Helping Students Succeed in Repayment
Objectives
Share how you can help prepare your students for repayment
Discuss repayment options available to students
Discuss the consequences of delinquency and default
Repayment Plans
• Standard• Graduated• Extended• Alternative
Non income-driven
Income-driven• Income-Based• Pay As You Earn• Income-Contingent• Income-Sensitive
Standard Repayment
• Direct and FFELP loan borrowers• Equal monthly payments of at least $50 for
up to 10 years• Borrowers will automatically be enrolled in
the standard repayment plan
Option for borrowers who want to repay loans in the shortest time with the lowest amount of interest accrued
Standard Repayment
1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.
Loan Amount
MonthlyPayment
Total Interest
PaidTotal Paid1
(Loan + Interest)
$30,000 $345 $11,428 $41,428
Graduated Repayment
• Direct and FFELP loan borrowers• Monthly payments start lower and gradually
increase over time for up to 10 years• The monthly payment will never be less than
the amount of interest that accrues between payments
Option for borrowers who have less cash flow early on, but expect that their incomewill increase steadily over time
Graduated Repayment
1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.
Repayment Plan
Loan Amount
Monthly Payment
Total Interest
PaidTotal Paid1
(Loan + Interest)
Graduated $30,000
1–2: $234 3–4: $288 5–6: $350 7–8: $425 9–10: $517
$13,666 $43,666
Standard $30,000 $345 $11,428 $41,428
Extended Repayment
• Direct and FFELP loan borrowers• Payments that are fixed or gradually
increase over 25 years for loan debt that exceeds $30,000 in Direct or FFELP loans
• More interest is paid over the life of the loan
Option for borrowers who have larger loan debt and need a lower monthly payment
Extended Repayment
1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.
Repayment Plan
Loan Amount
Monthly Payment
Total Interest
PaidTotal Paid1
(Loan + Interest)
Extended $30,000 $208 $32,466 $62,466
Standard $30,000 $345 $11,428 $41,428
Alternative Repayment
• Direct loan borrowers • Must demonstrate exceptional
circumstances• Minimum monthly payment of $5• Maximum 30-year repayment term
Option for direct loan borrowers who cannot meet payment obligations with any of the other plans due to their exceptional circumstances
Income-Based Repayment
• Designed to help borrowers with unmanageable payments relative to income– Available for borrowers on or after
July 1, 2009
Option for someone who is looking for the lowest possible monthly payment based on their income
Income-Based Repayment
• Direct and FFELP loan borrowers – Perkins loan eligible, if included in a FFELP
or Direct Consolidation loan– Excludes Parent PLUS loan or Consolidation
loan that repaid a Parent PLUS loan
Partial Financial Hardship Defined
• Borrowers must demonstrate a partial financial hardship (PFH)
• PFH exists when the annual amount on the borrower’s eligible loans exceed 15% of the difference between the borrower’s AGI and 150% of the poverty guidelines based on borrower’s family size
Partial Financial Hardship Defined
• PFH factors:– Adjusted Gross Income (AGI)– Poverty guidelines– Family size– Standard loan payment
– $1,437 150% of poverty line $3,000 Monthly AGI
15% of $1,563 =$1,563
Standard payment = $345
How IBR Works
Family size = 1
$234
YesQualify =
Income-Based Repayment
• Borrowers must reapply each year• At the end of 25 years of repayment any
remaining balance may be forgiven • Any loan amount forgiven is taxable
income• Payments count towards Public Service
Loan Forgiveness
Income-Based Repayment
1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.
Repayment Plan
Loan Amount
Monthly Payment
Total Interest
PaidTotal Paid1
(Loan + Interest)
Income-Based $30,000
$234 – first year
payment$345 –
maximum monthly payment
$17,843 $47,843
Standard $30,000 $345 $11,428 $41,428
IBR Changes
For new Direct loan borrowers on or after July 1, 2014• Cap monthly payment to 10% of
discretionary income (as opposed to 15%)• Forgive remaining debt after 20 years
of qualifying repayment (as opposed to 25 years)
Pay As You Earn
• Designed to help borrowers with unmanageable payments relative to income– Available for borrowers
as of December 21, 2012
Option for someone who is looking for the lowest possible monthly payment based on their income
Pay As You Earn
• Direct borrowers – Perkins loan eligible, if included in a Direct
Consolidation loan– Excludes Parent PLUS loan or Consolidation
loan that repaid a Parent PLUS loan
Who Qualifies for Pay As You Earn?
