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Roadmap to Repayment

Roadmap to Repayment. Avoid Costly Curves. Take the least expensive route. Overview. Organize your loan portfolio Review your repayment options Lower your payment Postpone your payment Simplify your payments Establish a repayment strategy. Organize your loan portfolio. Get Organized.

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Roadmap to Repayment

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  1. Roadmap to Repayment Avoid Costly Curves Take the least expensive route

  2. Overview • Organize your loan portfolio • Review your repayment options • Lower your payment • Postpone your payment • Simplify your payments • Establish a repayment strategy

  3. Organize your loan portfolio

  4. Get Organized • Identify your lender(s) and servicer (s) • Visit www.nslds.ed.gov • Confirm your contact information • Request an account statement from each lender • Determine first payment due date • Check loan’s grace period length, if applicable • First payment due 30 to 60 days after entering repayment

  5. Stafford Loans: Grace Period • Automatic time period between school and repayment • Interest accrues only on unsubsidized loans • Repayment begins when your grace period ends

  6. Loans With a Grace Period • Applies to: • Stafford Loans • Perkins Loans • Grad PLUS Loans (disbursed on or after 7/1/2008)

  7. Loans Without a Grace Period • Applies to: • Consolidation Loans • Grad PLUS (disbursed prior to 7/1/2008)

  8. Review Your Repayment Options

  9. Standard Repayment • Repayment term length of 10 years • Monthly payment never changes • $50 minimum monthly payment • Automatic if no other options requested

  10. Use this chart to estimate your monthly student loan payment obligation. Estimate Your Payment(based on a 10-year term) Estimated monthly payment of $1600 = + + 40,000@ 4.75% 80,000@ 6.8% 20,000@ 8.5%

  11. What can you afford to pay? Educational Payment as a Percent of Gross Monthly Income Manageable (10% or less) Challenging (between 10% and 18%) Complex (18% or greater) Average Starting Salary in Residency: $46,245 (AAMC 2008 Stipend Survey)

  12. Interest Capitalization • Accrued interest added to principal balance • Accruing interest on interest • Frequency of capitalization varies by lender • Less frequent capitalization is better • If possible, pay down interest prior to entering repayment

  13. Lower Your Payment

  14. Extended Repayment Term Stafford and Grad PLUS Loans • Extends from 10 years to 25 years • Requires $30,000 in federal loans

  15. Extended Repayment Term 10 Years 25 Years Monthly Payment Monthly Payment

  16. Repayment Plans • Graduated • Payment increases gradually over time • Payment must cover the monthly interest accrual • Income Sensitive • Payment based on adjusted gross income • Payment must cover the monthly interest accrual • Eligibility and payment amount must be verified annually

  17. Income Based Repayment • Available for payments made on or after July 1, 2009 • Adjusted payment based on adjusted gross income and family size • Eligibility and payment amount must be verified annually • Payment no more than 15% of the amount by which your adjusted gross income exceeds 150% of the poverty line

  18. Income Based Repayment • If monthly payment amount does not cover accrued subsidized interest, the remaining interest will be paid by the DOE for up to three years • Payments may be less than monthly interest accrual • Outstanding balance after 25 years will be forgiven For more info, visit IBRinfo.org

  19. Compare Repayment Plans

  20. Remember Prepayment • No penalty • Extra payments or over payments • Only responsible for accrued interest • Payments don’t affect current status

  21. Postpone Your Payment

  22. Postpone Payment Deferment • Postponement covers specific time period • Interest accrues only on unsubsidized loans • Apply and meet criteria • Forbearance • Use if you are not eligible for deferment or have exhausted deferment time limit • Interest accrues on subsidized and unsubsidized loans • Mandatory Medical Residency Forbearance available • Apply and meet criteria

  23. Common Deferments In-School Deferment Unemployment Deferment Graduate Fellowship Deferment Economic Hardship Deferment

  24. Deferment Types In-School • Enrolled at least half-time at an eligible school • No limit, as long as you continue to be enrolled Unemployment • Apply with documentation of employment status • Granted in six-month intervals • Up to 24 or 36 months of deferment • Depending on date received Federal Stafford Loans

