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Federal Stafford & Grad/Professional PLUS Loan Exit Loan Counseling Your Promise • By signing your Master Promissory Note (MPN) you promised to: – Read all forms and documents carefully – Understand your rights and responsibilities – Ask questions 2 Your Promise • The Master Promissory Note: – Is a legally binding document – Specifies your rights and responsibilities – Must be signed to receive loan funds • Borrower’s Rights and Responsibilities • Notice of Guarantee and Disclosure 3 Your Promise • Master Promissory Note multi-year feature: – Sign once – Authorizes future loan funds upon your request – Some schools do not use this feature – You can “opt out” and sign a new MPN for each loan – Expect a “Plain Language Disclosure” for any subsequent loans 4 Your Promise • You promised to repay your loan, even if you: – Don’t complete your program of study – Are unable to secure employment – Are dissatisfied with service from the school – Don’t receive payment coupons or reminders from your lender 5 Your Promise • Need specific information? – Master Promissory Note – Notice of Guarantee and Disclosure – School records  InsideND – Lender, guarantor and servicer – National Student Loan Data System: www.nslds.ed.gov – U.S. Department of Education: www.FederalStudentAid.ed.gov 6 Your Loan Terms • Know your student loan partners • Understand terms of student loan: – Types of federal student loans – Interest rates and loan fees – Repayment timing and options • Document phone conversations and retain copies of correspondence • Manage your money • Ask for help 7 Your Loan Terms • Student Loan Partners: – – – – – – – Borrower School Lender Guarantor Servicer Secondary market U.S. Department of Education: www.FederalStudentAid.ed.gov 8 Your Loan Terms • Federal Stafford loans: – Subsidized – Government pays interest during in-school and grace periods – Borrower responsible for interest payments during repayment – Unsubsidized – Borrower always responsible for interest payments • Federal Grad/Professional PLUS loans: – Interest begins accruing with the first disbursement – No grace period – Repayment begins 60 days after final disbursement, unless approved by lender for in-school deferment 9 Your Loan Terms Interest Rates Stafford Loans Fixed at 6.8% per year Loans borrowed prior to July 1, 2006, have a variable rate not to exceed 8.25% PLUS Loans Fixed at 8.5% per year Loans borrowed prior to July 1, 2006, have a variable rate not to exceed 9% 10 Your Loan Terms Fees Stafford Loans 1.5% origination fee for loans first disbursed on or after July 1, 2007 1% federal default fee PLUS Loans 3% origination fee 1% federal default fee You are responsible to repay the amount you borrowed, including any fees that were deducted from your loan disbursement. 11 Your Loan Terms • Grace period: – Stafford loan provides one 6 month period during which no payment is expected – Interest subsidy applies – First loan payment due within 30-45 days after grace period ends – No penalty for early repayment – Grad/Professional PLUS loan does not offer a grace period 12 Your Loan Terms • Interest that accrues is capitalized • Paying interest while in school saves money Borrower 1 $3,500 unsubsidized loan at 6.8% fixed. Interest paid during three-year in school period at $19.83 per month Total paid while enrolled Amount capitalized Monthly payment Length of repayment Total cost Interest until repaid $714 $0 $50 7.5 years $4,450 $950 Borrower 2 $3,500 unsubsidized loan at 6.8 % fixed. No interest paid during three-year in school period . Interest capitalized at repayment Total paid while enrolled Amount capitalized Monthly payment Length of repayment Total cost Interest charges $0 $714 $50 9.6 years $5,700 $1,486 Source: www.finaid.org Cost of Interest Capitalization Calculator. 