The Smart Approach to Consumer Debt and Student Loans

The Smart Approach to Consumer Debt & Student Loans Park University April 15, 2008 Executive Order 02-08 • Over the past decade, the U.S. has averaged nearly 1 million bankruptcies a year • Two-thirds of all families had credit card debt in 2002 • The average credit card debt has increased from $2,400 to $9,000 • Children today will inherit $12 trillion over the next twenty years It’s a financial jungle out there! What do you need to know to survive? Start Saving Now The road to wealth… begins with saving, then investing. Time Value of Money The earlier you save… …the more $$’s you will have. Consider saving $100 per month at 5% interest compounded annually. Start saving now…. By age 65 you’ll have…. Freshman Senior Age 25 Age 40 $226,428 $191,613 $161,637 $63,826 Take Charge of Your Spending The little things can really add up! Take for instance the cost of lattes. $3.00 (5 times a week) X 4 year = $3,120 That’s $780 each year!!! Budget Identify income Calculate expenses Subtract expenses from income Follow the 8 percent rule to determine your discretionary income • Borrow only what you need • • • • Decrease Your Expenses • Eliminate or reduce spending for unnecessary items – Find a roommate – Carpool or public transportation – Library for books, magazines, and videos – Take your lunch – Clip coupons Understand the Costs of Credit • You will get tons of credit card offers. • Know how interest rates and other fees affect the amount you owe. • Learn how to find the credit card that’s right for you. • Compare at least 3 offers before you choose a credit card. • Don’t select a card simply by what issuer is giving away. • Read the fine print! If it sounds too good to be true, it probably is. • Look for low interest rates that last until you’ve paid off the balances. • If you have a balance and can’t pay it off in full, always pay more than the minimum balance. 16 14 12 10 8 6 4 2 0 12.5 years 2 years 1.67 years 1.17 years Minimum $250 per month $300 per month $400 per month What do you do if you get in trouble with credit? • Stop making new charges and pay with cash. • Set priorities and find ways to increase income and cut expenses. • Pay more than the minimum balance if possible. • Transfer balances to a lower interest rate credit card. • Contact your lender and try to negotiate a lower interest rate. • Contact a reputable consumer credit counseling office. Facts about Student Loans • Loans must be repaid • If you have several different lenders, you will be responsible for making payments to each one separately • The amount of money you decide to borrow can affect your lifestyle later • Your ability or inability to repay these loans can affect your credit worthiness The Life of a Loan • • • • • MPN Disbursement Interim Period Grace Period Repayment – Deferments and Forbearances – Delinquency – Default The Players • • • • Financial aid office Lender Loan holder (servicer/secondary market) Guarantor Keep In Touch • Contact your loan holder and guaranty agency any time you change your address or telephone number • Contact your loan holder if you are having problems making your payments • Contact your school if you are having problems communicating with your loan holder. Time to Repay • Congratulations! You’ve received your undergraduate degree. Grace Period • Six-months • Begins the day after you graduate, leave school, or drop below than half-time enrollment • Interest accrues on unsubsidized loans • If you are nearing repayment and have not received repayment information, contact your lender Repayment Options • Prepayment: Great if you can do it! • Standard Repayment: Lowest total cost (if not prepaying) • Graduated Repayment: Short-term relief • Income-Sensitive Repayment: Temporary safety net • Extended Repayment Plan Prepayment • No penalties • May substantially decrease your total interest costs • Indicate that the payment should be applied to principal, not considered “paid ahead” Standard Repayment • Fixed schedule of equal monthly payments • Maximum 10-year repayment period Graduated Repayment • • • • Payments increase gradually Maximum 10-year repayment period Assumes your income will grow Higher total interest