Student Loan Repayment
The Perfect Storm
Increasing costs of college leads to increasing levels of student debt
Tough economic times, few jobs
available, jobs are paying less
States cutting back on loan forgiveness programs
What is a loan?
A loan is when you borrow money from someone else, and must repay the money, usually with interest
Purpose of a loan? Allows the borrower to get the money needed to
purchase something they would otherwise not be able to currently afford
Allows the lender to make money through interest
How do you get a student loan?
Filling out FAFSA is always step oneThe Department of Education will determine
if you are eligible for a federal student loan, how much, and what type
Can also find private loans usually through banks Private loans may have higher interest rates, fewer
payment relief options, and less flexibility
Common Types of Student Loans
Stafford: backed by US government, allows lower interest rates than most private loans (subsidized and unsubsidized)
Perkins: backed by US government, need based student loan, usually lower interest rates than a Stafford loan, interest is subsidized by government
PLUS: backed by US government, become due immediately, usually taken out by a parent
Private: loan from a bank or company, not from government
The FAFSA of FAFSA
FAFSA application: Step 1 in finding funds for college
Assess you financial needs: decide how much money to take out each year
Find a job: this will help ensure your ability to pay back the loans
Start Repaying: decide on the appropriate repayment plan and any qualifying relief options
Act on time: make your monthly payments on time, and act on relief options if you will not be able to make the payment
Exempt from Bankruptcy
Students Loans cannot be discharged in bankruptcy
Have to pay back all student loans public and private
Student Loan Statistics
Historical Interest Rates
How much should I take out?
VERY Important to figure out the loan amount you need
Taking out excessive loans may cause you to spend more than necessary because you have the available funds
Taking out not enough loans could leave you without enough money to pay for your education expenses
Make It Rain..or should you?
How much should I take out?
Develop a budgetBudgeting will allow you to easily visualize your
financial picture, and how much debt you can to take on
Each year determine the difference between your annual income and your annual expenses, any negative difference is the amount of loans you need to take out
Remember, student loans should only be considered after an extensive search for grants, scholarships, monetary support from family and friends, and (time permitting) employment.
How much do I owe?
To view the total amount of federal loans you have borrowed and the interest incurred go to:
nslds.ed.gov
To determine the total amount of private loans you have borrowed contact your lender
Repayment Plans
For most student loans the standard repayment period is 10 years, meaning you must pay back the entire loan within ten years
Some relief programs allow you to extend this period up to 25 or 30 years
To calculate your repayment plan go to niu.edu/financialcents
Grace Period
Many student loans have grace periods, meaning you do not have to make any payments while in school and usually for several months after graduation
PLUS Loans = No Grace Period Stafford Loan Grace Period = 6 months after graduation Perkins Loan Grace Period = 9 months after graduation Private Loan Grace Period: Check with your lender, or terms
of the promissory note
Subsidized Loans DON’T incur interest during the entire grace period
All other loans DO incur interest during the entire grace period
Student Debt Relief
Public Service Loan ForgivenessIncome-Based RepaymentDefermentConsolidationSpeak with lender before missing payment,
many have payment relief options
Public Service Loan Forgiveness
After 10 years, qualified Public Service employees are given forgiveness on any unpaid student loans
Eligibility: Only loans under Direct Loan Program (not FFEL) May be able to consolidate other federal loans into a
Direct Consolidation Loan, making those loans eligible No default (not behind on payments) Must be employed full-time by a public service
organization when applying, for 120 months, and at the time of forgiveness
Public Service Loan Forgiveness
Examples of qualifying public service jobs: Federal, state, or local government Public schools and universities Public child or family service agency Many non-profit organizations Military Emergency Management Law Enforcement Early childhood education Public Health
For a complete list visit the Federal Student Aid Website: studentaid.ed.gov
Income-Based Repayment
Went into effect July 1, 2009Lowers monthly payment amount based on
income and family size (payment amount recalculated annually)
If monthly IBR payments do not cover monthly interest accrued, government will pay that balance for 3 years
Loan is cancelled after 25 years10 Year Public Service Forgiveness eligible
Income-Based Repayment
Eligibility: Loans under Direct Loan or FFEL, EXCEPT loans
in default, parent PLUS Loans, or consolidation loans that repaid a parent PLUS Loan (basically all federal loans not made to parents)
Partial Financial Hardship evidenced by: Enough student loan debt relative to your income. It
must take more than 15 percent of whatever you earn above 150% of poverty level to pay off your loans in 10 years.
Loan Deferment
Student loan payments may be temporarily suspended.
These payment may be deferred for a variety of reasons including, but not limited to: Economic hardship, unemployment, military
deployment, enrollment in school, internship, Peace Corps volunteer, or similar situations (for full list visit studentaid.ed.gov)
Federal loans and most private loans are eligible for deferment
Only temporary, must still pay back loan
Loan Consolidation
One lender means only one monthly payment Potential to decrease interest rate and monthly payment Potential to convert variable interest rates into fixed interest rates
New repayment options Extended loan repayment period (can extend repayment period up to 30
years) Graduated loan repayment period (smaller payments at first, payments
gradually increase Income contingent (payments rise and fall with income)
Advantages
Loan Consolidation
Extended repayment period Pay more overall May lose discharge benefits Consolidating federal and private loans turns all your loans into a private
loan Lose payback benefits from current lenders (i.e. reduced interest rates for
on-time payments)
Disadvantages
Salary Expectations
Making Payments
Will be contacted by your lender before the end of grace period informing you the amount, due date, and where to send you first payment
Payment periods vary between loans Stafford Loans: monthly payments Perkins Loans: quarterly payments
Budgeting
Create budget to account for the payment expense
If payment cant be afforded here are your options: Cut back on spending, avoid luxuries, etc. Find additional income Relief options Change name and become a drifter Defaulting is not an option
Defaulting on Student Loans
Should I pay back my student loans early?
It Depends!Do you have other, higher interest loans?
As a general rule, it makes sense to pay off the loan with the highest interest rate first, but do not default on other loans
Can you invest at a higher interest rate? Is the interest you can save by paying off your loan
less that the interest you can gain by making an investment?
Resources
http://www.ibrinfo.org/what.vp.html http://www.loans.ucla.edu/howto/loanGrace.html http://loanconsolidation.ed.gov/index.html http://www.regis.edu/regis.asp?sctn=sr&p1=faid&p2=confaq
#Q4 http://www.ppcc.edu/current-students/financial-aid/student-lo
ans/advantagesdisadvantages-on-consolidation/
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