Repaying Your Federal Student Loans Managing Your Loans After Medical School Spring 2008 ©...

Repaying Your FederalStudent Loans

Managing Your Loans After Medical SchoolSpring 2008© Copyright, 2008 by Access Group, Inc. All rights reserved.

Student loans are debtthat must be repaid.

But remember, that debt has allowed you

to make a significant

INVESTMENTin yourself!

Which of YOUR financial resources have you been using to pay for your education?

A Question . . .How have you been paying for your education?

• Savings and other assets

• Gifts from family and others

• In-school earnings

• Your future income

You need a sound “loan repayment strategy” if you hope to spend your future income wisely!

To successfully manage loan repayment . . .

• Know how much you have to repay and to whom

• Understand the terms and conditions of your loans, your options in repayment, and your rights and responsibilities as a borrower

• Consider a payment plan that will extend repayment or that is based on your income if you need to reduce your monthly loan payments

• Think twice before you consolidate

• Take advantage of loan forgiveness programs when you qualify for them

• Develop an affordable budget plan to help you decide what repayment plan is best for you

Repayment Realities

How much will you have to repay?Who must you repay?

How much have you borrowedand what will it cost to repay?

Your Student Loan Debt

Total Student Loan Debt* $

Estimated Monthly Loan Payment

$

*The “Total Student Loan Debt” should include both the principal amount borrowed while in school AND any accrued interest that was not paid while in school–that accrued interest will be capitalized (added to the loan principal) prior to the loans entering repayment

How much have you borrowedand what will it cost to repay?

End of GraceEnd of 3-Year

ResidencyEnd of 5-Year

Residency

Average totalstudent loan borrowing $165,000 $165,000 $165,000

Estimated approximate capitalized interest– UFSL $23,400 $50,200 $68,000

Estimated approximatetotal debt at repayment $188,400 $215,200 $233,000

Estimated approximate monthly loan payment $2,170 $2,475 $2,680Assumptions: Subsidized Federal Stafford Loan (SFSL) = $34,000

• Standard (Equal) Repayment @ 6.8% for 10 yearsUnsubsidized Federal Stafford Loan (UFSL) = $131,000• Standard (Equal) Repayment @ 6.8% for 10 years

Assumptions: - 10-year repayment period

- No payment incentives

Sample Loan Repayment

Total Debt

6.8% Interest Rate 8.5% Interest Rate

Monthly Payment

Total PaidMonthly Payment

Total Paid

$10,000 $115 $13,810 $124 $14,878

$60,000 $690 $82,858 $744 $89,270

$75,000 $863 $103,572 $930 $111,587

$100,000 $1,151 $138,096 $1,240 $148,783

$125,000 $1,439 $172,620 $1,550 $185,979

$150,000 $1,726 $207,145 $1,860 $223,174

$175,000 $2,014 $241,669 $2,170 $260,370

$200,000 $2,302 $276,193 $2,480 $297,566

Who must you repay?Develop a Detailed Listing of All Your Loans with theLoan Holder/Servicer Information

Your must repay your current loan holder/servicerLoan Type/Account # Loan Holder Loan Servicer

Stafford

Name: Name:

Address: Address:

Phone Number: Phone Number:

Website: Website:

PLUS

Name: Name:

Address: Address:

Phone Number: Phone Number:

Website: Website:

Information about the current loan holder/servicer of your Title IV federal student loans is stored in the NSLDS at: www.nslds.ed.gov

Loan Repayment Timeline Class of 2008

Federal Stafford Sub & Unsub

NEW BORROWER

Not consolidated

6 month grace

Check with your loan servicer about Economic Hardship Deferment

MUST APPLY EACH YEARRepayment or forbearance


CONSOLIDATED LOANS

No Grace. Repayment Begins.

Apply for 6 month forbearance or

Economic Hardship Deferment

MUST APPLY EACH YEAR

Repayment or forbearance

GRADPLUS No Grace. Repayment Begins.





Federal Perkins on or after

July 1, 1993

9 month

grace

Check with the Student Loan Office



6 month

grace

Repayment or

forbearance

Access Alternative 9 month

grace

4 Years Residency Forbearance


ALTERNATIVE LOANS (OTHER)

4 Years Residency Forbearance/Deferment Repayment or forbearance

Institutional Loans Check your promissory note for details or ask your financial aid officer

12/08 12/09 12/10 12/11 12/12 12/13 6/08 6/09 6/10 6/11 6/12 6/13 6/14

│ │ │ │ │ │ │

Deferment

• Eligibility • Defined by law and the terms of your promissory note • Based on your earliest outstanding FFELP loan

• Interest subsidy for subsidized Stafford Loans• You must request a deferment from the current

holder/servicer of your loan(s)• You must provide required documentation• Loan must be in good standing

