Helping Borrowers Understand Loan

RepaymentGina Soliz

Director of Financial AidSyracuse University College of Law

NYSFAAA 44 “On Track for Excellence”

10/11/12

How to educate prospective, current and graduating students about budgeting & creating successful loan repayment strategies

Today’s Topic

Overview of repayment plans Standard Extended Graduated IBR ICR-A

Today’s Topic

Prospective Students• How to finance

higher education• Talking w/admits

Current Students• How to

budget• How to

forecast debt

Graduates• “Exit

Interviews”• 6 months

after graduation

• Life changes (2, 5, 10 years out?)

The lifecycle of a student’s relationship with the FA Office

Tours – appointment with Admissions and Financial Aid

Pre-Law Advisors – make sure they have the correct information

Visitor Days/Open Houses – everything is out in the open

Prospective Students

One-on-one appointments Videos/Testimonials FA Focus Group Workshops

LMFAO Law students managing financial aid

opportunities

Current Students

Students: can you define any of the following acronyms?

 IBRPSLF

NSLDSDL

FAFSAOMGLOL

LMFAO

LMFAO – Good Habits vs. Reality

Get 8 hours of sleep each night

Sleep for a few hours or fall asleep watching

TV, or reading, or at our desk…

What We Know We Should Do

What We Actually Do

LMFAO – Good Habits vs. Reality

Eat healthy food Eat burgers and drink

beer

What We Know We Should Do

What We Actually Do

LMFAO – Good Habits vs. Reality

Brew our own coffee at home

Go out to a coffee shop

What We Know We Should Do

What We Actually Do

LMFAO – Good Habits vs. Reality

Stick to a budget, live within our means, save money!

Spend what we have (sometimes more than what we have!)

What We Know We Should Do

What We Actually Do

LMFAO – Good Habits vs. Reality

Write out a “spending plan” and stick to a budget

Feel overwhelmed, lose track of how we spend our money

What We Know We Should Do

What We Actually Do

From LMFAO:Why are you here today?

• You want to understand the jargon and acronyms.

• You taken out student loans and want to know more about them.

• You realize that what you don’t know can hurt you!

• You could use some advice regarding your finances.

• Free cookies!

From LMFAO:How Can You Cut Back?

• Prioritize.• Don’t buy

Starbucks!• Cook at home.

New graduates Six months out Blasts from the past!Do recent alumni contact the office or use the Financial Aid Office as a resource after graduation? Do you hear from graduates long after they have earned their degree?

Alumni

Servicers (who) FFEL vs. DL (what) NSLDS (where) Timing of repayment (when) Repayment options (how)

The Basics

Federal Family Educational Loans (FFEL) Loans borrowed through a lender (ex. Citibank,

Wells Fargo, Chase, Access Group, Sallie Mae) Please note: The FFEL program ended 6/30/10

Direct Loans (DL) Loans borrowed directly from the federal

government (studentloans.gov) All colleges and universities mandated

to use the DL program beginning 7/1/10

What: Federal Student Loans

Where to find a summary: www.nslds.ed.gov

LoansPlease click on the number in first column to see details

Type of Loan Loan Amount

Loan Date Disbursed Amount

Outstanding Principal

Outstanding Interest

DIRECT STAFFORD SUBSIDIZED $8,500 08/15/2011 $8,500 $8,500 $0

DIRECT STAFFORD UNSUBSIDIZED $12,000 08/15/2011 $12,000 $12,000 $340

DIRECT PLUS GRADUATE $18,000 08/15/2011 $18,000 $18,000 $593

STAFFORD UNSUBSIDIZED $12,000 08/07/2009 $12,000 $12,000 $1,632

FFEL PLUS GRADUATE $15,000 08/07/2009 $15,000 $15,000 $2,550

Total STAFFORD/DIRECT SUBSIDIZED

$17,000 $0

Total STAFFORD/DIRECT UNSUBSIDIZED

$24,000 $1,972

Total FFEL/DIRECT GRADUATE $33,000 $3,143

Total All Loans $74,000 $5,115

1

2

3

4

5

www.nslds.ed.gov

The name of each loan servicer and its contact information will display under the loan details.

Borrowers may have several different agencies servicing each loan.Servicer/Lender/Guaranty Agency

Information

Contact Type ContactCurrent Guaranty Agency

DEPT OF ED/NELNET 121 S 13TH ST SUITE 201 LINCOLN NE 68508 888-486-4722 nelnetcustomersolutions@nelnet.com

List of servicer websites, addresses, and phone numbers on IFAP

http://www.ifap.ed.gov/ifap/helpContactInformationDetailedList.jsp?lsc=2

ACS, Aspire, Corner Stone, EdFinancial, Granite State, PHEAA, Great Lakes, MOHELA, NelNet, Sallie Mae, etc. etc.

