ED 430 472

TITLEINSTITUTIONPUB DATENOTEAVAILABLE FROM

PUB TYPEEDRS PRICEDESCRIPTORS

IDENTIFIERS

ABSTRACT

DOCUMENT RESUME

HE 032 063

Repayment Book. William D. Ford Federal Direct Loan Program.Department of Education, Washington, DC.1999-00-0036p.U.S. Dept. of Education, Tel: 800-848-0979 (Toll Free); Website: www.ed.gov/DirectLoanGuides Non-Classroom (055)MF01/PCO2 Plus Postage.Credit (Finance); Federal Programs; Higher Education;Interest (Finance); *Loan Repayment; Money Management;Student Financial Aid; *Student Loan Programs*Federal Direct Student Loan Program

This booklet is intended to help individuals who receivedWilliam D. Ford Federal Direct Loans as students manage the repaymentprocess. Following an introduction, explanations are offered for how theprincipal balance of the loan is determined and how interest rates areapplied. The following sections explain the four different repayment plans,factors to consider in choosing a plan, the process of switching plans, andmaking payments. Many examples illustrate each aspect of the loan repaymentprocess. A chart offers examples of debt levels, monthly payments, and totalamount repaid for all of the repayment plans. Additional sections discussconsolidation of multiple federal loans and the consolidation applicationprocess. Also included are answers to some frequently asked questions and aglossary. An appendix provides specific guidance on calculating direct loanmonthly payments, charts for each repayment plan, and worksheets. (DB)

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Reproductions supplied by EDRS are the best that can be madefrom the original document.

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U.S. DEPARTMENT OF EDUCATIONOffice of Educational Research and Improvement

EDUCATIONAL RESOURCES INFORMATIONCENTER (ERIC)

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Points of view or opinions stated in thisdocument do not necessarily representofficial OERI position or policy.

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For More Information .

The U.S. Department of Education's Direct Loan ServicingCenter's address and telephone numbers appear on allcorrespondence the Center sends you.You should alwaysuse the address and telephone numbers provided to contactthe Center if you have questions about your Direct Loans. If N

you misplace the contact information, you may call thistoll-free number for assistance:

1-800-848-0979

The TDD number (for the hearing-impaired ONLY) is

1-800-848-0983

Updated information about Direct Loans is also available onthe Direct Loan Internet Web site at

www.ed.gov/DirectLoan

Contents

IntroductionRepaying Your Loans

'Understanding How the Principal Balance of Your Loanis Determined

'Understanding How Interest Rates are AppliedUnderstanding the Repayment Plans

1

2

2

2

2

Choosing a Plan 1 2

Switching Plans 1 2

Making Payments 1 3

Getting Help 1 3

Consolidate With Direct Loans 1 3

Frequently Asked Questions 1 6

Glossary 1 8

Appendix: Calculating Your Direct Loan Monthly Payment .. . A-IConstant Multiplier and Other Charts A-2

Chart A: Standard Repayment Plan A-2Chart B: Extended Repayment Plan A-3Chart C: Graduated Repayment Plan A-3Chart D: Income Contingent Repayment Plan A-3Chart E: Income Percentage Factors A-4Chart F: Poverty Guidelines A-5

Income Percentage Factor Worksheet A-7Direct Subsidized and Unsubsidized Worksheet Part I . ...A-9Direct Subsidized and Unsubsidized Worksheet Part 2 .. . A-I IDirect PLUS Loan Worksheet A- 1 3

4

ntroduction

Repayment Booklet

is

Your William D. Ford Federal Direct Loans (Direct Loans) were made to yousby the U.S. Department of Education through your school.These loans havebeen, and will continue to be, managed by the Direct Loan Servicing Center.The Servicing Center will answer any questions you have about your loansand about repaying them. s

This booklet will help you understand available repayment plans and help you

The figures used in the examples, charts, and worksheets in this booklet are sestimates based on current program guidelines. Some dollar amounts havebeen rounded to the nearest whole dollar. For exact payment amounts onyour loans, call the Servicing Center.

choose the one that is best for you.

s

s

5I

RepayingYour LoansWhen you received your DirectLoans, you promised to repay them.The Department wants to make iteasy for you to keep that promise.

The Direct Loan Program offersrepayment plans that are designed tomeet the needs of almost everyborrower, and the program allowsyou to switch plans if your needschange.The Direct Loan ServicingCenter staff will help you manageyour loans until they are paid in full.

Understanding Howthe Principal Balance ofYour Loan is DeterminedIf you borrowed Direct UnsubsidizedLoans, interest started accruing fromthe time the funds were disbursed toyou.You had a choice of either payingthe interest while you were in schoolor letting it accumulate. If you choseto postpone paying the interest untilyou left school, when you enterrepayment any unpaid interest thataccumulated while you were inschool will be capitalized (that is,added to the principal of your loan).Capitalization increases the principalbalance you owe when your re-payment period begins, and thus,increases the total amount on whichinterest is charged.