Temporary postponement of monthly loan payments

Contact your current loan holder/servicer for more information about deferment and/or to obtain the appropriate deferment request form

Current Deferment Types

• In-school (at least half-time)

• Education-related• Graduate fellowship program (full-time)

• Rehabilitation training program (full-time)

• Unemployment

• Economic hardship

• Military

New FFELP borrowers as of 7/1/93 may be eligible for the following deferments:

Contact your current loan holder/servicer for information about loan deferment eligibility if you first borrowed a FFELP loan prior to 7/1/93

Deferment During ResidencyFFELP Loans

Determine when you borrowed your 1st Stafford Loan

• First-time borrower prior to July 1, 1993

• Eligible for two years Residency Deferment

• First-time borrower on or after July 1, 1993

• May qualify for up to three years Economic Hardship Deferment

• Apply near the end of your grace period

• Holder/servicer should not defer loans until the end of the GRACE period on your loans

Economic Hardship DefermentFFELP Loans

• You must apply for the deferment with your current loan holder/servicer on an annual basis using the Economic Hardship Deferment Request form (HRD)

• Eligibility is tied to your: • Income

• Total federal student loan balance

• Loan interest rate(s)

Economic Hardship DefermentFirst Year Medical Residency Salary by Region

Region2007-2008

Mean Salary(PGY1)

Min. Federal Debt Needed to Qualify*

(approximate)

All Regions $44,747 $74,900

Northeast $46,631 $88,400

South $42,751 $60,600

Midwest $43,913 $68,900

West $44,514 $73,200Salary data from: “AAMC Survey of Housestaff Stipends, Benefits and Funding,” Table 5 -- Autumn 2007 Report

* Calculated using information on Worksheet B of the Economic Hardship Deferment Request Form including the 2008 HHS poverty guideline figure for a household size of 1 living in the contiguous 48 states or D.C., the new definition of economic hardship created by the College Cost Reduction and Access Act (CCRAA), and an assumed interest rate of 6.8% (rounded up to 7.0% for calculation)

Forbearance

• You are responsible for all accrued interest

• Discretionary forbearances may be available

• You must request a forbearance from the current holder/servicer of your loan(s)

• You must provide whatever documentation is requested by your loan holder/servicer

• Mandatory forbearance may be available in certain cases including during any periods of medical/dental internship or residency

Temporary postponement or reduction of monthly payments, or extension of time for making payments

Mandatory ForbearanceDuring Medical/Dental Residency

• Temporary suspension of loan payments

• Interest accrues — can be capitalized annually

• Available during entire residency

• May qualify during GME fellowship

• Must be requested from loan holder/servicer

• Must be renewed on annual basis

Understanding Your Loans

• never graduate

• don’t get a job

• don’t like quality of education you received

• never use the information you learned

• don’t receive a monthly statement or bill

A Repayment Reality . . .

Student loans must be repaid, even if you:

Master Promissory Note (MPN)The Promise You Made . . .

• Remember, the MPN is the legally binding agreement between you and your lender of a Federal Stafford or a Federal PLUS Loan

• You may have:

• used it as a ONE-TIME-ONLY application, and completed a new MPN each year, OR

• used it as a SERIAL application and completed only one MPN that covered all the Stafford/PLUS Loan funds you borrowed while in this degree program

• Whichever case applies to you, you must repay all that you borrowed along with all accrued interest and any fees that are charged

• Partners in the process

• Interest rate and repayment terms

• Repayment plans

• Consolidation options

• Your rights and responsibilities

Understanding Your LoansWhat You Need to Know

Health Professions Students

• Lender / Loan Holder

• Servicer

• Secondary Market

• Guarantor

• U.S. Department of Education

• U.S. Department of Health and Human Services (HHS)

Partners in the ProcessFederal Student Loans

Federal Stafford LoanInterest Rate

Stafford Loans first disbursed prior to 7/1/06

Variable Rate (effective July 1, 2007 thru June 30, 2008)

• In-school, grace, and deferment periods

• 91-day T-Bill (4.92%) + 1.7% = 6.62%• In-repayment and forbearance periods

• 91-day T-Bill (4.92%) + 2.3% = 7.22%• Maximum rate = 8.25%

Stafford Loans first disbursed on/after 7/1/06

Fixed Rate• All periods = 6.8%

Federal Stafford LoanRepayment Terms- An Overview

• Repayment period begins following GRACE period of 6 months

• Length of repayment period• Depends on repayment plan chosen; ranges from 10-25 years

• Four repayment plans currently available

• Minimum monthly payment requirement• $50

• Minimum payment may be larger due to amount owed and maximum repayment period allowed

• No prepayment penalty

Federal PLUS LoanInterest Rate and Repayment Terms

Interest Rate

Fixed at 8.5% in FFELP(Fixed at 7.9% in Direct Loan Program)(interest is not subsidized, it begins accruing as soon as loan funds are disbursed)

Grace PeriodNone; repayment begins within 60 days after loan is fully disbursed(deferments or forbearance may be available)

Repayment Plan Four repayment plans

Repayment Period

10 to 25 years(depends on repayment plan chosen)

Minimum Monthly Payment

$50 (can be higher based on amount owed)

No prepayment penalty

Interest RateTypically variable – based on credit history, usually calculated using an index (LIBOR or Prime) plus a spread/margin

Grace Period 6 to 12 months (depends on lender)

Repayment plan Standard, Graduated, other(?)