Who is repaid: Servicers

Federal Subsidized & Unsubsidized Loans Law school loans have 6-month grace period

following graduation Loans borrowed prior to law school have a 6-

month grace if they never entered into a prior repayment status

Federal Graduate PLUS Loan Loans borrowed after 7/1/08 have a

6 month Post Enrollment Deferment

When Does Repayment Begin?

Standard Repayment on Federal Loans is 10 years

Extended Repayment prolongs payments over 25 years (must have more than $30,000 in federal student loan debt).

Graduated Repayment – 10 years – payments start low and increase in one or more increment over time.

How do I Successfully Repay?

Comparing Payment PlansLoan Balance When Entering Repayment= $136,500

($25,500 Subsidized, $36,000 Unsubsidized, $25,000 FFELP Grad PLUS, $50,000 DL Grad PLUS)

ProjectedMonthly Payment

Projected# of

Payments

ProjectedTotal Interest

Paid

ProjectedTotal Amt

Paid

Est. remaining balance at end of repayment

period

Standard $1,621 120 $58,056 $194,556 $0

Extended $1,010 300 $166,498 $302,998 $0

Graduated $855 (24 months)

$1,896 (96 months) 120 $66,042 $202,542 $0

IBR *(household size = 1, hh AGI = $50,000)

$416 (initial)

$1,001 (max)* 300 $200,493 $195,562 $190,131

IBR *(household size = 1, hh AGI = $30,000)

$166 (initial)

$430 (max)* 300 $83,643 $83,643 $305,240

*assumes no change in hh size, 3.5% annual increase in yearly income, 3% increase in govt. poverty guideline

Income-Based Repayment caps the monthly payment amount based on your income and family size. May offer the lowest monthly loan repayment All federal student loans are eligible for IBR

(including Federal Stafford and Federal Graduate PLUS loans)

Borrowers in any employment type or situation may apply

Repayment Plans (cont.)

Income-Based Repayment caps the monthly payment amount based on your income and family size – capped at the Standard 10 year repayment amount.

After 25 years, borrowers may receive loan forgiveness (currently, the IRS views IBR loan forgiveness as a taxable event)

Income Based Repayment (IBR) may offer borrowers the lowest monthly loan repayment All federal student loans are eligible for payments under the IBR calculation (including

Federal Stafford and Federal Graduate PLUS loans). Parent PLUS Loans are not eligible (nor are Federal Consolidation Loans that include a Parent PLUS).

Borrowers in any employment type or situation may apply Borrower can choose to exclude spouse’s income (however, tax returns would be filed as

‘married filing separately’) Payments could change annually (annual income and family size verification is required) Payments are applied to the interest first and principal last (negative amortization may

occur) Interest is capitalized when the borrower stops participating in IBR (this will occur if the

borrower no longer demonstrates partial financial hardship)

IBR Can Be Confusing !!

AGI Monthly PaymentHH Size = 1

Monthly PaymentHH Size = 2

Monthly PaymentHH Size = 3

$0 $0 $0 $0

$10,000 $0 $0 $0

$20,000 $41 $0 $0

$30,000 $166 $91 $17

$40,000 $291 $216 $142

$50,000 $416 $341 $267

$60,000 $541 $466 $392

$70,000 $666 $591 $517

$80,000 $791 $716 $642

Income Based Repayment

Income Based Repayment (IBR) examples (based upon 2012 poverty guidelines) assumes borrower resides in 48 contiguous states

ADVANTAGES: You are paying based on what you earn, the government will pay your unpaid accrued interest on your Subsidized Loans for up to three consecutive years from the date you began repaying your loan under IBR, 25 year cancellation, Public Service Loan Forgiveness (if 10 years of payments are made while working in a qualifying job).

DISADVANTAGES: A borrower could pay more over the life of the loan (usually, the more quickly you pay off a debt, the less you pay overall), you may have to pay taxes on the amount that is cancelled.

