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Be a Wise Borrower Think About TomorrowSM—a strategy for success What do you see when you think about tomorrow? Do you see yourself graduating from college, with a job in your chosen ﬁeld? Do you envision being able to live comfortably and save for the future? For many people, this is the American dream and higher education is the ﬁrst step. And each year for millions of students and their families, taking out loans to ﬁnance that education is the only way to make their dreams come true. Student loans can be an eﬀective way to pay for college. Many oﬀer low interest rates and ﬂexible repayment options. But in order to be truly eﬀective, student loans must be managed responsibly. After all, graduating from a higher education institution is only the beginning. To achieve your goals— both professional and ﬁnancial—you need to successfully repay your loans and build healthy debt management habits. Know what you’re getting into before you borrow. Remember that student loans must be paid once you leave school. Find out which loan is right for you: compare eligibility requirements, loan limits, interest rates and repayment terms. Estimate what your monthly payment will be—is it realistic given your expected salary after school? And what happens if you can’t make your payments on time? You can ﬁnd all of these answers in Be a Wise Borrower. Whether you’re already in college or just thinking about higher education, you are already taking steps to better your future. So start now to plan for your ﬁnancial future as well. Think about tomorrow! Lightening the “mammoth” loan American Student Assistance is all about providing you with the education and encouragement you need to successfully manage your debt—whatever 2 it takes to make repayment seem like less of a mammoth undertaking. We are American Student Assistance® American Student Assistance is a federally funded nonproﬁt organization that helps students and families ﬁnance higher education and successfully manage student loan debt. We can help you keep your student loans in good standing throughout the repayment process. Our student loan counselors can answer questions about paying your student loan bill, what to do if you miss a payment, how to suspend or reduce your payments, and just about anything else related to your federal student loans. Call us at 800 999 9080 or visit us on the Web at www.amsa.com for repayment assistance and debt management strategies. Understanding student loans Most American students have to take out loans in order to pay for college. Whether you’ve already ﬁlled out applications for loans or you are planning to, it’s important to know the basics of borrowing money. Before you borrow Loans are a promise Know the type of student By taking out a loan, you promise to pay later money loan programs available to that you receive now. The original amount you borrow you. There are several student is called principal, and what you are charged to use the and parent loan programs borrowed money is called interest. and you and your family may Loans can provide help want to borrow from several For most students, borrowing money will help pay for of them. tuition, room and board and other education costs. Know the interest rate and Your school may recommend several diﬀerent types of other important features of loans to help you pay for your education. In some cases, your loan program(s). your parents may borrow on your behalf by taking out a Parent Loan for Undergraduate Students (PLUS). Know who is responsible Loans are a resource you can use to help meet college for paying the interest on expenses, establish credit in your name and become your loan. In some cases, the ﬁnancially responsible. federal government will pay Loans are a responsibility the interest while you are in school. Loans must be repaid whether you complete your educational program or withdraw to pursue something Know the total amount you else. The amount you pay back depends on the amount are able to borrow. you borrowed. Most student loans are repaid on a monthly basis once you are out of school (less than Know what your 3 half-time). If you do not repay the loan, it will go in to approximate monthly default. There are serious consequences for defaulting payments will be for the loan on student loans. Defaulting on a loan will aﬀect your program(s) you borrow from. ability to get other credit, such as credit cards, car loans, Know how much will be additional education loans, a mortgage, and other big purchases. It will also negatively aﬀect your credit report deducted from the loan for for up to seven years. Don’t borrow more than you think fees and how much you will you need. actually receive. Loan choices There are a variety of loan choices and repayment options available. Some require that you demonstrate ﬁnancial need, while others don’t. Know all the rules before you borrow, or at least before repayment begins. Understanding your loan choices Who can Who is Loan limits Repayment Interest borrow eligible Undergraduate Must be a Undergraduate independents and Begins six months after the