13 Method of Payment • Options available: – Coupon books – Online payments – Auto-debit from bank account • Your payment method could affect borrower benefits offered by your lender. – Possible interest rate reduction for:  Payments made via auto-debit  On-time payments 14 Keep Copies of Loan Related Information • Establish a file for loan related information: – Copies of written correspondence – Notes of phone conversations with lender or servicer – Contact information – Copies of your MPN – Copies of repayment schedules – Copies of deferment forms 15 Successful Repayment • Repayment plans • Manageable payments • Forgiveness and cancellation • Money management • Debt management strategies 16 Successful Repayment When does repayment begin? • Stafford loans offer a 6 month grace period after you graduate, leave school, or drop below half-time enrollment • Interest will not be charged on subsidized Stafford loans during the grace period • Interest will accumulate on unsubsidized Stafford loans during the grace period • Grad/Professional PLUS loans do not offer a grace period 17 Repayment Plans Four Repayment Plans • Standard repayment • Graduated repayment • Income-sensitive repayment • Extended repayment 18 Repayment Plans Standard Repayment • Least-expensive option in terms of total interest costs • Fixed monthly payment of at least $50 per month • Maximum 10 year repayment period • You receive this option if you do not choose another plan 19 Repayment Plans Graduated Repayment • Monthly payments start low and increase at designated intervals • 10 year repayment period • May be a good choice for borrowers who have limited income now but who expect higher earnings in the future • You will pay more interest under this plan 20 Repayment Plans Income-Sensitive Repayment • 10 year repayment term that may be extended to 15 years • Monthly payments can be adjusted annually based on gross income from all sources • Minimum payment must cover monthly interest amount • Must reapply each year • Lower initial payments may result in higher total interest costs 21 Repayment Plans Extended Repayment • Up to 25 year repayment term for eligible borrowers • Length of repayment is tied to the amount borrowed • Available to borrowers who have accumulated ≥ $30,000 • Lower monthly payments but dramatically higher total interest costs 22 Repayment Example • Sample monthly repayments for Stafford and PLUS loans: – Standard repayment option – 10 year repayment period. Loan Amount* Stafford Loan PLUS Loan Total $15,766 $37,067 $52,833 Interest Rate 6.8% 8.5% Loan Fees 3% 4% Monthly Payment** $187.05 $478.73 $665.78 * Loan amounts based on national averages quoted by www.finaid.org in January 2008. ** Payment amounts from loan repayment calculator at www.finaid.org in January 2008. 23 Repayment Example • Compare the various plans listed below, noting the difference in the total interest of each. • Visit www.usafunds.org/borrowers to review the loan repayment calculators • Example: $15,000 at 6.8% fixed rate with $0 fees Repayment Option Standard Graduated (15 years) Income-sensitive* Estimated Monthly Payment $173 $86 to $239 $83 to $186 Total Interest $5,715 $11,263 $6,125 Total Principal and Interest $20,715 $26,263 $21,125 Source: www.finaid.org loan repayment calculators. * Income-sensitive repayment based on one year exception at $25,000 annual salary. 24 Manageable Payments • Deferments: – Payments postponed under certain conditions – Enrolled at least ½ time – Military Service – Others – Interest subsidy applies – Length of time varies by type of deferment – Application required (not automatic) 25 Manageable Payments • Forbearance: – Temporarily postpone or reduce payments – Extends the repayment period – Typically granted for a period up to 12 months, at the discretion of the lender or servicer – Interest subsidy is not available – Any unpaid interest that accrues will be capitalized, increasing the total balance due 26 Manageable Payments • Consolidation: – Can reduce monthly payments – May reduce interest rates – Only certain qualifying federal loans can be included – Not right for everyone Advantages • Combines several loans into one new loan. • One lower monthly payment. • Interest rate may be lower. • Interest subsidy still applies, but only to Stafford. • No fees or prepayment penalties. Disadvantages • Increases interest charges due to longer repayment period. • Reduced options for cancellation and forgiveness. • Interest rate may be higher. • May lose benefits. • Lose remainder of grace period. 