New Aid Officer Workshop 2013

LOAN BASICS

LOAN BASICS

Angelika WilliamsAssistant Director of Financial Aid and Scholarships

Texas State University- San Marcos

LOAN BASICS

Loan Requirements

LOAN REQUIREMENTS

• Entrance Counseling• Promissory Note• Exit Counseling

ENTRANCE COUNSELING

• First-time borrowers• www.studentloans.gov• Inform them of their rights and responsibilities in taking

out this loan• Contains information on managing educational expenses

and financial resources to consider that may help pay for the borrower’s education

• Must be completed prior to the first disbursement

PROMISSORY NOTE

• Document signed by borrower, which includes terms and conditions of the loan disbursements, use, and repayment• Master 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• www.nslds.ed.gov• Is required before a student graduates, withdraws, or

drop below half-time attendance (even if the student plans to transfer to another school)

• Helps student understand rights and responsibilities as a student loan borrower

• Provides useful tips and information to help student’s manage their loans

LOAN NOTIFICATION

• The institution is required to notify the borrower, within 14 or 30 days, that a loan disbursement has been made and that the borrower may reduce or cancel the disbursement

LOAN BASICS

Types of Loans

FEDERAL LOANS

• Federal Direct Subsidized Loan• Federal Direct Unsubsidized Loan• Perkins• PLUS• Grad PLUS

FEDERAL DIRECT SUBSIDIZED LOAN

• Need-based Loan• Interest rate: 3.4%*• Origination Fee: 1.051%**• Grace Period: 6 months• Department of Education pays interest• In-School• Deferment

• Interest begins to accrue at grace period***• 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: 1.051%*• 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 LIMITSDependent Undergraduate Student

Base Eligibility (Sub or Unsub)

Additional Unsubsidized Loan

Freshman $3,500 $2,000Sophomore $4,000 $2,000Junior/Senior $5,500 $2000Maximum Total (Aggregate) Limit:

$31,000 ($23,000 can be subsidized)Independent

Undergraduate Student

Base Eligibility (Sub or Unsub)

Additional Unsubsidized Loan

Freshman $3,500 $6,000Sophomore $4,000 $6,000Junior/Senior $5,500 $7,000Maximum Total (Aggregate) Limit:

$57,500 ($23,000 can be subsidized)

SUBSIDIZED LOAN LIMITATION

• Public Law 112-141 states an undergraduate student may receive subsidized loans for a limited number of years. • Applies to “new borrowers” on or after July 1, 2013• “New borrowers” – Borrowers with no balance on a FFEL or

Direct Loan on July 1, 2013• When a student has received subsidized loans for 150%

of the published length of the academic program-• Student may not receive additional subsidized loans for

enrollment in that program.

Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

SUBSIDIZED LOAN LIMITATIONProgram Length Limitation on Subsidized Loan

Eligibility4- Year Bachelor’s Degree 6 Years of subsidized loan

eligibility2- Year Associates Degree 3 Years of subsidized loan

eligibility1- Year Certificate Program 1 ½ Years of subsidized loan

eligibility10 Week Certificate Program 15 Weeks of subsidized loan

eligibility

SUBSIDIZED LOAN LIMITATION

• Transfer Students – • Student maximum time to receive subsidized loans is

established based on the length of the program the student is currently enrolled in

• Remaining subsidized eligibility is determined by subtracting from the maximum eligibility for the program, the time the student has already received subsidized loans while enrolled in any program

Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

SUBSIDIZED LOAN LIMITATION

• Examples – • Student receives two years of subsidized loans while

enrolled in a two-year program• Student transfers to a four-year BA program

• Student has four years of remaining subsidized loan eligibility

• Student receives three years of subsidized loans while enrolled in a four-year BA program• Student transfers to a two-year AA program

• Student has no remaining subsidized loan eligibility

Examples provided by Information for Financial Aid Professionals (IFAP) ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt

FEDERAL LOAN LIMITGraduate/Professional StudentUnsubsidized Loan $20,500/academic yearMaximum Total (Aggregate) Limit:

$138,500 ($65,500 may be subsidized)

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• Student must be enrolled at least half time• Student must be meeting SAP

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)• Must be the parent (biological, adoptive, or in some

cases, stepparent) of a dependent undergraduate student enrolled at least half-time and meeting SAP

• Non-need based loan• Can borrow up to COA

• Borrower must not have an adverse credit history • Interest Rate: 7.9%• Origination fee: 4.204%*• 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 (meeting SAP)• Non-need based loan• Borrower must not have an adverse credit history• Borrower must be a graduate or professional

degree student enrolled at least half-time• Interest Rate: 7.9%• Origination Fee: 4.204%*• 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 aggregate loan limits

LOAN BASICS

Loan Processes

DIRECT LOAN PRORATION

• Must prorate a Stafford Loan limit for an undergraduate program:• A student’s academic program is less than a year in

length• A student is remaining period of study is shorter than an

academic year

• Standard proration formula:• Amount of direct loan student could have for grade level

÷ 24 x enrolled hours

DIRECT LOAN PRORATION

• Example:• A dependent undergraduate student that is classified as

a senior for the Fall 2013 term with 6 hours remaining to graduate• $5500 ÷ 24 = 229.166667 x 6 hours = $1375 Subsidized

Loan• $2000 ÷ 24 = 83.33333 x 6 hours = $500 Unsubsidized Loan• If student has no need:

• $7500 ÷ 24 = 312.5 x 6 = $1875 Unsubsidized Loan

LOAN PROCESSES

• A school may not originate a Direct Loan for a loan period in which the student is not enrolled at least half-time • A school must determine an undergraduates

student’s Pell Grant eligibility before originating a subsidized or unsubsidized Stafford Loan • A school may not originate an unsubsidized

Stafford loan without first determining the student’s need for the subsidized Stafford loan

LOAN BASICS

Loan Repayment

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 up to10 years• Graduated – Monthly payments are lower at first

but then increase every 2 years up to 10 years. • Income-sensitive – Monthly payments are

based on your annual income and payments change as your income changes. • Extended – Payments may be fixed or graduated

for up to 25 years.

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 guideline for your family size. (25 year forgiveness)• Pay As You Earn – Monthly payments will not

exceed 10% of the amount by which your adjusted gross income exceeds 150% of the poverty guideline for your family size. (20 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• Deferment request should be submitted to loan

servicer • Some possible deferment situations:• Education• Peace Corps/ Military• Unemployment or Inability to find full-time employment

FORBEARANCE

• Temporary cessation, reduction, or extension of payments• Student is responsible for interest that accrues• Borrower is willing but temporarily unable to pay• Forbearance request should be submitted to loan

servicer (in most cases, borrower must provide documentation to support the request)

DEFAULT

• Failure to meet the terms of the promissory note• Failure to repay• Borrower is considered to be in default after being

delinquent for 270 days• Borrower is subject to 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?