Choosing to Understand: Student Loans
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How are you paying for college?
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MOST Students Use Financial Aid
• Two-thirds of undergraduate students graduate with some debt. • The average federal student loan debt for undergraduate students was $19,202 for the 20032004 year.
Source: http://www.finaid.org/loans
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One Option Is A Loan
• Your choices are:
• Student Loans • Parent Loans • Private (Alternative) Loans
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Student Loans
• One type is a Stafford or Federal Direct Loan
• Provided by private lenders and guaranteed by the federal government OR provided by the U.S. government directly to students (Direct loans) • All lenders offer the same rate on Stafford/Federal Direct Loans • Stafford Loans can be subsidized or unsubsidized
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Subsidized vs. Unsubsidized Loans
• A “subsidized” student loan: The federal government pays the interest on your loan while you are in school. Once you graduate or leave school, you’re responsible for the interest during repayment. • An “unsubsidized” loan: You’re responsible for paying the interest which begins accruing (accumulating) when you receive the loan. You can add the interest to the principal while you’re in school.
Source:
6 U.S. Department of Education (wwww.ed.gov)
Undergraduate Student Loans
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Source:
http://www.uga.edu/osfa/debt.html
Loan Maximums
• Stafford/Federal Direct Loan
• 1st year: $2,625; 2nd year: $3,500; 3rd – 5th years: $5,500 • Graduate students: $8,500/year • Aggregate totals:
• Undergraduates: $23,000 • Graduate students: $10,000
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Parent Loans
• PLUS (Parent Loan for Undergraduate Students)
• Loan provided by private lenders and by the federal government • Repayment is the responsibility of the parent • Repayment begins 60 days after disbursement
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Important Changes – July 2006
• New fixed rates
• NEW Stafford loans interest rate will be 6.8% • NEW PLUS loans interest rate will be 8.5%
• No more consolidation while in school
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Private (Alternative) Loans
• Offered by private lenders • Tend to cost more than federal loans • Have their own application but it must be approved by the school • May require a credit check for approval
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Repayment Options
• Standard Repayment Fixed payments, minimizes interest
Payments go up over time
• Graduated Repayment -
• Income Contingent -
• Extended Repayment - For
Payments increase as your income increases
loans over $30,000 you have up to 30 years to repay
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Estimated Repayment for Federal Direct Subsidized Loan
Total Borrowed $2,625 $4,000 # of Payments 60 98 Monthly Repayment **$50 **$50 Interest Charges $343.51 $875.74 Total Repaid $2,968.51 $4,875.74
$7,500
$10,000 $15,000 $23,000 $46,000
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120 120 120 120
$79.55
$106.07 $159.10 $243.95 $487.90
$2,045.87
$2,727.70 $4,091.73 $6,274.11 $12,548.21
$9,545.87
$12,727.70 $19,091.73 $29,274.11 $58,548.21
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**Minimum monthly payment
Federal Loan Consolidation
• The Basics • One loan created by combining all of your federal student aid loans • The new interest rate is a weighted average of current loans’ interest rates • Consolidate during repayment or grace periods
Source: www.consolidationcomparison.com
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Federal Loan Consolidation
• Same repayment options as regular loans • Eligibility: •Outstanding student loans of $7,500 or greater •No loans are currently in default •U.S. Citizen
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Loan Consolidation
• Advantages: • Create one single payment • Generally the repayment period is longer and monthly payments are lower • Exchange variable interest rates for a fixed rate
Source: www.consolidationcomparison.com
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Loan Consolidation
• Disadvantages:
• Extended repayment periods mean more interest paid over time and ultimately an increased cost for the loan • Variable interest rates may actually go down • The grace period is forfeited and repayment begins within 60 days
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How Much Debt Can You Repay?
Loan at 6% Minimum Annual Income Needed
Less than $6,661 $5,000 $5,000 to $9,999 $13,321
$10,000 to $24,000
$25,000 +
$33,304
$67,704
Student Loan Payments Should Not Be More Than 10% of Gross First Year Salary
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2005 Starting Salaries for BA Degree
By Curriculum for All Types of Employers Business Administration Liberal Arts Computer Science Chemical Engineering Agriculture & Natural Resources Education Fall 2005 $39,480 $32,725 $50,664 $53,639 $32,092 $31,015
Source: http://www.jobweb.com/SalaryInfo/ 19
What If I Can’t Pay?
• If you are late or miss one or more payments you’re delinquent. • Miss more than one payment, or go more than 270 days without making a payment, and you could be in default.
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What if I have not paid?
• If you’re in default, your options are:
– Postpone repayment – Choose another repayment plan – Contact the lender for help.
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Postponing Repayment
• You can postpone repayment through:
• Deferment – Lender lets you postpone paying the principal. Usually can defer a loan while in school at least half-time. May be available for unemployment or economic hardship.
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Postponing Repayment
• You can postpone repaying a loan through:
• Forbearance – Lender lets you postpone or reduce payments, but interest charges continue to accrue. Must apply and typically granted in 12-month intervals for up to 3 years. Usually for extreme financial hardship or other unusual circumstances.
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What If I Don’t Repay My Loan on Time... Your credit record
You could be sued. could be damaged. Your employer could find out. Your automobile could be impounded. You could lose a professional license issued by the state. Your pay could be garnished.
You could forfeit a state or federal income tax refund.
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Default Rates for Georgia Schools
2003 Georgia Perimeter College Albany State University Middle Georgia College Armstrong Atlantic State University 9.5 8.2 12.3 4.7 2002 6.8 9.1 17.1 6.8
Clayton State University
University of West Georgia Georgia Southern University Gainesville College Georgia College and State University Georgia State University University of Georgia
8.3
3.7 4.0 7.3 3.0 2.7 1.8
9.1
5.5 4.9 3.4 2.3 3.9 1.9
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Getting Out of Default
• After 6 months of on-time payments you may be eligible for more financial aid. • After 10 months of on-time payments and applying for and receiving “rehabilitation,” your loan is no longer in default. The record of default will be removed from reports to credit bureaus.
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The Main Points
• Student loan debt adds up quickly • Have realistic expectations of your starting salary so you can estimate how much student loan debt you can afford • Not paying back student loans can have major consequences • Student loans are NOT free money • Only ask for what you NEED
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For Individual Help Contact:
The Peer Financial Counseling Program AASU Student Financial Aid (912) 927-5272
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Special Thanks to...
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