Repayment Period

10 to 30 years (depends on lender)

Minimum Payment

Depends on lender

Private LoansInterest Rate and Repayment Terms

Federal Student LoanRepayment Plans

Repayment PlansFederal Family Education Loan Program (FFELP)

• Standard (Fixed) Repayment

• Graduated Repayment

• Extended Repayment

• Income-Sensitive Repayment

• Income-Based Repayment (effective 7/1/2009)

Choice of a repayment plan may depend on your eligibility for that plan. Once you have chosen a plan, you are allowed to change to a different plan provided you qualify for that plan.

FFELP Repayment Plan:

Standard Repayment

• Monthly payment is fixed – the same minimum payment is due each month (your monthly payment typically changes only if your loan has a variable interest rate and that interest rate changes)

• Maximum repayment period is 10 years on Federal Stafford/Federal PLUS Loans

• Results in lowest amount of total interest paid

• Requires the highest initial monthly payment

Your loan holder/servicer will place you on this repayment plan unless you choose one of the other available repayment plans and notify your loan holder/servicer of that choice


Graduated Repayment

• Initial monthly payments cover only the interest that has accrued since the previous billing period

• They increase in one or more increments over time so that a portion of your monthly payment also reduces your outstanding principal balance


• Results in larger amount of total interest paid than with the Standard Repayment Plan

• Lenders must offer at least one graduated repayment plan; some lenders offer more than one graduated plan


Extended Repayment

• Provides for fixed or graduated monthly loan payments over a 25-year repayment period rather than 10 years

• Results in a lower monthly payment than with the Standard Repayment Plan based on a 10-year repayment period, but also results in a larger amount of total interest paid

• Plan is available only to those borrowers who have no outstanding balance on a FFELP loan made prior to 10/7/98

• Borrower also must have more than $30,000 in total FFELP loan debt

Comparing Standard, Graduated and Extended Repayment - $150,000 Stafford Loan Balance

OptionsStandard

RepaymentGraduatedRepayment

ExtendedRepayment

MonthlyPayment

$1,726

$850 (2 yrs)

$1,041

$2,030 (8 yrs)

Repayment Period

10 years 10 years 25 years

TOTAL PAID $207,145 $215,295 $312,332

Assumptions: - 6.80% fixed interest rate- No payment incentives


Income-Sensitive Repayment

• Monthly payment is based on total gross monthly income received from all sources and loan amount

• Payment must at least pay accrued interest charges

• Eligibility for plan and payment amount are reviewed and adjusted annually in accordance with any change to your income


• Results in a lower monthly payment than with the Standard Repayment Plan based on a 10-year repayment period, but also results in a larger amount of total interest paid


Income-Based Repayment (IBR)

• Effective date:

• July 1, 2009

• Eligibility criteria:

• Available for repayment of FFEL/Direct Stafford, Grad PLUS and Federal Consolidation Loans (FCL)

• Cannot be used to repay Parent PLUS Loans

• Cannot be used to repay FCL that included payoff of a Parent PLUS Loan

• Must be experiencing “Partial Financial Hardship”

• Eligibility and minimum monthly payment must be re-evaluated each year by your loan holder/servicer

Income-Based Repayment (IBR)“Partial Financial Hardship”

• Annual amount due on your total eligible federal student loan debt in repayment

• When calculated using the Standard Repayment Plan based on a 10-year repayment period

• Exceeds 15% of your household AGI (including spouse’s income, if married, and filing joint federal tax return) above 150% of the poverty line for your family size

• If eligible, the IBR monthly payment is 1/12th of 15% of the AGI above 150% of the poverty line

You have “Partial Financial Hardship” when:

Calculator available at: Finaid.Org/calculators

Income-Based Repayment (IBR)A Simpler Explanation . . .

