10/5/20151 Educational Loans – Repaying and Consolidating .
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Transcript of 10/5/20151 Educational Loans – Repaying and Consolidating .
04/19/23 2www.collegenowgc.org
Loans are . . . • Good?
- Loans might enable a student to go to college who otherwise could not afford to go. Loans build credit history
• Bad?- Loans, if allowed to go into default, can destroy a
person’s credit and keep that person from getting financial aid in the future. Repayment can keep the borrower from financial freedom.
• Like Fire!- They’re a tool! When used wisely, thay can benefit
the student. When used unwisely, they can hurt.
04/19/23 3www.collegenowgc.org
Types of Federal Student Loans
• Federal Perkins Loan
• Federal Subsidized Stafford/Direct Loan
• Federal Unsubsidized Stafford/Direct Loan
• Federal Parent PLUS Loan
04/19/23 4www.collegenowgc.org
Federal Perkins Loan
• Annual Loan Limit: $5,500
• Maximum Loan Limit: $27,500
• Interest not accruing while in school
• Annual Interest Rate: 5% (Fixed)
• Lender: College/Institution
• Repayment Grace Period: 9 months
04/19/23 5www.collegenowgc.org
Federal Subsidized Loan
• Annual Loan Limit: $3,500 to $8,500 (depending on year in school)
• Maximum Loan Limit: $23,000
• Interest not accruing while in school
• Annual Interest Rate: 3.4% - 6% (Fixed, depending on disbursement dates)
• Lender: U.S. Department of Education
• Repayment Grace Period: 6 months
04/19/23 6www.collegenowgc.org
Federal Unsubsidized Loan
• Annual Limit: $2,000 - $7,000
• Maximum Limit: $8,000 - $26,000
• Interest is accruing while in school
• Annual Interest Rate: 6.8% (Fixed)
• Lender: U.S. Department of Education
• Repayment Grace Period: 6 months
04/19/23 7www.collegenowgc.org
Federal Parent PLUS Loan
• Annual Limit: Student’s Cost of Attendance
• Maximum Limit: None
• Interest is accruing while student is in school
• Annual Interest Rate: 7.9% (Fixed)
• Lender: U.S. Department of Education
• Repayment Grace Period: None or 6 months
04/19/23 8www.collegenowgc.org
Know the details of your loan
• The amount of your total debt (principal and estimated interest - www.nslds.ed.gov)
• Your current interest rate
• The total interest charges on your debt
• The date you must start repayment
• Information about the maximum repayment periods and the minimum repayment amount
04/19/23 9www.collegenowgc.org
Know the details of your loan –cont.
• An explanation of default and its consequences
• A reminder of available options for loan consolidation
• A description of applicable deferment, forbearance, and discharge (cancellation) provisions
• Repayment options and advice about debt management that will help in making your payments
04/19/23 10www.collegenowgc.org
Repayment Options
• Standard
• Graduated
• Extended
• Income-Contingent Repayment (ICR)
• Income-Based Repayment (IBR)
04/19/23 11www.collegenowgc.org
Standard Repayment
• Eligible loans: Direct and FFEL Stafford
• Repayment time frame: Up to 10 years
• Monthly payments: Fixed, must be at least $50 per month
• If you do not choose a repayment plan when you first begin repayment, you will be placed in this one
04/19/23 12www.collegenowgc.org
Graduated Repayment
• Eligible loans: Direct and FFEL Stafford
• Repayment time frame: Up to 10 years
• Monthly payments start out relatively low at first and then increase, usually every two years
• Payments must at least cover the interest that accumulates on the loans between payments
04/19/23 13www.collegenowgc.org
Graduated Repayment -cont.