IBR (continued)

An average law student borrows $61,500 in Federal Direct Unsubsidized Loan ($20,500/year for 3 years)

Assuming the borrower does not pay interest while in-school, the debt upon graduation will be $68,100

10 year standard monthly payment will be $784/month

25 year extended monthly payment will be $473/month

Federal Direct Unsubsidized Loan Repayment Example

An average law student borrows $84,000 in Federal Direct Unsubsidized Loan ($28,000/year for 3 years)

Assuming the borrower does not pay interest while in-school, the debt upon graduation will be $94,500

10 year standard monthly payment will be $1,142/month

25 year extended monthly payment will be $733/month

Federal Direct Grad PLUS Example

10 year standard monthly payment = $1,926

Total paid over 120 months is $231,031

25 year extended monthly payment = $1,206

Total paid over 300 months is $358,734

Grand Total $162,600($20,500/yr Unsub and $28,000/yr Grad

PLUS)

Total Loan Debt

(Grad PLUS $28,000/yr) Interest Rate

10 year repayment plan

25 year repayment plan

Unsubsidized $68,100 6.80% $784/month $473/month

Graduate PLUS $94,500 7.90% $1,142/month $723/month

TOTAL $162,600 $1,926/month $1,196/month

Revised Debt(Grad PLUS $20,000/yr) Interest Rate

10 year repayment plan

25 year repayment plan

Unsubsidized $68,100 6.80% $784/month $473/month

Graduate PLUS $67,500 7.90% $815/month $517/month

TOTAL $135,600 $1,599/month $990/month

Direct Loan Repayment Examples

Total monthly savings: $327/month $206/month

Total saved over life of loan: over $39,000 nearly $62,000

Decrease your spending Increase your “gift aid”

Go to the Outside Scholarships section of our webpage www.law.syr.edu/fa

How Can I Reduce My Borrowing?

From LMFAO:If $20,000 were to come to you unexpectedly, what would your first impulse be?

• Shoe shopping

• Back pack around the world

• Pay down my student loans

• What is your money personality?

Amasser: If you tend to be a money amasser, you are happiest when you have large amounts of money at your disposal to spend, to save, and/or to invest

Avoider: If you tend to be a money avoider, you probably have a hard time balancing your checkbook, paying your bills promptly, and doing your taxes until the very last minute. You may avoid making a budget or keeping any kind of financial record. You won't know how much money you have, how much you owe, or how much you spend

From LMFAO: What is

your money

personality?

Hoarder: If you tend to be a hoarder, you like to save money. You also like to prioritize your financial goals. You probably have a budget and may enjoy the processes of making up a budget and reviewing it periodically

Money Monk: If you are a money monk, you think that money is dirty, that it is bad, and that if you have too much of it, it will corrupt you. In general, you believe that "money is the root of all evil."

From LMFAO: What is

your money

personality?

Spender: If you are a spender, you enjoy using your money to buy yourself goods and services for your immediate pleasure. You probably get satisfaction from spending money on gifts for others. The odds are that you have a hard time saving money and prioritizing the things you'd like in your life.

From LMFAO: What is

your money

personality?

To be successful… develop a short-term plan now (an in-school

budget)and

develop a long-term loan repayment plan (keeping in mind career objectives and job market fluctuations)

Successful Loan Repayment

Employment prospects and salaries for new law graduates have been affected by the economy. 

Class of 2010 graduates reported salary ranges from $32,000 (public interest law) to $160,000 (large firm practice). Average starting salary for all employment types

was $67,400

Legal Job Market

Estimate Your Salary after GraduationAnnual Salary

$70,000 Monthly Salary Net Monthly Income

Student Loan Payment ($162,600 debt)

Monthly Disposable

Income

$70,000 $5,833 $3,908 $1,926 (10 year plan) $1,982

$70,000 $5,833 $3,908 $1,196(25 year plan) $2,712

$70,000 $5,833 $3,908 $666(IBR) $3,242

Annual Salary$30,000 Monthly Salary Net Monthly

IncomeStudent Loan Payment ($162,600debt)

Monthly Disposable

Income

$30,000 $2,500 $1,675 $1,926 (10 year plan) -$251

$30,000 $2,500 $1,675 $1,196(25 year plan) $479

$30,000 $2,500 $1,675 $166(IBR) $1,509

Think carefully about your future financial and personal goals and what you might have to give up once you’re working in order to pay back the debt you incurred as a student.

Borrowing Less = Repaying Less!

Public Service Loan Forgiveness Deferments & Forbearances Mandatory Exit Counseling Federal Direct Consolidation Loans ICR-A

Other Talking Points

Know how much is owed and to whom Understand terms & conditions of your loans Define your financial goals Develop an affordable budget Select a repayment plan Be aware of loan forgiveness programs Keep good financial records

Loan Repayment Strategy

Gina M. SolizSyracuse University College of Law

gmsoliz@law.syr.edu

Contact Me