10/5/20151 educational loans – repaying and consolidating

04/19/23 1www.collegenowgc.org

Educational Loans – Repaying and Consolidating

www.collegenowgc.org


Loans are . . . • Good?

- Loans might enable a student to go to college who otherwise could not afford to go. Loans build credit history

• Bad?- Loans, if allowed to go into default, can destroy a

person’s credit and keep that person from getting financial aid in the future. Repayment can keep the borrower from financial freedom.

• Like Fire!- They’re a tool! When used wisely, thay can benefit

the student. When used unwisely, they can hurt.


Types of Federal Student Loans

• Federal Perkins Loan

• Federal Subsidized Stafford/Direct Loan

• Federal Unsubsidized Stafford/Direct Loan

• Federal Parent PLUS Loan


Federal Perkins Loan

• Annual Loan Limit: $5,500

• Maximum Loan Limit: $27,500

• Interest not accruing while in school

• Annual Interest Rate: 5% (Fixed)

• Lender: College/Institution

• Repayment Grace Period: 9 months


Federal Subsidized Loan

• Annual Loan Limit: $3,500 to $8,500 (depending on year in school)

• Maximum Loan Limit: $23,000

• Interest not accruing while in school

• Annual Interest Rate: 3.4% - 6% (Fixed, depending on disbursement dates)

• Lender: U.S. Department of Education



Federal Unsubsidized Loan

• Annual Limit: $2,000 - $7,000

• Maximum Limit: $8,000 - $26,000

• Interest is accruing while in school

• Annual Interest Rate: 6.8% (Fixed)




Federal Parent PLUS Loan

• Annual Limit: Student’s Cost of Attendance

• Maximum Limit: None

• Interest is accruing while student is in school

• Annual Interest Rate: 7.9% (Fixed)


• Repayment Grace Period: None or 6 months


Know the details of your loan

• The amount of your total debt (principal and estimated interest - www.nslds.ed.gov)

• Your current interest rate

• The total interest charges on your debt

• The date you must start repayment

• Information about the maximum repayment periods and the minimum repayment amount


Know the details of your loan –cont.

• An explanation of default and its consequences

• A reminder of available options for loan consolidation

• A description of applicable deferment, forbearance, and discharge (cancellation) provisions

• Repayment options and advice about debt management that will help in making your payments


Repayment Options

• Standard

• Graduated

• Extended

• Income-Contingent Repayment (ICR)

• Income-Based Repayment (IBR)


Standard Repayment

• Eligible loans: Direct and FFEL Stafford

• Repayment time frame: Up to 10 years

• Monthly payments: Fixed, must be at least $50 per month

• If you do not choose a repayment plan when you first begin repayment, you will be placed in this one


Graduated Repayment

• Eligible loans: Direct and FFEL Stafford

• Repayment time frame: Up to 10 years

• Monthly payments start out relatively low at first and then increase, usually every two years

• Payments must at least cover the interest that accumulates on the loans between payments


Graduated Repayment -cont.

• This plan is tailored to individuals with relatively low current incomes who expect their incomes to increase in the future

• You’ll ultimately pay more for your loan than under the Standard Plan, because more interest accumulates in the early years of the plan when the outstanding loan balance is higher


Standard vs. Graduated

Initial debt when you enter repayment

Standard(not to exceed 10 years)

Graduated(not to exceed 10 years)

Per month Total repaid Per month Total repaid

$3,500 $50 $4,471 $25 $5,157

$5,000 $58 $6,905 $40 $7,278

$7,500 $83 $10,357 $59 $10,919

$10,500 $121 $14,500 $83 $15,293

$15,000 $173 $20,714 $119 $21,834

$40,000 $460 $55,239 $316 $58,229


Extended Repayment

• Eligible loans: $30,000 in Direct Stafford or $30,000 in Direct FFEL

• Repayment time frame: 25 years

• Monthly payment: fixed or graduated – payment is lower than it would be with the Standard Plan

• Only loans that total $30,000 or more can be considered


Standard vs. Graduated vs. ExtendedInitial debt when you enter repayment

Standard(not to exceed 10

years)

Graduated(not to exceed 10

years)

Extended

Per month

Total repaid

Per month

Total repaid

PerMonth

Total repaid

$3,500 $50 $4,471 $25 $5,157 Not available for this loan amount





$40,000 $460 $55,239 $316 $58,229 $277 $83,289


Income Contingent Repayment (ICR)• Eligible loans: Direct Stafford

• Repayment time frame: Have 25 years to repay; unpaid portion will be forgiven

• Monthly payment: Based on annual income, spouse’s if married, family size and the total amount of Direct Loans

• You may have to pay income tax on the amount that is forgiven


Standard vs. Graduated vs. ICR

Initial debt when you enter repayment

Standard(not to exceed

10 years

Graduated(not to exceed

10 years)

ICR(income = $25,000)

For Direct loans onlySingle

Per month

Total repaid

Per month

Total repaid

Per month

Total repaid

$3,500 $50 $4,471 $25 $5,157 $27 $6,092

$5,000 $58 $6,905 $40 $7,278 $38 $8,703

$7,500 $83 $10,357 $59 $10,919 $57 $13,055

$10,500 $121 $14,500 $83 $15,283 $80 $18,277

$15,000 $173 $20,714 $119 $21,834 $114 $26,110

$40,000 $460 $55,239 $316 $58,229 $253 $72,717


Income Based Repayment (IBR)• Eligible loans: Direct and FFEL Stafford• Repayment time: Have 25 years to repay under

this plan, unpaid portion will be forgiven (note: could be changed to 20 years if passed by Congress)

• Monthly payment: You must have partial financial hardship to enroll; monthly payments are capped at 15% of discretionary income (note: could be changed to 10% if passed by Congress)


IBR – cont.