Must meet the definition of a new borrower:• No outstanding DL or FFELP balance as of
10/1/07, or no outstanding balance on the date a borrower receives a new loan after 10/1/07; and
• Receive a disbursement of a DL on/after 10/1/11
• Must receive a Direct Consolidation loan based on application received on/after 10/1/11, unless it repays a DL or FFELP loan that was outstanding as of 10/1/07
Partial Financial Hardship Defined
• Borrowers must demonstrate a partial financial hardship (PFH)
• PFH exists when the annual amount on the borrower’s eligible loans exceeds 10% of the difference between the borrower’s AGI and 150% of the poverty guidelines based on borrower’s family size
Partial Financial Hardship Defined
• PFH factors: – Adjusted Gross Income (AGI)– Poverty guidelines– Family size– Standard loan payment
– $1,437 150% of poverty line $3,000 Monthly AGI
10% of $1,563 =$1,563
Standard payment = $345
Determining Pay As You Earn Eligibility
Family size = 1
$156
YesQualify =
Pay As You Earn
• Borrowers must reapply each year• At the end of 20 years of repayment any
remaining balance may be forgiven • Any loan amount forgiven is taxable
income• Payments count towards Public Service
Loan Forgiveness
Pay As You Earn
1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.
Repayment Plan
Loan Amount
Monthly Payment
Total Interest
PaidTotal Paid1
(Loan + Interest)
Pay As You Earn $30,000
$156 – first year
payment$345 –
maximum monthly payment
$24,145 $54,145
Standard $30,000 $345 $11,428 $41,428
Income-Contingent Repayment
• Direct borrowers – Perkins loan eligible, if included in a Direct
Consolidation loan– Excludes Parent PLUS loan or Consolidation
loan that repaid a Parent PLUS loan (except a Direct Consolidation Loan that repaid a Parent PLUS loan after 7/1/06)
Income-Contingent Repayment
• Payments are based on income and family size
Option for borrowers who need a reduced payment but may not be eligible for IBR or Pay As You Earn
Income-Contingent Repayment
• Borrowers must reapply each year• At the end of 25 years of repayment any
remaining balance may be forgiven • Any loan amount forgiven is taxable
income• Payments count towards Public Service
Loan Forgiveness
1Example assumes a gross monthly income of $3,000. 2 Example has a loan term of 170 months in repayment.
Repayment Plan
Loan Amount
Monthly Payment
Total Interest
PaidTotal Paid1
(Loan + Interest)
Income-Contingent $30,0002
$260 (Initial
Payments)$298(Final
Payments)
$17,431 $47,431
Standard $30,000 $345 $11,428 $41,428
Income-Contingent Repayment
Income-Sensitive Repayment
• FFELP loan borrowers• Monthly payments are based on income
and total loan amount• Repayment term is 10 years• Must reapply for this plan every year
Option for borrowers who need their monthly payments to fluctuate with their income
1Example assumes a gross monthly income of $3,000. 2 Example has a loan term of 170 months in repayment.
Repayment Plan
Loan Amount
Monthly Payment
Total Interest
PaidTotal Paid1
(Loan + Interest)
Income-Sensitive $30,0002
$120(Year 1)
$380(Years 2–10)
$12,462 $42,462
Standard $30,000 $345 $11,428 $41,428
Income-Sensitive Repayment
Counseling on Repayment
• Borrowers pay the lowest amount of interest under the standard 10 year repayment
• Borrowers can change their plan annually
However, they should choose another payment plan if they
have cash flow problems early on
Direct Consolidation Loan
Direct Consolidation Loans
• Combining federal loans into a single loan– Existing loans are paid in full and replaced
with a new loan• May give borrowers a lower monthly
payment
Option for borrowers with multiple servicers and who want to make one payment each month
Direct Consolidation Loan
• New interest rate, repayment schedule, and terms– Weighted average of underlying loans
rounded up to the next 1/8th percent• Borrower must complete a Direct
Consolidation Loan Application and Promissory Note– loanconsolidation.ed.gov
Direct Consolidation Loan
Borrower must be in grace period or repayment to consolidate – grace period may be lost
Consolidation process takes 30–60 days
Repayment begins approximately 60 days after consolidation process is completed
Borrowers have 180 days to add to a Direct Consolidation loan once it’s been made
Direct Consolidation Loan
• Repayment options are available for Consolidation loans
• Subsidized Stafford loans retain the interest subsidy during deferments
• Perkins loans lose interest subsidy and some cancellation options
• FFELP borrower’s benefits may be lost• Private loans may not be included in a
Direct Consolidation loan
Deferment
Deferment
Postponement of loan payments that a borrower is entitled to receive as long as he/she meets eligibility requirements
Borrower’s eligibility depends on meetingspecific criteria, the loan type, and the datethe borrower received his/her first loan
Deferment
In most cases, borrowers must request a deferment and provide documentation necessary to support eligibility—some deferments are automatic (e.g., in-school deferment)
Most deferments are borrower-specific –Time limits are enforced for each borrower
Deferment