• When considering IBR, the annual amount you can pay on your total eligible federal student loan debt is the lesser of:

• Amount due using the Standard Repayment Plan based on a 10-year repayment period, OR

• 15% of your annual AGI (including spouse’s income, if married, and filing joint federal tax return) that is above 150% of the poverty line for your family size

• Of course, you also have the option to choose one of the other loan repayment plans for which you qualify if IBR is not right for you

In essence, Congress is offering the following in creating the Income Based Repayment plan:

Income-Based Repayment (IBR)2008 HHS Poverty Guidelines

Persons in Familyor Household

48 Contiguous States and D.C.

Alaska Hawaii

1 $10,400 $13,000 $11,960

2 14,000 17,500 16,100

3 17,600 22,000 20,240

4 21,200 26,500 24,380

5 24,800 31,000 28,520

6 28,400 35,500 32,660

7 32,000 40,000 36,800

8 35,600 44,500 40,940

For each additional person, add

3,600 4,500 4,140

Source: Federal Register, Vol. 73, No. 15, January 23, 2008, pp. 3971-3972

Income-Based Repayment (IBR)More Payment Provisions

• Monthly IBR payment can be less than the accrued interest that billing period (i.e., it allows for negative amortization)

• Secretary of ED is authorized to pay any unpaid interest that accrues during IBR repayment on qualifying subsidized Stafford debt for not more than 3 years (not counting periods of Economic Hardship deferment)

• Unpaid interest and principal can be capitalized by your loan holder when you stop using the IBR plan

• Repayment period using IBR can extend beyond 10 years regardless of the amount of your eligible debt, but not beyond 25 years

Income-Based Repayment (IBR)Loan Cancellation After 25 Years

• Any outstanding eligible FFEL or Direct loan balance (other than PLUS) is cancelled after 25 years of being “economically challenged”

• To be “economically challenged” you must have used IBR during a portion of the repayment period AND you must meet at least one of the following requirements during the 25-year period:

• Made reduced monthly payments under IBR

• Made monthly loan payments using Income Contingent Repayment (ICR)

• Made monthly payments of not less than the monthly amount calculated using Standard Repayment based on a 10-year repayment period when you first used IBR

• Were in an Economic Hardship deferment

• Any loan amount that is cancelled may be taxable in the calendar year it is cancelled

Income-Based Repayment (IBR)Sample Calculation Using 2008 Poverty Guideline

Eligible federal student loan debt $165,000Estimated monthly payment

(Standard plan @ 6.8% over 10 years)$1,899 [1]

Annual amount due ([1] × 12) $22,788 [2]

Household size 1

Household AGI $120,000 [3]

Poverty line (in 2008) for household size $10,400 [4]

150% of poverty line (1.5 × [4]) $15,600 [5]

AGI – 150% of poverty line ([3] – [5]) $104,400 [6]

15% of calculated amount from (0.15 × [6]) $15,660 [7]

Eligible for Partial financial hardship – YES or NOYES, if [7] is less than [2]NO, if [7] is equal to or greater than [2]

YES

IBR monthly payment, if eligible ([7] ÷ 12) $1,305Maximum AGI permitted in this example to qualify for IBR $167,519

Income-Based Repayment (IBR)Beware of Negative Amortization


(Standard plan @ 6.8% over 10 years)$1,899

Interest paid in 1st month $935Loan principal paid in 1st month $964New principal balance after 1st payment $164,036Comparison with IBR payment, if eligibleIBR monthly payment in first month $1,305New principal balance after 1st payment $164,630Unpaid interest after 1st payment $0Maximum AGI resulting in negative amortizationAGI needed with IBR to pay accrued interest

$90,320

IBR monthly payment in first month $934

Income-Based Repayment (IBR)Approx. Maximum AGI Needed to Qualify for IBR at Specified Debt

Assumptions: - Interest rate = 6.8%- Household size of 1 residing in 48 contiguous states- 2008 Poverty Guidelines

Debt AGI

$25,000 $38,616 $30,000 $43,219 $35,000 $47,822 $40,000 $52,425 $45,000 $57,028 $50,000 $61,632

$55,000 $66,235

$60,000 $70,838 $65,000 $75,441 $70,000 $80,044

Debt AGI

$75,000 $84,648$80,000 $89,251$85,000 $93,854$90,000 $98,457$95,000 $103,061

$100,000 $107,664$105,000 $112,267$110,000 $116,870$115,000 $121,473$120,000 $126,077$125,000 $130,680

Income-Based Repayment (IBR)Approx. Maximum AGI Needed to Qualify for IBR at Specified Debt

Assumptions: - Interest rate = 6.8%- Household size of 1 residing in 48 contiguous states- 2008 Poverty Guidelines

Debt AGI

$130,000 $135,283$135,000 $139,886$140,000 $144,489$145,000 $149,093$150,000 $153,696$155,000 $158,299

$160,000 $162,902

$165,000 $167,506$170,000 $172,109$175,000 $176,712

Debt AGI

$180,000 $181,315$185,000 $185,918$190,000 $190,522$195,000 $195,125$200,000 $199,728$205,000 $204,331$210,000 $208,934$215,000 $213,538$220,000 $218,141$225,000 $222,744

