2010TASFAA

New Aid Officer’s Workshop

2

Student Loans

Melet Leafgreen

Assistant Director, Loan Programs

TCU Financial Aid

m.leafgreen@tcu.edu

Student Loans - Agenda• Interest Rates, Fees, Counseling• Federal Perkins Loan• Federal Direct Parent PLUS & Grad PLUS Loan• Federal Direct Sub & Unusb Stafford Loan

– Loan Limits and Proration Requirements– Life Cycle of a Loan

• Unpaid Interest Accumulation• Federal Direct Consolidation Loan• Repayment Facts and Options• Deferments and Forbearances• Consequences of Default (borrower and school)

3

4

Interest Rates & Fees

• Perkins Loans – no fees– Fixed IR 5%

• Direct Stafford Loans - .5% orig fee (actually 1.5% minus rebate of 1%)**– Fixed IR 4.5% for Undergrad Subsidized Loans– Fixed IR 6.8% for all other Stafford Loans

• Direct Parent Plus/Grad Plus – 2.5% orig fee (actually 4% minus rebate of 1.5%)**– Fixed IR 7.9%

** to retain rebates, borrowers must make first 12 payments on time

(All above rates and fees effective 7/1/2010.)

Loan Counseling

• Entrance Counseling – First-time borrowers

• Inform them of their rights and responsibilities of taking out this loan

• Exit Counseling– All loan recipients that depart from

your institution• Graduate, withdraw, transfer, do not

return

(Stafford, Grad Plus, CAL, Perkins, Nursing Loans…)

5

Federal Perkins Loan

• Institution administers this loan• Previous allocations came from the

Dept of Ed, now schools operate this loan from repaid funds

• Fixed 5% interest rate• Repayment begins 9 months after

student ceases to be enrolled at least 1/2 time

• Minimum payment as low as $30• Maximum repayment term is 10 years

6

Parent Plus Loan

• Loan for parents of dependent students• Parent borrower is fully liable for loan (with

any endorser)• FAFSA not required by regulation, but schools

can require it if they wish• Eligibility

– Parent must be the natural or adoptive parent of the student, or spouse of one of those people

– Parent must be a US Citizen, U.S. National or eligible NC– Parent must have no Title IV loans in default– Parent must be credit worthy, or have credit worthy endorser

7

Graduate Plus Loan

• Eligibility– Borrower must complete a FAFSA– U.S. Citizen attending at least half-time,

seeking a Graduate or Professional degree– Borrower must pass a credit evaluation

• Loan Limits– COA less other aid

Can be used when Stafford Annual and/or Aggregate limits have been met (but not exceeded).

8

9

Federal Stafford Loan Terms

• U.S. Citizen, U.S. National or Eligible N.C.

• Enroll 1/2 time in a degree seeking program

• SAP - Satisfactory Academic Progress• No default/ overpymt on any Title IV Aid• Register with selective service• Must complete FAFSA

Sub vs. Unsub

Subsidized(Need-based)

Unsubsidized(Non need-based)

Interest: ED pays during

• In-school• Grace• Deferment

Student pays during• Repayment

Interest:

Student responsible for all• Can be capitalized, or• Student can choose to pay interest

10

2010/2011 Stafford Loan Limits

Year in School Dependent Student Independent Student

First Year Undergraduate

Total Stafford $5500*

Total Stafford $9500*

Second Year Undergraduate

Total Stafford $6500*

Total Stafford $10,500*

Third Year and Remaining Undergraduate

Total Stafford $7500*

Total Stafford $12,500*

Graduate Student

Total Stafford $20,500*

k

*No more than $3500 Sub may be awarded for First Year Student, No more than $4500 Sub for 2nd year students, no more than $5500 Sub for 3rd year + undergrad students, no more than $8500 Sub for grad/prof students

1111

Stafford Loan Proration

• Must occur when a student’s academic program is less than 1 year in length

• Must occur when a student is completing a remaining period of enrollment that is less than one academic year

• Standard proration formula: Amount of Stafford student could have for grade level ÷ 24 x number of enrolled hours

12

Stafford aggregate loan limits

Current Current Sub & Sub & UnsubUnsub

Sub may not Sub may not exceedexceed

Undergrad Undergrad DependentDependent

$31,000$31,000 $23,000$23,000

*Undergrad *Undergrad IndependentIndependent

$57,500$57,500 $23,000$23,000

Grad and Grad and ProfessionalProfessional

$138,500$138,500 $65,500$65,500

* And dependent student whose parent is unable to obtain * And dependent student whose parent is unable to obtain a PLUS loana PLUS loan

