Student Loans 101: Know Before You Borrow Revised 9/2013
Financial Aid: Education Pays Postsecondary degrees lead to greater weekly earnings Source: Bureau of Labor Statistics, Current Population Survey, 2012.
Financial Aid = Paying for College Family Financing
Financial Aid: The Hierarchy *Need-based *Available to everyone *On financial aid award letter High High • Gift Aid: Grants COST AVAILABILITY Low Low
Student Loans: Federal Overview High High • Gift Aid: Grants COST AVAILABILITY Low Low
Student Loans: Perkins Fixed Rate: Interest rate does not change from year to year, but remains constant over the life of the loan Grace Period: The period of time between full-time enrollment and when you are required to make your first payment.
Student Loans: Subsidized Stafford Subsidized: The amount borrowed does not accrue interest until you graduate, leave school, or drop below full-time enrollment.
Student Loans: Unsubsidized Stafford Unsubsidized: Interest will accrue on the loan amount while you are in school. Calculating Interest: Principal amount - $3,000 w/ 3.86% interest Year 1: $3,000 Interest for 1st year: 3000 x 0.0386 = $116 Interest payment: $5/month Remaining Interest for 1st year: $116 - $60 = $56 Year 2: $3,000 + $56 = $3,056 Interest for 2nd year: 3084 x 0.0386 = $119 No interest payments during 2nd year Year 3: $3,056 + $119 = $3,175 Interest for 3rd year: 3,175 x .00386 = $123
Student Loans: Stafford Limits Stafford Loan Limits per Year in School
Student Loans: PLUS Loans Gap: The difference between the financial aid offered to you and the cost of attendance.
Student Loans: Private Loans • Private Loans High High • Gift Aid: Grants COST AVAILABILITY Low Low
Student Loans: Private Loans • Compare interest rates • Large loans sometimes required to access lower interest rates • Private interest rates more likely to be variable • Compare fees • Private loans usually associated with higher fees • Compare grace periods • You may not be able to predict what will happen during your college career. Some private loans may have you paying back before you are finished with school. • Compare repayment options • Government loans offer options for repayment, deferment, forbearance, forgiveness, consolidation. Private loans don’t. • Consider the sustainability • Will I have to continue borrowing private loans? Should I consider a private loan?
Financial Aid Overview • Loan Entrance Counseling • Master Promissory Note • Disbursement notice
Rights • Copies of your promissory notes • Loan disbursement notification • Loan disclosure statement • Repayment schedule • Grace period • Deferment or forbearance • Prepay without penalty • Notification if loan is sold or transferred • Consolidate loans • Notification when loan is paid in full
Responsibilities • Pay back your loan in full • Stay informed about: • Loan balances • Payment amounts • Notify your loan servicer: • Name or contact info changes • Graduation, leaving school, transferring to another school or dropping below half-time enrollment • Trouble with loan payments
Responsibilities: Borrow Responsibly! Can they afford it? What other financial responsibilities or choices may come into play?
Responsibilities: Debt Levels Key Points: • Choose a school and program wisely. • Only borrow what you need. • Find out how much your total debt level should be. • How much income will I have? • How much of my income am I willing to spend on loans? • How much can I borrow before my loans are no longer affordable? • Student loan payments should be no more than 8-10% of your monthly income. • Make and keep a budget to work with those debt levels.
Responsibilities: Making Informed Choices • Borrow for direct educational costs only • Work during college • Pay unsubsidized loan interest while enrolled • Compare repayment plans and monthly payment amounts based on what you expect to borrow • Reduce expenses • Learn to manage money well
Responsibilities: Repayment All repayment plans except the standard plan require you to apply for them
Repayment: Consolidation • Direct (current) • Consolidates all federal student loans into one big loan • Interest rate the “weighted average” of all loans • Same repayment options as Federal Direct • May reduce monthly payments • Consolidating PLUS loans negates eligibility for income-based repayment plans Consolidation may lower monthly loan payments.
Wrap-Up: Summary • Take advantage of “free” money. • Complete the FAFSA every year. • Borrow wisely. • Assess your spending and stick to your budget. • You have options with student loans. Know them! • Ask for help!
Resources • Studentaid.gov – Federal Student Aid Website • Your college financial aid office • Finaid.org • StudentLoanBorrowerAssistance.org • MappingYourFuture.org • IRS.gov • Student Loan Ombudsman (info on studentaid.gov)