Income-Based Repayment (IBR)A Few Things to Consider

• Use of IBR can help make loan repayment more manageable by reducing the minimum monthly payment on your eligible federal student loans

• But, use of IBR will increase the total cost of your debt since more total interest will accrue

• IBR does not replace the Income Sensitive Repayment or Income Contingent Repayment options

• Extended Repayment also is an option to consider if you need to reduce your monthly payment and you want to avoid the possibility of negative amortization and/or the need to have your IBR payment plan re-evaluated each year by your loan holder/servicer

Income-Based Repayment (IBR)Extended repayment as an alternative to IBR


(Standard plan @ 6.8% over 10 years)$1,899

Estimated monthly payment(Extended plan with fixed payments @ 6.8% over 25 years)

$1,145

Interest paid in 1st month $935Loan principal paid in 1st month $210Estimated monthly payment

(IBR plan @ 6.8% over ? years)$1,305

Difference in first monthly payment between Extended Repayment plan and IBR

$160

Federal Loan Consolidation

Consolidation is . . .

• Paying off one or more eligible federal education loans by borrowing a new federal education loan

• All federal student loans except the Primary Care Loan (PCL) are eligible for federal loan consolidation

Reasons to Consolidate

• To reduce your monthly loan payment

• Increases monthly cash flow

• To have single statement billing

• Increases convenience

• To take advantage of the fixed interest rate structure of the Federal Consolidation Loan (FCL) by consolidating your loans with variable interest rates

• Can reduce long-term cost

Consolidation May Not Be Right

• If any of the following are true:

• You only have eligible federal student loans with FIXED interest rates

• You qualify for Extended Repayment

• You qualify for on-time payment incentives on your Federal Stafford/PLUS Loans

• Then, you might be better off financially by NOT consolidating

• Your monthly payment could be less without consolidating

• The total interest cost of your student loan debt likely will be less if you do not consolidate

Example #1$40,000 Federal Stafford Loan (FSL)

Federal Stafford Loan (FSL)

Extended Repayment

Consolidationof Stafford (FSL)

Loan Principal $40,000 $40,000

Interest Rate 6.80% 6.875%

Length of Repayment 25 years 25 years 30 years

Monthly Payment $277.63 $279.53 $262.77

Total Paid $83,288.65 $83,859.02 $94,597.75

What if you get an 0.8% on-time payment interest rate reduction on FSL?

Federal Stafford Loan (FSL)

Extended Repayment

Consolidationof Stafford (FSL)

Loan Principal $40,000 $40,000

Interest Rate 6.00%* 6.875%

Length of Repayment 25 years 25 years 30 years

Monthly Payment $257.72 $279.53 $262.77

Total Paid $77,316.17 $83,859.02 $94,597.75*Assumes interest rate is reduced by 0.8% after you make your first scheduled monthly loan payment on time; benefit continues as long as your payments are received on time

Consolidation May Be Right

• If any of the following are true:

• You have eligible federal student loans with VARIABLE interest rates

• You do NOT qualify for Extended Repayment

• You have multiple loan holders/servicers of your eligible federal student loans and you want to be able to pay your federal student loans with a single monthly payment

• Then, you may want to consider consolidation

• Timing of the consolidation loan still is an important issue if loans with variable interest rates are being consolidated

When to ConsolidateFactors Related to All Federal Loans

• To be eligible, loans must be:

• Fully disbursed

• In grace or in repayment

• NO deadline for consolidating once loans are eligible for consolidation

• Can request funding of FCL be delayed until near the end of your Federal Stafford Loan grace period

• Must provide Federal Stafford Loan Grace Period End Date on your FCL application

When to ConsolidateFactors Related to Variable Rate Federal Loans

• Should be aware of trends in the 91-day Treasury Bill used to set variable rate

• If increasing, consolidate before rate is reset on 7/1

• If decreasing, consolidate after rate is reset on 7/1

• Consolidate variable rate loans while in grace or deferment

• Allows you to take advantage of lower interest rate spread/margin

2007–2008 Variable Interest RatesFederal Stafford Loans

With 2007–2008 91-day T-bill = 4.92%:

• In-school/grace/deferment variable interest rate =

4.92% + 1.7% = 6.62%

• Consolidation (FCL) fixed rate = 6.625%

• In-repayment/forbearance variable interest rate =

4.92% + 2.3% = 7.22%

• Consolidation (FCL) fixed rate = 7.25%

Recent 91-day T-bill Rate Trends

Source: “Treasury Security Auction Results.” U.S. Department of the Treasury, Bureau of the Public Debt, Washington, DC.

2.39%4.92%

What would be the 2008–2009 interest rates if they were set as of 1/28/08?