13

FFELP

BorrowerSchoolLenderFederal

governmentGuarantorServicerSecondary markets

14

Direct Lending

BorrowerSchoolFederal GovernmentServicer

Federal Stafford Loan

Lifecycle of a Direct Loan

15

• Origination Phase- Borrower: FAFSA, MPN, Entrance (?)- School: Certification, Verify Elig.,

Delivery- ED: Disclosure, Provide Funds to school

Lifecycle of a Direct Loan

16

• Interim Phase- In school, Grace Periods- Sub (interest paid on borrower’s

behalf by fed. govt.) vs. Unsub (accrues interest)

• Repayment Phase- at end of grace

Unpaid Interest Example

• Independent Sophomore borrows $7500 and wants to know what his interest payments will be each quarter– Go to the Repaying my loans section on the

MPN (or online www.aie.org calculators)$7500 @ 6.8% = $39.67 + $500 @ 6.8% = $2.83$39.67 + $2.83 = $42.50/month

• How much will I owe in interest with out making monthly payments? – 3 years left in school, six month grace = 42

months X $42.50 = $1785

17

Federal Consolidation loan

• Federal education loans that may be consolidated― FFELP ― Perkins― Direct ― HEAL

• No minimum loan amount• Thirty-year repayment (maximum)• Same repayment schedules as Stafford• Interest rate will be a fixed interest rate, capped

at 8.25%• A weighted average is used to figure the interest

rate and then it is rounded up to the nearest 1/8 of a percent.

18

Maximum Repayment Of Consolidation Loans

Under $7500 10 Years

$7500 - $9999.99 12 Years

$10000 - $19999.99 15 Years

$20000 - $39999.99 20 Years

$40000 - $59999.99 25 Years

Over $60000 30 Years

19

Repayment of Federal Loans

• Stafford loan– Enters at end of grace period (6 months after

student graduates or drops below half-time)

• Parent PLUS loan – Enters 60 days after full disbursement (parent

can request deferment while student is enrolled at least half-time and during six months following that)

• Grad PLUS loan– Enters when borrower falls below halftime

enrollment 20

10 year repayment period, $50 minimum, or interest accruing (whichever is larger)

Ways to Repay your Federal Loans

• Standard Plan – Monthly payment remains consistent for 10 years

• Graduate Plan – Monthly payments are lower at first but then increase over the repayment term

• Income-sensitive – Monthly payments are based on your monthly gross income

• Extended Plan – Monthly payments over a 25 year plan. Must have a debt greater than $30,000

• Income Based Plan – (7/1/09)– Monthly payments will not exceed 15% of the amount by

which your adjusted gross income exceeds 150% of the poverty line for your family size.

21

Deferments

• Period of postponing payments• Federal government will pay interest

for the borrower on Subsidized Stafford• Entitlement• Some possible deferments:

- Education- Peace Corps/ Public Service/ Military- Economic Hardship

22

Forbearances

• Temporary cessation, reduction, or extension of payments

• Student is responsible for interest that accrues

• Borrower is willing but temporarily unable to pay

23

Default

• Failure to pay back student loan• Student is considered in default after

being delinquent for 270 days; lender may file claim as early as day 271

• Student is susceptible to wage garnishment, seizure of income tax refunds, lottery winnings, license non-renewal, sued by DOE

• Student not eligible for fed. financial aid

24

Cohort default rate (CDR)

• Includes Stafford loans, and Stafford loans underlying consolidation loans (no Perkins or PLUS)

• CDR = % of borrowers who enter repayment in a given year who then default within that year or the next year (soon to be the next two years)

• High rate has consequences for schools

25

Alternative/ Private Loans

26

• Designed to bridge the gap between other aid and total college costs

• Interest rates from 5% - 18%, usually based on Prime or LIBOR + margin (www.bankrate.com)

• Origination and repayment fees vary• Co-borrower requirements (underwriting)• Most now school-certified (lower risk)• Three Disclosures • Self-Certification Form

Federal Regulations

27

Questions ???????

28

Melet Leafgreen

m.leafgreen@tcu.edu