  25. Graduate Fellowship Deferment Eligibility based on participation in an eligible fellowship program For Stafford, Grad PLUS and Consolidation Loans Apply and qualify each year No limit, as long as you are eligible Deferment Types

  26. Economic Hardship Deferment Granted in 12 month increments for a maximum of 36 months Must apply and qualify annually Alternatives to Economic Hardship after 7/1/2009 Forbearance Income-based repayment Deferment Types

  27. Economic Hardship Deferment If you have loans entering immediate repayment at graduation… • You may qualify based on debt-to-income ratio • Not available after 7/1/2009 • Submit request with previous year’s income • Claiming full-time student with zero income

  28. -Start deferment before June 30th to maximize your eligibility

  29. Simplify Your Payment

  30. Consolidation Reasons to consider: • Simplification • Lock interest rate on federal loans • Loan forgiveness Private Loans are not eligible for Federal Loan Consolidation

  31. Consolidation Requirements • Loans must be in grace period or have entered repayment for consolidation to take place • Includes loans in deferment or forbearance • Interest Rate is the weighted average of the consolidated loan rates • Rounded up to the nearest 1/8th

  32. Repayment Term • Length is based on your total outstanding student loan debt

  33. Understanding Interest Rates • Variable Rate: • Interest rate is reset every July 1st • Stafford loans disbursed prior to 7/1/2006 • Fixed Rate: • Interest rate will not change • All federal loans disbursed after 7/1/2006 • Grad PLUS and consolidation loans

  34. Public Service Loan Forgiveness Criteria: • 120 monthly payments • Payments made after 10/01/07 • 10 years of full time public service work • Does not have to be continuous • Loans must be held with Direct Loans • For more information visit www.ed.gov

  35. Create a Repayment Strategy

  36. Create a Repayment Strategy • List any outstanding debt by interest rate • Determine lowest monthly payment obligation for each loan • Pay down highest interest rate loans at fastest rate

  37. 25-Year Level Repayment Plan $40,000 @ 4.75% Level Monthly Payment: $228.05 $80,000 @ 6.8% Level Monthly Payment: $555.26 $20,000 @ 8.5% Level Monthly Payment: $161.05 Estimated Total Loan Cost: $283,000 Monthly payment:$944

  38. Value of a Repayment Strategy $80,000 @ 4.75% Level Interest Only Interest Only $944 $290 $158 $158 Interest Only $60,000 @ 6.8% $654 $786 $333 $332 $20,000 @ 8.5% Estimated Total Loan Cost: $266,000 Monthly payment:$944

  39. No Repayment Strategy Monthly payment = $944 Paid in 25 years Total Loan Cost = $283,000 Repayment Strategy Monthly Payment = $944 Paid in 23.5 years Total Loan Cost = $266,000 Repayment Strategy Review Savings of $17,000

  40. Use your strategy to determine your new monthly payment obligation Put Your Strategy Into Action Estimated monthly payment of $800 = + + $40,000@ 4.75% $80,000@ 6.8% $20,000@ 8.5%

  41. What can you afford to pay? Educational Payment as a Percent of Gross Monthly Income Manageable (10% or less) Challenging (between 10% and 18%) Complex (18% or greater) Average Starting Doctor Salary: $150,000

  42. What About My Privateor Institutional Loans? • They differ from Federal Loans so • ask your lender the following questions: • Is there a grace period, and what is the length? • When does repayment begin? • What is my repayment term? • What are my deferment and forbearance options and requirements? • How and when is interest calculated? • What are your interest capitalization policies? • Is there a repayment benefit?

  43. Student Loan Tips • Always notify your lender/servicer of changes to your name, address and enrollment status • Don’t ignore your mail • Contact lender if your ability to repay changes • Postponement options are available • Interest only plans are available • Prepayment without penalty

  44. Repayment Review • Determine your repayment ability by comparing monthly payments to income • Utilize your repayment options to establish a cost-effective repayment strategy

  45. Discussionand Questions XXX XXXX – Corporate Presenter (866) 902-6038 ext. 92XX XXXXX@northstar.org Student Loan Blog: www.RamenReport.org

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