• This plan is tailored to individuals with relatively low current incomes who expect their incomes to increase in the future
• You’ll ultimately pay more for your loan than under the Standard Plan, because more interest accumulates in the early years of the plan when the outstanding loan balance is higher
04/19/23 14www.collegenowgc.org
Standard vs. Graduated
Initial debt when you enter repayment
Standard(not to exceed 10 years)
Graduated(not to exceed 10 years)
Per month Total repaid Per month Total repaid
$3,500 $50 $4,471 $25 $5,157
$5,000 $58 $6,905 $40 $7,278
$7,500 $83 $10,357 $59 $10,919
$10,500 $121 $14,500 $83 $15,293
$15,000 $173 $20,714 $119 $21,834
$40,000 $460 $55,239 $316 $58,229
04/19/23 15www.collegenowgc.org
Extended Repayment
• Eligible loans: $30,000 in Direct Stafford or $30,000 in Direct FFEL
• Repayment time frame: 25 years
• Monthly payment: fixed or graduated – payment is lower than it would be with the Standard Plan
• Only loans that total $30,000 or more can be considered
04/19/23 16www.collegenowgc.org
Standard vs. Graduated vs. ExtendedInitial debt when you enter repayment
Standard(not to exceed 10
years)
Graduated(not to exceed 10
years)
Extended
Per month
Total repaid
Per month
Total repaid
PerMonth
Total repaid
$3,500 $50 $4,471 $25 $5,157 Not available for this loan amount
$5,000 $58 $6,905 $40 $7,278 Not available for this loan amount
$7,500 $83 $10,357 $59 $10,919 Not available for this loan amount
$10,500 $121 $14,500 $83 $15,283 Not available for this loan amount
$15,000 $173 $20,714 $119 $21,834 Not available for this loan amount
$40,000 $460 $55,239 $316 $58,229 $277 $83,289
04/19/23 17www.collegenowgc.org
Income Contingent Repayment (ICR)• Eligible loans: Direct Stafford
• Repayment time frame: Have 25 years to repay; unpaid portion will be forgiven
• Monthly payment: Based on annual income, spouse’s if married, family size and the total amount of Direct Loans
• You may have to pay income tax on the amount that is forgiven
04/19/23 18www.collegenowgc.org
Standard vs. Graduated vs. ICR
Initial debt when you enter repayment
Standard(not to exceed
10 years
Graduated(not to exceed
10 years)
ICR(income = $25,000)
For Direct loans onlySingle
Per month
Total repaid
Per month
Total repaid
Per month
Total repaid
$3,500 $50 $4,471 $25 $5,157 $27 $6,092
$5,000 $58 $6,905 $40 $7,278 $38 $8,703
$7,500 $83 $10,357 $59 $10,919 $57 $13,055
$10,500 $121 $14,500 $83 $15,283 $80 $18,277
$15,000 $173 $20,714 $119 $21,834 $114 $26,110
$40,000 $460 $55,239 $316 $58,229 $253 $72,717
04/19/23 19www.collegenowgc.org
Income Based Repayment (IBR)• Eligible loans: Direct and FFEL Stafford• Repayment time: Have 25 years to repay under
this plan, unpaid portion will be forgiven (note: could be changed to 20 years if passed by Congress)
• Monthly payment: You must have partial financial hardship to enroll; monthly payments are capped at 15% of discretionary income (note: could be changed to 10% if passed by Congress)
04/19/23 20www.collegenowgc.org
IBR – cont.
• If you are married AND file separately, only your income will be considered when calculating your payment
• You may have to pay income tax on the amount that is forgiven.
04/19/23 21www.collegenowgc.org
IBR Plan Annual Income Family size = number of family members
1 2 3 4
$10,000 $0 $0 $0 $0
$15,000 $0 $0 $0 $0
$20,000 $47 $0 $0 $0
$25,000 $109 $39 $0 $0
$30,000 $172 $102 $32 $0
$35,000 $234 $164 $94 $24
$40,000 $297 $227 $157 $87
$45,000 $359 $289 $219 $149
$50,000 $422 $352 $282 $212
$55,000 $484 $414 $344 $274
$60,000 $547 $477 $407 $337
04/19/23 22www.collegenowgc.org
Deferment?
• A period in which repayment of the principal balance is temporarily postponed (no payments are required) if you meet certain requirements
• Subsidized loan – government is paying the interest on the loan
• Unsubsidized loan – interest is accruing
04/19/23 23www.collegenowgc.org
Deferment Conditions• At least half-time study at a postsecondary
school
• Study in an approved graduate fellowship program or in an approved rehabilitation training program for the disabled
• Unable to find full-time employment (up to 3 years)
• Economic hardship (up to 3 years)
• Borrower is on active duty in the military
04/19/23 24www.collegenowgc.org
Forbearance?• Allows you to postpone or reduce your monthly
payment amount for a limited and specific period if you are willing but unable to make your scheduled loan payments for reasons, including, but not limited to, financial hardship or illness and you do not meet the eligibility requirements for deferment.