student Variable interest or graduate U.S. citizen dependents may borrow $2,625 in their graduates or drops enrollment to less rate throughout student enrolled or eligible ﬁrst year; $3,500 in their second, $5,500 than half time. Federal government the life of the at least half noncitizen. This in their third, forth and ﬁfth years; to a subsidizes interest when borrower is in loan. Subsibized time in a degree is a need-based maximum total of $23,000. school or in deferment. Under certain or certiﬁcate loan. conditions, a borrower may request Graduate students may borrow $8,500 program. deferment of principal and interest. per year to a maximum total of $65,500. Typical repayment is up to 10 years. Borrower has various repayment plans from which to choose. There are no prepayment penalties. Undergraduate Must be a Undergraduate independent students Begins six months after the student or graduate U.S. citizen and dependent students whose parents graduates or drops enrollment to less student enrolled or eligible are denied the federal PLUS may borrow than half time. May begin monthly at least half noncitizen. This $4000 in their ﬁrst and second years; or quarterly payments of interest time in a degree is not a need- $5000 in their third, fourth and ﬁfth when loan is fully disbursed, or allow Unsubsidized or certiﬁcate based loan. years; to a maximum of $46,000. interest to accrue during in-school program. period (capitalization). Under certain Graduate students may borrow conditions, a borrower may request $18,500 per year to a maximum total 4 deferment of principal and interest. of $138,500. Typical repayment is up to 10 years. Borrower has various repayment plans from which to choose. There are no prepayment penalties. Who can Who is Loan limits Repayment Interest borrow eligible Borrowers with Must have Consolidation loans have no maximum Repayment periods vary based on the Interest is more than one Federal limit. Some lenders do require a amount consolidated. Under certain calculated by federal student Staﬀord Loans minimum balance for consolidation. conditions, a borrower may request taking the loan who would (subsidized deferment of principal and interest. weighted like to make and/or Interest may accrue during a deferment average of single monthly unsubsidized), period. all interest payments Federal Direct rates being May extend loan repayment beyond Consolidation and lock in a Loans or Federal consolidated the standard 10 years in order to reduce ﬁxed interest Perkins Loans. by a borrower, monthly payments (this will also rate. Monthly rounded up to increase the amount of interest paid over payments pay the nearest 1/8 the life of the loan). be reduced. percent. Borrower has various repayment plans There is a ﬁxed from which to choose. interest rate No prepayment penalties. once loans are consolidated. Natural or Must be a May borrow up to the total cost of Immediate repayment of principal and Variable interest adoptive U.S. citizen education at the student’s school, minus interest when loan is disbursed. Under rate throughout parents or or eligible all other aid received. Total costs include certain conditions, a borrower may the life of the stepparents (in noncitizen. This tuition and fees, room and board, request deferment of principal and loan. some cases) is not a need- books and supplies, transportation and interest. Interest may accrue during of eligible based loan. miscellaneous expenses (as determined deferment period. PLUS dependent by school). Borrower’s Typical repayment is up to 10 years. undergraduate credit must No aggregate loan limit. students Borrower has various repayment plans be in good enrolled at least from which to choose. standing. half time. No prepayment penalties. 5 How do I choose a lender? Under the Federal Family Education Loan Program, banks or lending institutions actually fund your student loan. While most loan terms, such as the interest rate and repayment programs, are federally mandated, some lenders oﬀer special incentives. For example, when you sign up for your payment to be automatically debited from your bank account or when you make a certain amount of monthly payments on time, you could be rewarded with a lower interest rate. While the choice of lender is always yours, often your school’s ﬁnancial aid oﬃce has a list of preferred lenders. These are lenders that oﬀer their students the most repayment beneﬁts or a hassle-free loan process. Talk to your ﬁnancial aid oﬃce to learn more. Repayment options You can’t make your student loan payments magically disappear, but you can make them easier to manage. As a federal student loan borrower, you can take advantage of a number of ﬂexible repayment plans. A typical repayment plan assumes the loan principal plus interest, spread out over 10 years: A typical repayment plan (assumes 6% interest rate) Amount borrowed Number of payments Monthly payment Total to be repaid* $ 1,000 22 $ 50.00 $ 1,056.25 2,000 45 50.00 2,237.03 2,625 62 50.00 3,052.50 3,000 72 50.00 3,575.69 4,000 103 50.00 5,121.05 5,000 120 55.51 6,661.24 6,000 120 66.61 7,993.58 7,000 120 77.71 9,325.92 8,000 120 88.82 