Loans ABC Workshop 2012
Loans • Types of Loans • Loan Processes and Requirements • Repayment Options
Federal Loans • Federal Direct Subsidized Loan • Federal Direct Unsubsidized Loan • Perkins • PLUS • GradPlus
Federal Direct Subsidized Loan • Need-based Loan • Interest rate: 3.4% • Origination Fee: 1% • Grace Period: 6 months • Department of Education pays interest • In-School • Grace period • Deferment • Student pays interest once repayment begins • Only undergraduate students are eligible • Student must be enrolled at least half time • Student must be meeting SAP
Federal Direct Unsubsidized Loan • Non-Need based Loan • Interest rate: 6.8% • Origination Fee: 1% • Grace period: 6 months • Student pays interest • Interest is capitalized • Student can choose to pay interest while enrolled • Undergraduates and Graduates are eligible • Student must be enrolled at least half time • Student must be meeting SAP
Federal Loan Limits
Federal Loan Limit
Perkins • Need-based loan • Federal Loan, Institution acts as Lender and Servicer • Interest Rate: 5% • Grace period: 9 months • Maximum repayment term: 10 years • Undergraduate and Graduate students are eligible
Perkins Loan Limits Undergraduate annual limit $5,500 Undergraduate Aggregate limit $27,500 Graduate annual limit $8,000 Graduate Aggregate limit $60,000
PLUS loan • Parent Loan for Undergraduate Students (PLUS) • Non-need based loan • Can borrow up to COA • Borrower must be credit worthy • Interest Rate: 7.9% • Origination fee: 4% • If the parent is denied, the student may receive a Federal Direct Unsubsidized loan at Independent Undergraduate loan limit
Grad Plus • Loan for Graduate Students • Non-need based loan • Borrower must be credit worthy • Interest Rate: 7.9% • Origination Fee: 4% • Can borrow up to COA • No aggregate limit
Alternative Loans • Interest rates are usually variable • Origination and repayment fees vary • Co-signer typically required • Most require school-certification
Alternative Loans • Possible solution for • International Students • SAP Ineligible students • Non-degree seeking students • Students who have reached federal loan aggregates
Loan Processes and Requirements • Entrance Counseling • Promissory Note • Exit Counseling
Entrance Counseling • First-time borrowers • Inform them of their rights and responsibilities in taking out this loan • www.studentloans.gov
Promissory Note • Document signed by borrower, which includes terms and conditions of the loan disbursements, use, and repayment • Mater Promissory Note • Good for ten years • Covers multiple loan periods and varying loan amounts of the same type of loan
Exit Counseling • All borrowers that leave an institution must complete exit counseling • Includes graduating, withdrawing, transferring, or not returning • www.nslds.ed.gov
Loan Notification • The institution is required to notify the borrower that a loan disbursement has been made, and that the borrower may reduce or cancel the disbursement
Direct Loan proration • Must occur when: • A student’s academic program is less than a year in length • A student is completing a period of enrollment that is less than one academic year • Standard proration formula: • Amount of direct loan student could have for grade level ÷ 24 x enrolled hours
Loan Repayment • Single source for all federal loan info including • Borrower info • Loan amounts • Interest accrued • Servicer info • www.nslds.ed.gov
Ways to Repay • Standard – Monthly payment remains consistent for 10 years • Graduated – Monthly payments are lower at first but then increase every 2 years over the 30 year repayment term • Income-sensitive– Monthly payments are based on your monthly gross income • Extended – Monthly payments over a 25 year plan
Ways to repay, cont’d • Income Contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship”; (25 year forgiveness) • Income Based- Monthly payments will not exceed 15% of the amount by which your adjusted gross income exceeds 150% of the poverty line for your family size. (25 year forgiveness)
Other loan Terms • Deferments • Forbearance • Default • Cohort Default Rate
Deferment • Period of postponing payments • Federal government will pay interest for the borrower with a Subsidized DL • Entitlement • Some possible deferment situations: • Education • Peace Corps/ Military
Forbearance • Temporary cessation, reduction, or extension of payments • Student is responsible for interest that accrues • Borrower is willing but temporarily unable to pay
Default • Failure to meet the terms of the promissory note • Failure to repay • Failure to attend • Borrower is considered to be in default after being delinquent for 270 days • Borrower is subject o wage garnishment, seizure of income tax refunds, lottery winnings, license non-renewal, sued by DOE • Student not eligible for federal financial aid • Damage to the borrower’s consumer credit score
Default • Satisfactory Repayment Arrangements • Six on-time voluntary payments • Rehabilitation • Nine on-time voluntary payments • Consolidation can “fix” a defaulted loan
Cohort default rate • Includes DL loans, and loans underlying DL consolidation loans • CDR = % of borrowers who enter repayment in a given federal fiscal year who then default within the next 3 fiscals years • High rate has consequences for schools • >15% = loss of 1 installment/semester • >15% = 30 day hold on 1st time, 1st year borrowers • > 40% = loss of participation in Title IV funding
Questions?
