consolidation Repayment - Graduate Student
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Developing a Personal Strategy
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Final Thoughts

• Students look to your office for guidance
• By proactively reaching out to your students from
  the moment they begin the process for financial
  aid, you reaffirm your position as trusted
  advisor
• The opportunity to educate your student borrowers
  early and continuously empowers each borrower to
  make sound fiscal decisions that will impact
  their repayment strategy years down the road
• The effort put into your counseling strategy can
  directly impact your overall cohort default rate