Income-sensitive Repayment • Monthly payment schedule with fixed payments over one year at a time • Maximum 10-year repayment period • Loan holder sets monthly payments • Payments 4% to 25% of income • Substantially increases total debt Loan Consolidation • Combines all of your existing student loans into one new loan • Allows you to make only one payment • Could extend your repayment period and lower your monthly payments • Usually results in greater total debt Extended Repayment • First loan must be received by Oct. 7, 1998 • Total loan debt must exceed $30,000 • Fixed or graduated repayment plan • Maximum 10-year repayment period • Minimum annual payments =/> $600 • Substantially increases total debt “Paying the Price” Loan Type Repayment Schedule FFELP 10-years FFELP 10-years FFELP 10-years 4-yr Public Consolidation 15-years FFELP 10-years 4-Yr Private Consolidation 15-years Principal Interest Rate 6.80% 6.80% Monthly Payments 107 120 Monthly Payment $50 (Min. Mo. Payment) Total Interest $ 1,350 $ 1,655 Minimum Recommended Net Income $ 7,500 ($625/mo) $ 4,000 $ 4,345 $ 50 $ 7,500 ($625/mo) $ 15,500 6.80% 120 $ 179 $ 5,905 $ 26,757 ($2230/mo) $ 15,500 6.80% 180 $ 138 $ 9,266 $ 20,638 ($1720/mo) $ 19,400 6.80% 120 $ 223 $ 7,391 $ 33,489 (2791/mo) $ 19,400 6.80% 180 $ 172 $ 11,597 $ 25,831 ($2153/mo) Student Loan Ombudsman • The Ombudsman’s Office was established to work with student loan borrowers to help informally resolve student loan disputes and problems – (877) 577-2575 – Office of the Ombudsman Student Financial Assistance U.S. Department of Education 830 First Street NE, Mailstop 5144 Washington, D.C. 20202 – http://ombudsman.ed.gov Deferment • A temporary period of time when you are not required to make loan payments • Interest will continue to accrue on unsubsidized and PLUS loans which will increase your total debt • Deferment eligibility criteria are very specific and are outlined by the U.S. Department of Education Forbearance • A temporary period of time when you either do not have to make a payment or you are allowed to make lower payments • Interest will continue to accrue • It is up to your loan holder to grant a forbearance Loan Forgiveness • Your student loan may be cancelled if: – you become totally and permanently disabled – you die – your school falsely certifies your eligibility for a loan – your school closes • Teacher • Child care provider • Law enforcement or corrections officer • Nurse/medical technician • http://mappingyourfuture.org/paying/forgiveness.htm Avoid Loan Default • Reported to national credit bureaus – Severe credit rating – Remains on credit report for seven years AFTER loans are paid in full – Affects obtaining future financing • Entire loan amount immediately due and payable in full • Collection costs • Administrative wage garnishment Avoid Loan Default (cont’d.) • Federal Treasury offset – Federal income tax returns – Social Security benefits and other federal payments • State tax offset • No additional financial aid • No deferments or forbearances • May be denied employment Remember • Your students loans are your responsibility • Loans must be repaid – Even if you do not complete your program – Even if you’re unhappy with the quality of your program – Even if you are not able to obtain employment Reminder • Keep a file of your student loan records and know about what you owe • Your ability or inability to repay your loan can affect your credit worthiness • Failure to repay may increase your total debt Understand How Credit Use Affects Your Future • Good debt – Student loans – Mortgage – Car loans • Bad debt – Credit cards • Credit Reports • Credit Scores • Be in control – Pay your bills on time – Don’t carry an excessive number of credit cards – Keep balances low Protect Your Credit & Financial Future • Securely store your financial information. • Review statements and notify creditors immediately of errors. • Be careful when giving out financial information (i.e. friends, cell phones, and the Internet). • Invest in a shredder and Shred! Shred! Shred! • Know what’s in your wallet or purse. • Protect your SSN. Questions? 3515 Amazonas Drive Jefferson City, MO 651O9 (8OO) 473-6757 (573) 751-2361 Fax (573) 751-6635 Info@dhe.mo.gov www.dhe.mo.gov