The federal government pays the accruing interest on subsidized loans
Deferment Criteria
Types of Deferment Length of DefermentIn-school No time limit
Graduate Fellowship No time limitRehabilitation
Training Program No time limit
Unemployment Up to 36 monthsEconomic Hardship Up to 36 months
Military No time limit
Forbearance
Forbearance
• Temporary postponement, reduction, or repayment extension of loan payments
• Interest accrues on all loans during the forbearance
• Offered at the discretion of the lender (except mandatory forbearance)
Forbearance
• Typically granted for up to 12-month intervals, but the loan servicer sets the maximum amount of forbearance time allowed
• Borrower’s first payment is due no later than 60 days after the date the forbearance expires
Forbearance
• Four types of forbearance
Discretionaryforbearance
Mandatoryforbearance Administrativeforbearance
Mandatoryadministrative forbearance
Loan Forgiveness Programs
Loan Forgiveness
• Public Service Loan Forgiveness
Borrowers who hold a public service job may be eligible to have a portion of their Direct Loan debt forgiven after making 120 qualifying monthly payments beginning on or after October 1, 2007
Loan Forgiveness
• Teacher Loan Forgiveness
Borrowers who teach in an elementary or secondary school that is designated as low income may be eligible to have a portion of their Stafford loan debt forgiven
Preparing Students for Repayment
Preparing Your Students for Repayment
Help students know who their lenders/servicers are and how to get in touch with them• NSLDS
– nslds.ed.gov• Credit report
– annualcreditreport.com
Exit Counseling
• Required for subsidized and unsubsidized Stafford and Graduate PLUS borrowers
• May be conducted one of three ways−In person−By audiovisual presentation−By interactive electronic means
Supplemental counseling can help students better understand their borrowing obligations
What Students Should Do During Their Grace Period
• Sign up for online account access with their loan servicer
• Create a budget to determine affordability• Review all available repayment plans• Use calculators to help them find the plan
they can afford to pay and meet their goals
During the Grace Period
The lender must offer the borrower a choice of repayment schedules no more than six months before the first payment is due
The borrower must select a repayment schedule within 45 days of the lender’s notification
If the borrower does not select a schedule,the lender will establish the standard repayment schedule
Counseling Borrowers
Remind them that they:– Can change their plan– Can change their due date– Can postpone with a deferment/forbearance
if they have difficulty making a payment– Will pay more in interest with longer
repayment periods– Should contact their servicer if they have
difficulty making payments
Delinquency and Default
Delinquency
A loan is considered delinquent when one payment is missed
Delinquent loans are reported on a borrower’s and co-signer’s credit report
Technical Default
• Technical default occurs when a borrower does not make payments for 270 days on Stafford, PLUS, or Consolidation loans
Default
• For Direct loans—the loan is referred to the Debt Management Collection System (DMCS) and considered in default once the borrower is 360 days delinquent
• For FFELP loans—the lender files the claim up to 60 days after technical default; the loan is not considered in default until the claim is paid (up to 60 days later)
Default Impact to the Borrower
• Consequences of default include:– Damaged credit rating for at least seven years– Federal tax refund revoked– Collection fees assessed on defaulted loans– Wages garnished– Inability to receive additional financial aid
Default Impact to the School
• Schools receive privileges and sanctions based on the percentage of defaults – Two-Year Cohort Default Rate—percent of
borrowers who enter repayment in one federal fiscal year and default by the end of the next federal fiscal year
Default Impact to the School
• Schools receive privileges and sanctions based on the percentage of defaults – Three-Year Cohort Default Rate—percent of
borrowers who enter repayment in one federal fiscal year and default by the end of the next two federal fiscal years
– Schools will receive both two-year and three-year Cohort Default Rates until 2014
Conclusion
Conclusion
• Help your students prepare for repayment by:
• Utilize available resources from Great Lakes and the Department of Education
Reminding them of their options
Encouraging them to contact their servicer if they cannot pay or need assistance
Stressing that they can change their repayment plan if the one they are on becomes unaffordable
Resources from Great Lakes
• Online account access– Repayment calculators– Budget calculators
• Webcasts for borrowers– Selecting the Repayment Plan That Works for You– When You Can’t Pay: Explore Deferment and Forbearance
To promote these sessions at your school, visit mygreatlakes.org/smartsessions
mygreatlakes.org
Resources from the Department of Education
- fsapubs.orgFederal Student Aid Publications
- studentloans.govEntrance and Exit Counseling
Thanks for Attending