27 Student Loan Forgiveness and Cancellation • Special repayment and forgiveness options for some borrowers: – – – – Military benefits National and community service jobs Child care providers Teacher loan forgiveness 28 Consequences of Breaking Your Promise • Delinquency means the lender has not received payment by the stated due date: – Late charges and fines may be assessed – Negative mark on your credit record 29 Consequences of Breaking Your Promise • “Default” means no loan payments for 270 consecutive days or more: – – – – – – – – – Lose eligibility for future federal financial aid Lose eligibility for flexible loan repayment options Bad credit State-issued licenses can be withdrawn Income tax refunds can be withheld Wages can be garnished Interest continues to accumulate Ongoing collection activities including fees and fines Legal action 30 Student Loan Forgiveness and Cancellation • Full cancellation: – – – – Death of borrower School closure False certification by school Identity theft • Full or partial discharge: – Total and permanent disability – Some limited bankruptcy scenarios 31 Federal Perkins Loan • University of Notre Dame is the lender • University Accounting Services (UAS) – Notre Dame’s Perkins Loan Servicer – Billing statements will come from UAS • Contact person at Notre Dame – Brenda Wardlow, Office of Financial Aid  bwardlow@nd.edu  (574) 631-6464 32 Federal Perkins Loan • Grace Period = 9 months – Compared to 6 months for Federal Stafford Loan • Payments – Quarterly is standard • January 2009 graduates – 9 month grace period ends October 1, 2009 – First payment due January 1, 2010 • Credit Bureau reporting is required 33 Federal Perkins Loan • Deferments – Volunteer program – Military service – ACE Program – Teacher cancellation – Other occupations  Law enforcement fields 34 Federal Perkins Loan • Helpful Perkins Websites – Online Federal Perkins Exit Counseling  www.uasexit.com – UAS Payments  www.uasecho.com/login.asp – UAS Frequently Asked Questions  www.uaservice.com/BorrowerFAQ.html 35 Manage Your Money • Identify your financial goals • Develop a realistic monthly budget • Pay your bills by due date • Keep accurate and wellorganized records • Save for the future 36 Manage Your Money • Find your spending leaks: – – – – – Eating out Entertainment and vacations Gifts and holidays Retail therapy Invisible cash $3 latte X 5 days $15 per week X 50 weeks = $750 per year! 37 Manage Your Money • Use spending stoppers: – Leave credit cards at home – Record purchases on back of ATM receipt – Resist easy credit – Eat out less 38 Manage Your Debt • Debt should work for you…not the other way around • Don’t take on unnecessary debt • Know what you owe • Develop a plan to get out of debt 39 Manage Your Debt • Understand the debt pyramid: High Cost/Stress Medium Cost/Stress Low Cost/Stress High interest credit cards. Payday loans. Debt past due or in collections. Affordable car loans. Manageable credit card balances. Home mortgages. Student loans. 40 Manage Your Debt • Determine highest priority debt • Once paid, increase payments on next highest priority • Avoid the minimum payment trap • Resolve to stay out of debt 41 Manage Your Debt • Review your credit report annually to ensure accuracy • Request a free credit report every 12 months: – www.annualcreditreport.com – (877) 322-8228 – Credit information is supplied by the three major reporting bureaus: Equifax www.equifax.com (800) 685-1111 P.O. Box 740241 Atlanta, GA 30348 Experian www.experian.com (888) EXPERIAN P.O. Box 2002 Allen, TX 75013 TransUnion www.transunion.com (800) 888-4213 P.O. Box 1000 Chester, PA 19022 42 What If You Need Help? • If you run into financial difficulty and can’t make a student loan payment, contact: – – – – Your lender Your servicer Your guarantor Your school 43 What If You Need Help? • U.S. Department of Education Student Loan Ombudsman: FSA Ombudsman 830 First Street, NE Fourth Floor Washington, DC 20202-5144 Phone: (877) 557-2575 Fax: (202) 275-0549 E-mail: fsaombudsmanoffice@ed.gov www.ombudsman.ed.gov 44 Resources • www.usafunds.org • www.salliemae.com • www.nslds.ed.gov • www.federalstudentaid.ed.gov • www.annualcreditreport.com • www.ombudsman.ed.gov • www.truecareers.com • www.monster.com • www.hotjobs.com • www.rileyguide.com • www.interviewcoach.com • www.salary.com 45 Contacts at Notre Dame • Notre Dame – Office of Student Financial Services       Gene Pilawski and Shari Fye (Stafford, Grad/PLUS, PLUS, Private Loans) Brenda Wardlow (Perkins) Email: finaid@nd.edu Web: http://financialaid.nd.edu Phone: (574) 631-6436 Fax: (574) 631-6899 – Online Exit Counseling: http://www.nd.edu/~finaid/exit/index.shtml – Please contact our office to allow us to assist you with any aspect of your student loan repayment. 46 Questions and Answers 47 USA Funds® is the nation’s leading education loan guarantor. A nonprofit corporation, USA Funds works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services. 48