Assuming 2008–2009 91-day T-bill = 2.39%:

• In-school/grace/deferment variable interest rate =

2.39% + 1.7% = 4.09%

• Consolidation (FCL) fixed rate = 4.125% (2.5% decrease from 2007-2008 fixed FCL rate)

• In-repayment/forbearance variable interest rate =

2.39% + 2.3% = 4.69%

• Consolidation (FCL) fixed rate = 4.75% (2.5% decrease from 2007-2008 fixed FCL rate)

• And note, 4.75% is 1.875% less than the consolidation rate of 6.625% that is based on the in-school variable rate for 2007-2008

Borrower Rights

Your Rights

You have the right to:• Deferment, forbearance, discharge, loan

forgiveness, if eligible

• Loan prepayment without penalty

• Assistance from U.S. Department of Education Ombudsman to resolve conflicts with loan holders/servicers

• Possibility of federal income tax deduction for student loan interest paid

Deferment

• Eligibility • Defined by law and the terms of your promissory note • Based on your earliest outstanding FFELP loan

• Interest subsidy for subsidized Stafford Loans• You must request a deferment from the current

holder/servicer of your loan(s)• You must provide required documentation• Loan must be in good standing

Temporary postponement of monthly loan payments

Contact your current loan holder/servicer for more information about deferment and/or to obtain the appropriate deferment request form

Current Deferment Types

• In-school (at least half-time)

• Education-related• Graduate fellowship program (full-time)

• Rehabilitation training program (full-time)

• Unemployment

• Economic hardship

• Military

New FFELP borrowers as of 7/1/93 may be eligible for the following deferments:

Contact your current loan holder/servicer for information about loan deferment eligibility if you first borrowed a FFELP loan prior to 7/1/93

Deferment During ResidencyFFELP Loans

Determine when you borrowed your 1st Stafford Loan

• First-time borrower prior to July 1, 1993

• Eligible for two years Residency Deferment

• First-time borrower on or after July 1, 1993

• May qualify for up to three years Economic Hardship Deferment

• Apply near the end of your grace period

• Holder/servicer should not defer loans until the end of the GRACE period on your loans

Economic Hardship DefermentFFELP Loans

• You must apply for the deferment with your current loan holder/servicer on an annual basis using the Economic Hardship Deferment Request form (HRD)

• Eligibility is tied to your: • Income

• Total federal student loan balance

• Loan interest rate(s)

Economic Hardship DefermentFirst Year Medical Residency Salary by Region

Region2007-2008

Mean Salary(PGY1)

Min. Federal Debt Needed to Qualify*

(approximate)

All Regions $44,747 $74,900

Northeast $46,631 $88,400

South $42,751 $60,600

Midwest $43,913 $68,900

West $44,514 $73,200Salary data from: “AAMC Survey of Housestaff Stipends, Benefits and Funding,” Table 5 -- Autumn 2007 Report

* Calculated using information on Worksheet B of the Economic Hardship Deferment Request Form including the 2008 HHS poverty guideline figure for a household size of 1 living in the contiguous 48 states or D.C., the new definition of economic hardship created by the College Cost Reduction and Access Act (CCRAA), and an assumed interest rate of 6.8% (rounded up to 7.0% for calculation)

Forbearance

• You are responsible for all accrued interest

• Discretionary forbearances may be available

• You must request a forbearance from the current holder/servicer of your loan(s)

• You must provide whatever documentation is requested by your loan holder/servicer

• Mandatory forbearance may be available in certain cases including during any periods of medical/dental internship or residency

Temporary postponement or reduction of monthly payments, or extension of time for making payments

Mandatory ForbearanceDuring Medical/Dental Residency

• Temporary suspension of loan payments

• Interest accrues — can be capitalized annually

• Available during entire residency

• May qualify during GME fellowship

• Must be requested from loan holder/servicer

• Must be renewed on annual basis

Loan Discharge

• Loan discharge available due to:

• Death

• Total and permanent disability

• Documentation must be provided to the holder/servicer of the loan(s)

• Partial discharge or loan forgiveness may be available for certain types of employment (e.g., teaching in a shortage area)

Contact the current holder/servicer of the loan(s) for more information about loan discharge or to apply for a discharge

Loan Prepayment

• You have the right to make prepayments on your federal student loan(s) without penalty

• In other words, you can pay more than the minimum amount required or make an extra payment at any time• This will reduce the amount of interest you pay over the life of

repayment because you will save the interest that would have accrued on the funds had you not made the prepayment

• When prepaying on a loan:• Verify where your prepayment should be mailed and include a written

explanation as to how the prepayment is to be applied to your account

• Request that your prepayment be applied to principal, if permitted

• Prepayments should be targeted at your loans having the highest interest rate

Public Service Loan ForgivenessNew Federal Loan Forgiveness Program

• The balance of interest and principal due on any of your eligible Federal Direct Loans will be cancelled by the U.S. Department of Education provided you have met the following three conditions:

• Your Federal Direct Loans are not in default

• You have worked full-time for a total of 10 years (120 months) in a qualifying public service position on or after October 1, 2007

• You have made 120 qualifying loan payments on your Federal Direct Loans during the period of qualifying public service employment

Public Service Loan ForgivenessGeneral Provisions

• Effective for qualifying monthly loan payments made on or after October 1, 2007

• Loans eligible for forgiveness are limited to:• Federal Direct Stafford Loans• Federal Direct PLUS Loans• Federal Direct Consolidation Loans

• Any loan amount that is cancelled may be taxable in the calendar year in which it is cancelled

Public Service Loan ForgivenessQualifying Payment Requirements

• You must be working in an eligible public service position AND be making monthly loan payments for 120 months on your eligible Federal Direct Loan(s) as part of:

• Income Contingent Repayment (ICR) plan, or

• Income Based Repayment (IBR) plan, or

• Standard Repayment plan based on a 10-year repayment schedule, or

• Repayment plan where the monthly amount paid was not less than the monthly amount required under Standard Repayment over a 10-year repayment period.

Public Service Loan ForgivenessReconsolidation in Direct

• Effective date is July 1, 2008

• Allows you to reconsolidate any existing FFELP Federal Consolidation Loan (FCL) in the Federal Direct Loan Program to take advantage of the new public service loan forgiveness program

Public Service Loan ForgivenessAdditional Eligibility Provisions

• Your 120 qualifying months do NOT have to be consecutive

• You must be working in qualifying public service position at time of loan forgiveness

• Loan payments made prior to October 1, 2007 do NOT count toward the 120-month requirement

• Loan payments on non-eligible loans (e.g., FFELP loans, Federal Perkins Loans) do NOT count toward the 120-month requirement

Public Service Loan ForgivenessDefinition of “Public Service”

As defined in P.L. 110-84

Full-time employment in:

• Emergency management

• Government

• Military service

• Public safety

• Law enforcement

• Public health

• Public education (including early childhood education)

• Social work in a public child or family service agency

• MORE . . .

Public Service Loan ForgivenessSample Benefit Scenario-$165,000 eligible debt

Eligible federal student loan debt $165,000Estimated monthly payment-Standard Plan $1,899Principal balance after 10 years $0Total amount paid after 10 years $142,158Comparison with IBR PlanAssumed starting AGI in year 1 $120,000

Assumed Annual Growth Rate in AGI 4%Assumed Annual Increase in Poverty Guideline 3%Assumed Annual CPI 3%

IBR monthly payment in 1st month (using 2007 HHS Guideline) $1,309IBR monthly payment in 120th month (using 2007 HHS Guideline) $1,885Assumed AGI in year 10 $170,797Total interest paid in IBR over 10 years $85,160Total principal paid using IBR over 10 years $104,615Total accrued interest forgiven after 10 years $0Total principal forgiven after 10 years $60,385

Total amount forgiven after 10 years $60,385

Public Service Loan ForgivenessQuestions You Should Consider

• Will you work full-time in a qualifying public service position for at least 10 years?• This forgiveness program can be very helpful to those who

plan to make a career of public service and who have high federal student loan debt relative to their income

• Will you be making qualifying loan payments during the entire 10 year period of public service employment?

• What will you be giving up by consolidating your FFELP loans in the Federal Direct Loan Program?• Borrower benefits?• Customer service experience with current FFELP lender?• Other value-added services?

Public Service Loan ForgivenessFor more information . . .

• Public Law 110-84 – September 27, 2007

• Schrag, Philip G., "Federal Student Loan Repayment Assistance for Public Interest Lawyers and other Employees of Governments and Nonprofit Organizations". Hofstra Law Review, Vol. 36, Fall 2007.

• Equal Justice Works at: EqualJusticeWorks.org

• Calculator available at: Finaid.Org/calculators

U.S. Department of Education Office of the Ombudsman

Toll-free telephone

877-557-2575

Web site

www.ombudsman.ed.gov

Serves as mediator between you & loan holder/servicer to settle disputes that arise regarding your federal

student loan(s)

Federal Income Tax Deduction forStudent Loan Interest Paid in 2007• Maximum 2007 deduction is smaller of:

• $2,500

• Student loan interest paid in 2007

• Deduction amount may be reduced based on:• Filing status

• Modified Adjusted Gross Income (MAGI)

• MAGI Income guidelines for 2007 • $55,000 - $70,000 single, head of household

• $110,000 - $140,000 married, filing jointly

Source: IRS Publication 970, “Tax Benefits for Education” (For use in preparing 2007 returns). Chapter 4. Student Loan Interest Deduction, Tables 4-1 and 4-2