• If you are married AND file separately, only your income will be considered when calculating your payment

• You may have to pay income tax on the amount that is forgiven.


IBR Plan Annual Income Family size = number of family members

1 2 3 4

$10,000 $0 $0 $0 $0

$15,000 $0 $0 $0 $0

$20,000 $47 $0 $0 $0

$25,000 $109 $39 $0 $0

$30,000 $172 $102 $32 $0

$35,000 $234 $164 $94 $24

$40,000 $297 $227 $157 $87

$45,000 $359 $289 $219 $149

$50,000 $422 $352 $282 $212

$55,000 $484 $414 $344 $274

$60,000 $547 $477 $407 $337


Deferment?

• A period in which repayment of the principal balance is temporarily postponed (no payments are required) if you meet certain requirements

• Subsidized loan – government is paying the interest on the loan

• Unsubsidized loan – interest is accruing


Deferment Conditions• At least half-time study at a postsecondary

school

• Study in an approved graduate fellowship program or in an approved rehabilitation training program for the disabled

• Unable to find full-time employment (up to 3 years)

• Economic hardship (up to 3 years)

• Borrower is on active duty in the military


Forbearance?• Allows you to postpone or reduce your monthly

payment amount for a limited and specific period if you are willing but unable to make your scheduled loan payments for reasons, including, but not limited to, financial hardship or illness and you do not meet the eligibility requirements for deferment.

• You are responsible for paying interest that accrues during forbearance on all loan types, including subsidized loans


Forbearance Conditions• While serving in a medical or dental internship or

residency program and meet certain other requirements

• If payments are being made for you by the Department of Defense

• While serving in an AmeriCorps position for which you are receiving and education award

• If the total amount you owe each month on all loans is 20% or more of your total monthly gross income


Loan Consolidation• Combine multiple federal student loans

into one complete loan

• Various repayment schedules can be used

• Single monthly payment

• Monthly payment might be lower

• Repayment period may be extended up to 30 years

• Carefully review your consolidation options before you apply


When to consolidate?

• During your grace period

• Once you’ve entered repayment

• During periods of deferment and forbearance


Interest Rate on Consolidated Loan• Interest rate is a fixed rate for the life of

the loan

• Fixed rate is based on the weighted average of the interest rates on all loans you consolidate

• Interest rate will never exceed 8.25%


Disadvantage in Consolidating?

• Consolidation may significantly increase the total cost of repaying due to longer period of time to repay

• Before consolidating, compare the cost of repaying your unconsolidated loans with the cost of repaying a consolidation loan


Also consider:• Whether you will lose any borrower

benefits if you consolidate, such as interest rate discounts or principal rebates – these benefits can significantly reduce the cost of repaying your loans

• If you include a Perkins loan in your consolidation, you will lose cancellation benefits that are only available in the Perkins Loan Program


Special Direct Consolidation Loans• U.S. Department of Education will offer this

opportunity for eligible borrowers beginning January 2012 through June 2012 – Department will contact you in January if you are eligible

• A short-term consolidation opportunity• Must have at least one student loan held by the

Department, owned by the Department and serviced by the Department AND

• One commercially-held FFEL loan, owned by FFEL lender and serviced either by lender or servicer contracted by lender


Special Direct Consolidation Loan – cont.• Helps borrowers manage their loans under

one entity – resulting in one bill and one payment

• Any loans in default, Perkins Loans, Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS), and Private loans are ineligible


Special Direct Consolidation Loan – cont.Benefits:

•Interest rate reduction, will receive a 0.25% of FFEL loans

•Repayment term will not change – will pay less interest over the life of the loan

•Eligibility for loan forgiveness under the Public Service Loan Forgiveness Program – FFEL are now Direct and can be considered for this program


Traditional Consolidation vs. Special Consolidation

Traditional Special

Repayment Repayment term starts over, longer repayment term, lower monthly payments, but will increase total repaid

Repayment term is retained, will pay less interest over life of loan

Interest Rate Fixed rate based on weighted average of interest of each loan consolidated

Fixed rate after applying 0.25% interest rate reduction to the FFEL loans being consolidated

Electronic Debit Benefit Eligible for a 0.25% interest rate reduction if paid through Department’s automatic debit system

Eligible for an additional 0.25% interest reduction if repaid through Department’s automatic debit system


Special Direct Consolidation Loans – cont.Repayment Options:

•Standard

•Graduated

•Extended

•ICR

•IBR


Loan Cancellation or Forgiveness• Go to www.studentaid.ed.gov/tc if you are

a teacher and have been teaching in a low-income elementary and secondary school or educational service agency

• Go to www.studentaid.ed.gov and click on Public Service Loan Forgiveness if you are employed in certain public service job and have made 120 payments on your Direct Loans

04/19/23 37www.collegenowgc.org www.collegenowgc.org

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10/5/20151 educational loans – repaying and consolidating

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