• You are responsible for paying interest that accrues during forbearance on all loan types, including subsidized loans
04/19/23 25www.collegenowgc.org
Forbearance Conditions• While serving in a medical or dental internship or
residency program and meet certain other requirements
• If payments are being made for you by the Department of Defense
• While serving in an AmeriCorps position for which you are receiving and education award
• If the total amount you owe each month on all loans is 20% or more of your total monthly gross income
04/19/23 26www.collegenowgc.org
Loan Consolidation• Combine multiple federal student loans
into one complete loan
• Various repayment schedules can be used
• Single monthly payment
• Monthly payment might be lower
• Repayment period may be extended up to 30 years
• Carefully review your consolidation options before you apply
04/19/23 27www.collegenowgc.org
When to consolidate?
• During your grace period
• Once you’ve entered repayment
• During periods of deferment and forbearance
04/19/23 28www.collegenowgc.org
Interest Rate on Consolidated Loan• Interest rate is a fixed rate for the life of
the loan
• Fixed rate is based on the weighted average of the interest rates on all loans you consolidate
• Interest rate will never exceed 8.25%
04/19/23 29www.collegenowgc.org
Disadvantage in Consolidating?
• Consolidation may significantly increase the total cost of repaying due to longer period of time to repay
• Before consolidating, compare the cost of repaying your unconsolidated loans with the cost of repaying a consolidation loan
04/19/23 30www.collegenowgc.org
Also consider:• Whether you will lose any borrower
benefits if you consolidate, such as interest rate discounts or principal rebates – these benefits can significantly reduce the cost of repaying your loans
• If you include a Perkins loan in your consolidation, you will lose cancellation benefits that are only available in the Perkins Loan Program
04/19/23 31www.collegenowgc.org
Special Direct Consolidation Loans• U.S. Department of Education will offer this
opportunity for eligible borrowers beginning January 2012 through June 2012 – Department will contact you in January if you are eligible
• A short-term consolidation opportunity• Must have at least one student loan held by the
Department, owned by the Department and serviced by the Department AND
• One commercially-held FFEL loan, owned by FFEL lender and serviced either by lender or servicer contracted by lender
04/19/23 32www.collegenowgc.org
Special Direct Consolidation Loan – cont.• Helps borrowers manage their loans under
one entity – resulting in one bill and one payment
• Any loans in default, Perkins Loans, Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS), and Private loans are ineligible
04/19/23 33www.collegenowgc.org
Special Direct Consolidation Loan – cont.Benefits:
•Interest rate reduction, will receive a 0.25% of FFEL loans
•Repayment term will not change – will pay less interest over the life of the loan
•Eligibility for loan forgiveness under the Public Service Loan Forgiveness Program – FFEL are now Direct and can be considered for this program
04/19/23 34www.collegenowgc.org
Traditional Consolidation vs. Special Consolidation
Traditional Special
Repayment Repayment term starts over, longer repayment term, lower monthly payments, but will increase total repaid
Repayment term is retained, will pay less interest over life of loan
Interest Rate Fixed rate based on weighted average of interest of each loan consolidated
Fixed rate after applying 0.25% interest rate reduction to the FFEL loans being consolidated
Electronic Debit Benefit Eligible for a 0.25% interest rate reduction if paid through Department’s automatic debit system
Eligible for an additional 0.25% interest reduction if repaid through Department’s automatic debit system
04/19/23 35www.collegenowgc.org
Special Direct Consolidation Loans – cont.Repayment Options:
•Standard
•Graduated
•Extended
•ICR
•IBR
04/19/23 36www.collegenowgc.org
Loan Cancellation or Forgiveness• Go to www.studentaid.ed.gov/tc if you are
a teacher and have been teaching in a low-income elementary and secondary school or educational service agency
• Go to www.studentaid.ed.gov and click on Public Service Loan Forgiveness if you are employed in certain public service job and have made 120 payments on your Direct Loans