Everything you ever wanted to know about Student Loans

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Everything you ever wanted to know Everything you ever wanted to know about about

Student LoansStudent Loans

……and a few things you’ll wish you never HAD to know

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Everything you ever wanted to Everything you ever wanted to

know aboutknow about… THE LANGUAGETHE LANGUAGE

BORROWER ELIGIBILITYBORROWER ELIGIBILITY LOAN PROGRAMSLOAN PROGRAMS

ANNUAL LOAN LIMITSANNUAL LOAN LIMITS AGGREGATE LOAN LIMITSAGGREGATE LOAN LIMITS

PLUS LOANSPLUS LOANS BEHIND THE SCENESBEHIND THE SCENES DEFAULTED LOANSDEFAULTED LOANS

TOTAL AND PERMANENT DISABILITYTOTAL AND PERMANENT DISABILITY

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THE LANGUAGE OF THE LANGUAGE OF FINANCIAL AIDFINANCIAL AID

“If we spoke a different language, we would perceive a somewhat different world.” Ludwig Wittgenstein, 20th century German Philosopher

ACRONYMISH

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THE LANGUAGE OF THE LANGUAGE OF FINANCIAL AIDFINANCIAL AID

*FAFSA *CPS *SAR *TPD *AGI

*PELL *EFC *COA *DL *EIC

*MPN *COD *USDE *ISIR *AYR

*FFEL *PJ *PLUS *ATOM

“…language manifests itself… in my work because I understand short attention spans.” Barbara Kruger, contemporary American artist.

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GENERAL ELIGIBILITY GENERAL ELIGIBILITY REQUIREMENTSREQUIREMENTS

General Eligibility Requirements must be satisfied for all Title IV aid

Which of the following are NOT required for Title IV eligibility?

• A valid Social Security Number

• Satisfactory Academic Progress

• Simultaneous enrollment in a secondary school

• Agreement to serve in the military

• High School diploma or equivalent

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Collected from the FAFSACitizenshipValid SSNSelective Service RegistrationDefault & OverpaymentDrug offenses/convictionsStatement of Educational PurposeIncarceration

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Collected & Monitored by the SchoolEnrollment as a regular student in an eligible program

High school diploma or equivalent

Borrowing in excess of annual and aggregate loan limits

Satisfactory academic progress

Financial need

Enrollment in high school

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ELIGIBILITY ELIGIBILITY REQUIREMENTSREQUIREMENTS

Willingness to Repay

• Perkins Loan-Student must be willing to repay the loan-Prior failure to meet repayment obligation indicates unwillingness to repay, unless special circumstances exist

• Stafford & PLUS-Willingness to repay is not a specific eligibility criterion-School may use PJ to refuse to certify or originate a loan, or

to certify or originate it for a reduced amount.

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ENROLLMENT ENROLLMENT REQUIREMENTSREQUIREMENTS

Can a student enrolled for less than half time receive a Stafford Loan?

Is a PLUS available to parent of a student enrolled less than half time?

Is there a loan available for students enrolled less than half time?

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ENROLLMENT ENROLLMENT REQUIREMENTSREQUIREMENTS

Stafford and PLUS programs require at least half-time enrollment

Federal Perkins Loan program does not have enrollment requirements (i.e., eligible if enrolled less than half time), except for teacher certification programs

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LOAN PROGRAMSLOAN PROGRAMSWhat two types of student Stafford loans are made under both the FFEL and Direct Loan programs?

Are Parent Loans available under both programs?

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LOAN PROGRAMSLOAN PROGRAMS

Subsidized Stafford Loans

Unsubsidized Stafford Loans

Parent “PLUS” loans available under each program.

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Subsidized LoansSubsidized Loans

What is a subsidized loan?

Are subsidized loans need based?

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Definition: Subsidized Definition: Subsidized Student LoansStudent Loans

USDE pays interest while student is:

In school

In grace period

In deferment

Once in repayment, the student is responsible for interest and principal payments.

School determines PELL eligibility first

To receive a subsidized loan, a student must have demonstrated financial need.

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Definition: Demonstrated Definition: Demonstrated NeedNeed

“Demonstrated Need?”

COA - EFC - Other Aid = NEED

Demonstrated financial need establishes the exact amount that a student can borrow in a subsidized loan, subject to loan limits

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Unsubsidized Loans

What is an unsubsidized loan?

Are unsubsidized loans need based?

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Definition: Unsubsidized Definition: Unsubsidized LoansLoans

Interest begins to accrue upon disbursement.

Student responsible for interest payments during in-school, grace, & deferment periods.