Single, head of household• Modified AGI not more than

$55,000 • Max. = $2,500

• Modified AGI more than $55,000, but less than $70,000

• Max. = $0-$2,499

• Modified AGI is $70,000 or more

• No deduction

Married, filing jointly• Modified AGI not more than

$110,000 • Max. = $2,500

• Modified AGI more than $110,000, but less than $140,000

• Max. = $0-$2,499

• Modified AGI is $140,000 or more

• No deduction

Source: IRS Publication 970, “Tax Benefits for Education” (For use in preparing 2007 returns). Chapter 4. Student Loan Interest Deduction, Tables 4-1 and 4-2

Federal Income Tax Deduction forStudent Loan Interest Paid in 2007

Borrower Responsibilities

You must:• Repay all loans according to the terms of their

promissory note

• Participate in exit counseling and provide current information regarding:

• Name, address, SSN, references, driver’s license number/state of issue, expected permanent address, address of next of kin, name and address of expected employer (if known)

• Notify your loan holder/servicer of changes in the above information

• Call your loan holder/servicer if you are unable to make a loan payment by the due date

Your Responsibilities

Avoid default!

Default occurs when:

• You do not repay a loan as agreed

• You fail to meet your other responsibilities as stated in the promissory note

Consequences of Default

• U.S. Department of Education can declare that the entire balance and accrued interest on your loan is due immediately

• Wages can be garnished

• Eligibility for deferments will be lost

• Eligibility for federal student assistance will be lost

• Account can be turned over for collection

• More . . .

You will NOT achieve your financial goals because of the following:

MORE Consequences of Default

• IRS can withhold federal/state income tax refunds

• Total debt can be increased by late fees, additional accrued interest, court costs, collection fees, attorney’s fees, and other costs

• Federal government can take legal action against you

• Credit rating can be damaged for at least seven years

• Eligibility to obtain/maintain professional license(s) can be lost

• Make all payments on time• Enhances your chance to qualify for any on-time

payment benefits that may be offered by your lender

• Helps you maintain or improve your credit record

• When paying more than is due:• Verify where payment should be mailed

• Apply additional payment to principal, if permitted

• Include written explanation

• Confirm payment was applied as intended with loan holder/servicer or by checking next billing statement

Managing Your LoansPayment Tips

Managing Your Loans Keeping Accurate Records

• Create master listing of all loans• National Student Loan Data System (NSLDS)

• Arrange by loan holder/servicer and loan type

• Records to retain • Applications

• Promissory notes

• Disclosure statements

• Correspondence/contact log

Loan Repayment Timeline Class of 2008


NEW BORROWER

Not consolidated

6 month grace

Check with your loan servicer about Economic Hardship Deferment

MUST APPLY EACH YEARRepayment or forbearance


CONSOLIDATED LOANS

No Grace. Repayment Begins.





GRADPLUS No Grace. Repayment Begins.





Federal Perkins on or after

July 1, 1993

9 month

grace

Check with the Student Loan Office



6 month

grace

Repayment or

forbearance

Access Alternative 9 month

grace

4 Years Residency Forbearance


ALTERNATIVE LOANS (OTHER)

4 Years Residency Forbearance/Deferment Repayment or forbearance

Institutional Loans Check your promissory note for details or ask your financial aid officer

12/08 12/09 12/10 12/11 12/12 12/13 6/08 6/09 6/10 6/11 6/12 6/13 6/14

│ │ │ │ │ │ │

U.S. Department of Education National Student Loan Data System (NSLDS)

Toll-free telephone

800 - 4FED - AID

Web site

nslds.ed.gov

Information about your Title IV federal student loans is stored in the NSLDS

Final Comments

When Choosing a Repayment PlanConsider the following . . .

• If you want to pay the least amount of total interest over the life of repayment

• Standard Repayment Plan with a 10-year repayment schedule will result in the least amount of interest paid

• If you want the lowest possible monthly loan payment

• Income-Based Repayment likely will require the lowest monthly payment for those who qualify, but it could result in negative amortization and that will add to the total debt being repaid

• Extended Repayment over 25 years will result in a lower monthly payment than Standard Repayment over 10 years without the possibility of negative amortization

• And what if you want to maximize your financial net worth in the long run?

Remember, to successfully manage loan repayment . . .• Know how much you have to repay and to whom

• Understand the terms and conditions of your loans, your options in repayment, and your rights and responsibilities as a borrower

• Consider a payment plan that will extend repayment or that is based on your income if you need to reduce your monthly loan payments

• Think twice before you consolidate

• Take advantage of loan forgiveness programs when you qualify for them

• Develop an affordable budget plan to help you decide what repayment plan is best for you

We are here to help you!

Access Group

800-282-1550

AccessGroup.Org

FederalConsolidation.Org

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