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Loan Basics

Loan Basics. Kimberly Schwaeble Assistant Director, Rice University Julie Wittmis Financial Aid Advisor, Texas Woman’s University New Aid Officers’ Workshop 2017. Agenda. Student loan programs and regulations Application process and eligibility Repayment options. Federal Student Loans.

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Loan Basics

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  1. Loan Basics Kimberly Schwaeble Assistant Director, Rice University Julie Wittmis Financial Aid Advisor, Texas Woman’s University New Aid Officers’ Workshop 2017

  2. Agenda • Student loan programs and regulations • Application process and eligibility • Repayment options

  3. Federal Student Loans • Federal Direct Subsidized Loan • Federal Direct Unsubsidized Loan • Parent PLUS Loan • Graduate PLUS Loan • Federal Perkins Loan

  4. Federal Direct Subsidized Loan • Need based loan for undergraduates only • Origination fee: 1.069% (as of October 2016) • Fixed interest rate: 3.76% (as of July 2016) • July 1 rate is adjusted for new loans • Grace period: 6 months • Interest does not accrue – paid by Dept. of Ed – when… • Enrolled at least half time • During 6 month grace period • If loan was first disbursed between July 1, 2012 and July 1, 2014, you will be responsible for paying any interest that accrues during your grace period. • During other times of deferment • Must meet SAP and enroll at least half time

  5. 150% Subsidized Usage Limit Applies (SULA) • Effective 7/1/13 and applies to new borrowers or borrowers with a zero balance taking out a new loan • May only receive Sub for 150% of the published program length • MEP-SUP=REP • Maximum eligibility period (MEP) • Subsidized usage period (SUP) • Remaining eligibility period (REP)

  6. 150% Subsidized Usage Limit Applies (SULA) • Eligibility lost after students exceeds MEP • Cannot receive any more sub • May receive unsub up to yearly limit in its place • Interest subsidy lost on outstanding Direct Subsidized Loans (including Direct Consolidation Loan that repaid a Direct Subsidized Loan) if borrower attends undergrad program at least half-time when remaining eligibility period is zero or less.

  7. Federal Direct Unsubsidized Loan • Non-need based loan • Borrowers are undergrad, grad, or professional • Origination fee: 1.069% (as of October 2016) • Fixed interest rate: 3.76% undergrad, 5.31% grad (as of July 2016) • Grace period: 6 months • Interest accrues while student is in school • Interest capitalizes • Student can elect to pay interest while enrolled • Must meet SAP and enroll at least half time

  8. Parent PLUS Loan • Non-need based loan • Can borrow up to cost of attendance (COA) minus other aid • Borrower is parent of dependent undergrad • Student must be enrolled at least half time • Origination fee: 4.276% (as of October 2016) • Fixed interest rate: 6.31% (as of July 2016) • Credit check required • Additional PLUS loan counseling required for low credit • Additional unsub up to independent limit may be awarded if parent does not pass credit check • Repayment begins after loan is fully disbursed

  9. Graduate PLUS Loan • Non-need based loan • Can borrow up to COA minus other aid, no aggregate limit • Borrower is graduate or professional student • Origination fee: 4.276% (as of October 2016) • Fixed interest rate: 6.31% (as of July 2016) • Credit check required • Loan payments deferred while at least half time • 6 month grace period, interest continues to accrue • Must be enrolled at least half time

  10. Direct Loan Application Process • FAFSA • Eligible student in eligible program with Pell eligibility determination complete • Entrance counseling • First time borrowers informed of their rights and responsibilities • Completed at www.studentloans.gov

  11. Direct Loan Application Process • Master Promissory note • Includes terms and conditions of the loan disbursement and repayment • Valid for 10 years and covers multiple loans • Completed on www.studentloans.gov • Exit Counseling • Information on repayment • Must be complete when student drops below half-time or graduates • Completed on www.nslds.ed.gov • PLUS loan application at www.studentloans.gov

  12. Direct Loan Notification • Institution is required to notify the borrower within 14 days after disbursement is made and give the borrower the opportunity to reduce or cancel the disbursement.

  13. Direct Loan Proration • Applies to subsidized and unsubsidized loans • Required if: • Student’s academic program is less than 1 year in length • Student’s remaining period of study is less than 1 year in length • Standard proration formula: Actual enrolled hours ------------------------------ 24 Amount of direct loan X student could have for grade level

  14. Perkins • Need based loan • Borrower is undergrad, grad, or professional • No origination fee • Fixed interest rate: 5% • Interest does not accrue while in school or grace • Grace period: 9 months • Institution is lender and servicer • Must meet SAP and enroll at least half time

  15. Perkins • Annual Limit: $5,500 undergrad, $8,000 grad/prof • Lifetime Limit: $27,500 undergrad, $60,000 grad/prof • Maximum repayment period is 10 years • Program ending Sept. 30, 2017 • See DCL GEN-16-05 for specifics (https://ifap.ed.gov/dpcletters/GEN1605.html)

  16. Alternative Loans • Non need based loans • Private banks • State loans (College Access Loan, *B-On-Time Loan) • Fees, interest rates, terms vary • Most require school certification • May require credit check or cosigner * No new borrowers for B-On-Time Loan

  17. Student Loan Repayment • Single source with record of all federal loans • Borrower info • Loan amounts • Interest accrued • Servicer info www.nslds.ed.gov

  18. Repayment Plans • Standard – 10 years; equal monthly payments • Graduated – 10 years; monthly payments start low and increase every 2 years • Income sensitive repayment – monthly payments based on annual income and change as income changes • Extended – 25 years; fixed or graduated monthly payments

  19. Repayment Plans • Income contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship” (25 yr forgiveness) • Income Based – monthly payments will not exceed 15% discretionary income (25 yr forgiveness) • Pay As You Earn – monthly payments will not exceed 10% of discretionary income (20 yr forgiveness); must be new borrower on or after 10/1/07 • Revised Pay as You Earn – monthly payments will not exceed 10% of discretionary income (20 yr forgiveness); date limitation does not apply

  20. Loan Forgiveness • Teacher Loan Forgiveness – up to $17,500 on sub or unsub (Direct or Stafford) loans if teach full-time for 5 complete consecutive years in certain elementary/secondary schools serving low-income families • https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/teacher • Public Service Loan Forgiveness – forgives the remaining balance on Direct Loans after 120 qualifying monthly payments made while working full-time for qualifying employer • https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service

  21. Loan Repayment Terms • Forbearance – Period of time payments are postponed, reduced or extended • Interest accrues • Deferment – Period of time payments are postponed for approved set of reasons • Interest on subsidized loans does not accrue* • Default – payments delinquent for 270 days • Consolidation – Combines loans into one, requiring one monthly payment to one servicer • Can fix defaulted loan

  22. Cohort Default Rate (CDR) • Includes Direct 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 fiscal 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

  23. Resources • Studentaid.gov • FAQs broken down by loan type • Repayment calculators • IFAP – ifap.ed.gov • Handbooks, regulations, current notifications • This site is your best friend!  • YouTube – FederalStudentAid channel • Videos on a variety of topics including repayment

  24. Questions?

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