No interest covered by federal government

Eligibility for subsidized loan determined first

Student may opt to:

Pay interest; or

Have interest capitalized(accrued interest added to principal)

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Unsubsidized Loans“Not need based”

COA – All Other Aid = Unsubsidized eligibility

(the amount a student can borrow in an unsubsidized loan, subject to loan limits)

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ANNUAL LOAN LIMITSANNUAL LOAN LIMITS

Two Components to definition:

Base Annual Loan Limits

Additional Unsubsidized Loan Limits

Student’s dependency status determines how much can be borrowed during a loan period

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Base Annual Loan Limits for Dep.Students:

Represents maximum amount that a student may borrow in a combined subsidized/unsubsidized Stafford loan for an Academic Year

at a specific grade level.

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ANNUAL LOAN LIMITSANNUAL LOAN LIMITSWhat is the BASE amount a dependent student can borrow during a loan period at these grade levels?

FreshmanSophomoreJuniorSenior

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ANNUAL LOAN LIMITSANNUAL LOAN LIMITSBase Loan Limits for full AY for Dep. Students

$2,625 – first year undergraduate$3,500 – second year undergraduate

$5,500 – third yr & beyond undergraduate

Note: fifth-yr undergraduate base loan limits apply to teacher certification programs and graduate preparatory coursework

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ANNUAL LOAN LIMITSANNUAL LOAN LIMITSWhat is the BASE amount an independent student can borrow during a loan period at these grade levels?

FreshmanSophomoreJuniorSeniorGraduate/Professional

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Base Annual Loan Limits for

Independent Students

$2,625 – first year undergraduate

$3,500 – second year undergraduate

$5,500 – third yr & beyond undergraduate

$8500 – graduate and professional students

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Additional unsubsidized annual loan limits available to independent students:

$ 4,000 – first & second yr. undergraduates

$ 5,000 – third yr./beyond undergraduates

$10,000 – graduate/professional students

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ANNUAL LOAN LIMITSANNUAL LOAN LIMITS“The maximum amount of unsubsidized Stafford

loan funds that an independent student may borrow for an academic year cannot exceed the base annual loan limit plus the additional unsubsidized loan limit, minus the amount of the student’s eligibility for Subsidized Stafford Loan funds.”

“All true language is incomprehensible…” Antonin Artaud, French Dramatist

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WHAT?!?*!?Let’s try an example:Bart, an independent sophomore

COA $14,300 EFC -11,800 NEED 2,500 = Demonstrated Need

(or subsidized Stafford eligibility)

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ANNUAL LOAN LIMITSANNUAL LOAN LIMITSBart, continued:

Base annual loan limit $3,500

Additional unsub loan limit +4,000

Total loan limit $7,500

Subsidized eligibility -2,500

Maximum Unsub elig $5,000

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AGGREGATE LOAN LIMITSAGGREGATE LOAN LIMITS

Represents the combined total of borrower’s loans over course of his or her education

Cannot exceed mandated aggregate maximum applicable to borrower’s dependency status and grade level

Capitalized interest does not count

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AGGREGATE LOAN LIMITSAGGREGATE LOAN LIMITS

What is the aggregate loan limit for:

Dependent students?Independent undergraduate students?Graduate/professional students?

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AGGREGATE LOAN LIMITS

For Dependent Students:

The aggregate loan limit for combined subsidized and unsubsidized borrowing:

$23,000.

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AGGREGATE LOAN LIMITSAGGREGATE LOAN LIMITSIndependent Undergraduate

Subsidized……………………$23,000

Combined sub & unsub…….. $46,000

Grad/Professional*Subsidized……………………$65,500

Combined sub & unsub…… $138,500

*Includes amounts borrowed at undergrad level

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AGGREGATE LOAN LIMITSAGGREGATE LOAN LIMITSDependent Undergrads whose parent cannot borrow PLUS:

Subsidized………………………….$23,000Combined sub & unsub…………….$46,000

If parent later becomes eligible for PLUS, student’s aggregate limit reverts back to the dependent undergrad limit ($23,000)

Any unsub borrowed under indep limits ARE NOT counted toward dependent aggregate limit

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AGGREGATE LOAN LEVELSAGGREGATE LOAN LEVELS

Example: Jill, a dependent seniorFreshman 2,625 Plus denied/unsub 3,000

Sophomore 3,500 Plus denied/unsub 4,000 Junior 5,500 $7,000 Senior 5,500

$17,125 + $7,000 = $24,125

$17,125 + $5,500 = $23,000

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PLUS LOANPLUS LOANUnsubsidized loan for parents of dependent

students

Parent may borrow up to cost of attendance minus other aid received for loan period

No Aggregate Limit

Parent responsible for all loan payments

Federal government does not pay interest at any time

Repayment begins within 60 days after final disbursement

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PLUS LOANPLUS LOAN

For the purpose of applying for a PLUS loan, who qualifies as a parent?