10,657.81 9,000 120 99.92 11,990.15 10,000 120 111.02 13,322.48 11,000 120 122.12 14,654.82 12,000 120 133.22 15,987.16 13,000 120 144.33 17,319.05 14,000 120 155.43 18,651.39 6 15,000 120 166.65 19,983.72 16,000 120 177.63 21,316.06 17,000 120 188.73 22,648.40 18,000 120 199.84 23,980.29 19,000 120 210.94 25,312.63 20,000 120 222.04 26,644.97 21,000 120 233.14 27,977.30 22,000 120 244.25 29,309.20 23,000 120 255.35 30,642.53 25,000 120 277.55 33,306.21 *Includes principal and interest. But the standard repayment plan isn’t the only option When do I begin repaying my available. Depending on your unique situation, you can loans? choose from: Repayment of your student loan graduated repayment: You begin by paying interest- begins six months after you only payments for up to four years. The remaining graduate from school or drop below payments are higher than the standard monthly half-time. This six-month period is payments would have been to ensure that the loan is called your grace period and it gives still paid in full within the 10-year period. you time to ﬁnd a job and get on income sensitive repayment: You pick a monthly your feet before your ﬁrst monthly payment amount that equals between 4% and 25% of payment is due. your gross monthly income. You are allowed to use this Who will I make payments to? option for a total of five years, and it may extend your In most cases, the company you repayment terms for up to 15 years. make your student loan payments consolidation: All of your student loans are paid off, to is called a servicer. You will and one new loan made up of the total amount of be given your servicer’s contact money you owe is created. You are usually given a term information upon leaving school or of between 12 and 30 years, which could, in turn, lower you can ask your ﬁnancial aid oﬃce your overall monthly payment. at any time. extended repayment: If you have more than $30,000 in outstanding student loans, you may choose to extend your monthly payments for up to 25 years. Postponing payment Sometimes life doesn’t go as planned. If you are having trouble making your monthly payment, you can arrange to postpone repayment for a period of time. This is called a deferment. The federal government may pay the interest that accrues during the deferment, or you may be responsible. There are many diﬀerent types of deferments: Unemployment *Working Mother In-School *Peace Corps, Domestic and Tax Exempt *Military or Public Health Services Organization Volunteer *National Oceanic and Atmospheric Administration Summer 7 Corps *Teacher Shortage or Targeted Teacher Graduate Fellowship Economic Hardship Internship/Residency Training *Parental Leave *Temporary Total Disability Rehabilitation Training Similar to a deferment, a forbearance is a temporary adjustment to your repayment schedule. However, where you have a right to a deferment as a federal loan borrower, forbearances are granted at the lender’s discretion. Also, during a forbearance the interest accrues and is capitalized and you are responsible for paying it. There are several diﬀerent types of forbearances: Hardship Disaster Internship or Residency Military Mobilization Excessive Debt National and Community Service Contact your servicer for exact deferment/forbearance eligibility requirements and needed documentation. Facts and figures Occupational Demand—what you can expect Number of jobs due to growth and replacement needs by major occupational group, projected 2002 – 2012 8 Expectations As you think about tomorrow and plan for your success, keep in mind your expected income once you graduate and begin managing your money and ﬁnancial obligations. Consider your expected salary range as compared to your student loan payments. Average annual college costs 2004 – 2005 Four-year private $20,082 Four-year public $5,132 Two-year public $2,076 Source: The College Board Salaries—what you can expect Average Profession starting salary computer engineering 53,117 chemical engineering 52,563 electrical engineering 49,926 mechanical engineering 49,088 computer science 48,656 industrial/manufacturing engineering 48,283 information science 42,108 accounting 42,045 construction science 41,103 management information systems/ 41,046 business data processing civil engineering 40,596 9 economics/finance 40,484 logistics/materials management 37,368 business administration 37,368 nursing 37,253 marketing 36,071 liberal arts majors* 30,153 elementary teacher education 27,317 psychology 25,032 Source: National Association of Colleges and Employers Resources For more information about student loans, contact American Student Assistance at 800 999 9080 or on the Web at www.amsa.com. Useful Web sites American Student Assistance www.amsa.com U.S. Dept. of Education & FAFSA Forms www.fafsa.ed.gov The College Board www.mapping-your-future.org Scholarship Information www.fastweb.com College and Career Advice www.petersons.com Federal services for students www.students.gov Career Information www.jobweb.org 10 11 100 Cambridge Street, Suite 1600 800.999.9080 www.amsa.com Boston, MA 02114
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