Is a FAFSA required to apply for a PLUS?

What eligibility factors is the school responsible for verifying?

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PLUS LOAN

Definition of Parent:

1. Biological or adoptive mother or father Either may apply even if one parent’s information is not on the FAFSA due to divorce or separation

2. Stepparent If financial data used, or would have been used, to calculate student’s EFC

- Legal guardian NOT considered a parent unless also adoptive parent

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PLUS LOAN

FAFSA not required, BUT

School has option to require FAFSA

…A few good reasons why an institution might consider requiring a FAFSA:

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PLUS LOAN

School is responsible for verifying that student is:

U.S. citizen or eligible noncitizen

Registered with Selective Service (if applicable)

Not in default on a Title IV loan

Not responsible for Title IV grant or loan overpayment

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PLUS LOAN

School is responsible for verifying that parent meet same citizenship, default, and overpayment eligibility criteria as student.

If a FAFSA is filed, this data will be checked against ED’s database matches for both student & parent

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PLUS LOAN

By certifying or originating a PLUS, school is certifying that both student and parent are eligible to receive Title IV funds

Policies and procedures are needed to confirm parent’s and student’s eligibility if no FAFSA is completed

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PLUS LOANLender or COD determines parent credit history

Adverse credit indicated by:More than 90 days delinquent on repayment of debtWithin 5 years preceding credit report date:

Default determination, bankruptcy discharge

Foreclosure, repossession

Tax lien, wage garnishment

Write-off of Title IV debt

Lenders may vary in credit standards, some being stricter than others.

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PLUS LOAN

What happens if a dependent student’s parent cannot borrow a PLUS loan?

What happens if a dependent student’s parent chooses not to borrow a PLUS loan?

If one parent cannot borrow a PLUS, is the other parent required to try?

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PLUS LOAN

If parent does not pass the credit check and cannot borrow PLUS funds:

Student allowed to borrow under the independent student loan limits

Can apply for the additional unsubsidized loan

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PLUS LOAN

CANNOT VS OPT NOT

A parent’s choice not to borrow PLUS on the student’s behalf does not allow consideration of additional unsubsidized loan limits for the student.

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PLUS LOAN

If one parent cannot borrow PLUS, the student does not have to turn to another parent to do so. In cases where one parent cannot borrow, the student can receive the additional unsubsidized loan even if the other parent is reported on the FAFSA.

However, if one parent is denied and the other parent does apply and is approved for PLUS, the student is not eligible for the additional unsubsidized loan funds.

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BEHIND THE SCENES

Student

School

Lender

Secondary Market/Servicer

Guarantor

USDE

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BEHIND THE SCENES

Student: able to finance an education through the loan programSchool:

Calculates loan eligibilityCertifies the student’s eligibilityDelivers funds to the studentMonitors the student’s academic progressProvides entrance and exit counseling

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BEHIND THE SCENES

Lender:Provides the loan fundsIs guaranteed against loss when the borrower…

• Refuses to repay a loan• Gives false information to obtain a loan• Can’t repay a loan (i.e. death, disability, or

bankruptcy• Can’t complete program due to school closure• Claims false certification

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BEHIND THE SCENES

Secondary Market/Servicer:Contracts to perform loan operations

Purchases loans after disbursement

Frees up capital so lender can make new loans

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BEHIND THE SCENES

Guarantor:Issues guarantees, insuring a lender against loss on a student loan

Reviews claim payment requests

Collects on defaulted loans

Conducts reviews of schools and lenders to ensure compliance with federal statues and regulations

Provides assistance and training to schools and lenders

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BEHIND THE SCENES

U.S. Department of Education (USDE)Regulates the guaranteed student loan programs

Administers the Direct Loan Program

Conducts on-site program reviews of schools, lenders, and guarantors

Distributes rule clarifications via Dear Colleague Letters and Dear Partner Letters

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DEFAULTED LOANSDEFAULTED LOANSBegins when a student fails to make a payment on a Title IV loan for 6 monthsAfter 6 months, the loan goes into Delinquent status.After an additional 3 months, the loan is considered in Default.Noted with a “C” comment on the ISIR, as a result of database match with NSLDS; therefore, resolution is required

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DEFAULTED LOANSDEFAULTED LOANS

Servicer begins Due Diligence

Attempts made to contact studentOffers made for payment arrangementsCollection agency involvedConsequences explainedTurned over to GuarantorReceives 98% of value

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Guarantor begins Due DiligenceIntensity increases

• Wage Garnishment

• Lien on federal tax refund

USDE becomes involvedReimburses guarantor for claims paid to lenders

Pays 95% on defaulted or borrower ineligible loans

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Default ResolutionBorrower may re-establish Title IV eligibility by:

Full repayment, including compromise agreements or payment through consolidation

Repayment under a satisfactory repayment arrangement with the loan holder

Loan rehabilitationDischarge through bankruptcy

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DEFAULTED LOANSDEFAULTED LOANSDefault Resolution: Repayment in Full

Complete repaymentVoluntary Involuntary*

• Wage Garnishment• IRS tax offset

*Involuntary repayment is an indicator of unwillingness to repay, which may preclude a student from borrowing from the Perkins Loan program

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DEFAULTED LOANSDEFAULTED LOANSDefault Resolution:

Repayment in full by Compromise

Loan holder agrees to settle defaulted loan for less than the amount due.

Due diligence is followedPayment of 90% madeRisks, timing, financial stability consideredFull payment of agreed amount = payment in full of

loan = Default Resolved

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DEFAULTED LOANSDEFAULTED LOANSDefault Resolution:

Repayment in full by Consolidation

Allows a borrower to fully repay a defaulted loan with the proceeds from a consolidation loan

Does not restore the benefits and privileges of a defaulted loan promissory note

Provides limited choice in repayment plans

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DEFAULTED LOANSDEFAULTED LOANSPayment Resolution: Satisfactory Repayment

Arrangement

Agreement between the loan holder and the borrower to reestablish Title IV eligibilityBorrower must request the arrangementTitle IV eligibility is restored after the borrower has made six full, voluntary, on-time, consecutive monthly paymentsLoan remains in default

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DEFAULTED LOANSDEFAULTED LOANSPayment Resolution: Loan Rehabilitation

Requires 12 full, voluntary, on-time, consecutive monthly paymentsAllowed only onceLoan must not be subject to judgmentRestores benefits and privileges of original prom noteRemoves default status from borrower’s credit history

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DEFAULTED LOANSDEFAULTED LOANSPayment Resolution: Bankruptcy

To reestablish Title IV eligibility, student must:Obtain a judicial determination that the defaulted loan has been discharged; orIf the bankruptcy petition is still active, obtain documentation from the holder that the loan is dischargeable in bankruptcyNote: a defaulted loan must be outstanding for seven years before it can be discharged in bankruptcy.

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DEFAULTED LOANSDEFAULTED LOANSDefault Resolution

A borrower’s options for resolving a defaulted loan may be limited if:

The loan holder has secured a judgment against the loan;The borrower is subject to wage garnishmentThe borrower resolved a prior defaulted loan through satisfactory repayment arrangements or rehabilitation; orThe defaulted loan is a consolidation loan that has an underlying defaulted loan

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TOTAL AND PERMANENT TOTAL AND PERMANENT DISABILITY DISCHARGESDISABILITY DISCHARGES

Impact of a Discharged Loan on Eligibility for subsequent loans:

Eligibility requirements vary depending upon date of TPD discharge

ISIR Codes and Comments specify requirements

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TPD DISCHARGESRequired for all TPD Discharges:

A physician’s certification that the borrower is able to engage in substantial gainful employment

A signed statement acknowledging that new loan cannot be cancelled in the future on the basis of any impairment present when the new loan is made, unless that impairment substantially deteriorates.

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TPD DISCHARGES

Substantial Gainful Activity

Ability to earn money above the poverty level.Prior to 2001, referred to borrower’s capability to attend school, complete a program of study, and secure employment

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TPD DISCHARGESTPD DISCHARGESPrevious loan discharged between July 2001 and July 2002 and applying for new loan within 3 yrs of TPD:

Obtain physicians certification re gainful activitySign statement re future loan cancellationReaffirm the discharged loan

• After 3 years from TPD date only physician certification and borrower acknowledgement required

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TPD DISCHARGESTPD DISCHARGESPrevious loan discharged on or after July 1,

2002 If final discharge

Physician’s certification Statement re future loan cancellation

If “conditional” discharge Physician’s certification Statement re future loan cancellation Borrower acknowledgement that collection

activity will resume on conditional loan

Everything you ever wanted to know about Student Loans

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