Understanding HowInterest Rates are AppliedThe interest rate on all Direct Loansis variable and is adjusted each July I.By law, it can never go above 8.25percent for students' DirectSubsidized and Unsubsidized Loansor above 9 percent for parents'Direct PLUS Loans. Interest rates forstudents' Direct Subsidized andUnsubsidized loans may differ fromborrower to borrower, depending onwhen the loan was disbursed andwhether the loan is in an in-school,grace, or deferment period. Contactthe Servicing Center for moreinformation on your interest rates.

Understanding theRepayment PlansWhen repaying Federal DirectSubsidized Loans and DirectUnsubsidized Loans, studentborrowers may choose from fourrepayment plans:

Standard Repayment PlanExtended Repayment PlanGraduated Repayment PlanIncome Contingent Repayment(ICR) Plan

6

Parent borrowers may repay their DirectPLUS Loans through the Standard, Extended,and Graduated Repayment Plans.The IncomeContingent Repayment Plan is not available toDirect PLUS Loan borrowers.

The repayment plan you choose will cover allof your Direct Loans. An exception is madefor parent borrowers who are repayingDirect PLUS Loans received for their childrenand student loans they received forthemselves. In this circumstance, a borrowermay use two repayment plansone for all oftheir parent loans and one for all of theirstudent loans.

Shortly before your loan repayment periodbegins, the Servicing Center will send youinformation about the various repaymentplans (including the amount you would payunder each plan) and ask you to select one. Ifyou do not select a plan, your loans willautomatically be placed in the StandardRepayment Plan.

Generally, your monthly payment will beadjusted each year to account for changes in theannual interest rate.Your selection of arepayment plan does not affect your interest rate.

Repayment Booklet

Note that the length of your repaymentperiod does not include periods of defermentor forbearance (postponements ofrepayments). (See the Glossary on page 18for definitions of these terms.)

Standard Repayment PlanWith the Standard Plan, you'll pay a fixedamount each month until your loans arepaid in full.Your monthly payments will be atleast $50, and you'll have up to 10 years torepay your loans.

The Standard Plan is good for you if you canhandle higher monthly payments becauseyou'll repay your loans more quickly.Yourmonthly payment under the Standard Planmay be higher than it would be under theother plans because your loans will berepaid in the shortest time. For the samereasonthe10-year limit on repaymentyou may pay the least interest.

Example A: Let's say you owe $15,000 inDirect Subsidized Loans when yourrepayment period begins, and your loans willbe repaid at an 8.25 percent interest rate.Under the Standard Plan, you'll pay about$184 a month for 10 years, and you'll repay atotal of about $22,078 ($15,000 in principaland $7,078 in interest).

EXAMPLE AThis example shows Direct Subsidized Loans repaid at8.25 percent interest under the Standard RepaymentPlan for 10 years (120 payments).

LoanAmount

BeginningMonthlyPayment

TotalAmountRepaid

$15,000 $184 $22,078*

115,000 in principal and $7,078 in interest

7 3

Direct Loans

Example B:You borrowed $15,000in Direct Unsubsidized Loans toattend school ($2,000 your first year,$3,000 your second year, and $5,000in each of your third and fourthyears), and you chose to repay yourloans under the Standard RepaymentPlan. Because you chose not to paythe interest on your loans as itaccumulated, the interest wascapitalized when your repaymentperiod began. At an interest rate of8.25 percent, the amount ofcapitalized interest added to youroriginal balance was $2,641, makingthe total principal balance of yourloans $17,641.Your monthlypayments will be calculated using thisamount. At 8.25 percent interest,your monthly payments will be about$216 a month under the StandardPlan.You will repay a total of about$25,964 ($17,641 in original principaland capitalized interest and $8,323 inadditional interest).

Extended Repayment PlanUnder the Extended Plan, you'll stillhave minimum monthly paymentsof at least $50, but you can takefrom 12 to 30 years to repay yourloans.The length of your repaymentperiod will depend on the totalamount you owe when your loansgo into repayment. (See the tableon page 6.)

This is a good plan if you will needto make smaller monthly payments.Because the repayment periodgenerally will be at least 12 years,your monthly payments will be lessthan with the Standard Plan.However, you may pay more ininterest because you're taking longerto repay the loans. Rememberthat the longer your loans are inrepayment, the more interestyou will pay.

EXAMPLE BThis example shows Direct Unsubsidized Loans (with capitalized interest)repaid at 8.25 percent under the Standard Repayment Plan.

:I - .

'$15,000 $2,641 $17,641 $216 120 $25,964**

*Interest was capitalized once, when the borrower entered repayment4$17,641 in principal and capitalized interest and $8,323 in

additional interest

8

Repayment Booklet

EXAMPLE CThis example shows Direct Subsidized Loans at 8.25 percent interestunder the Extended Repayment Plan for 15 years (180 payments).

LoanAmount

BeginningMonthlyPayment

TotalAmountRepaid

$15,000 $146 $26,196*

*$15,000 in principal and $11,193 in interest

Example C: With $15,000 in DirectSubsidized Loans, an 8.25 percent interestrate, and a repayment period of 15 years,you'll pay about $146 a month. By the end ofthel5 years, you will have paid a total ofabout $26,196 ($15,000 in principal and$11,193 in interest).

Graduated Repayment PlanWith this plan, your payments start out low,then increase, generally every two years.Thelength of your repayment period will dependon the total amount you owe when yourloans go into repayment. (See the table onnext page.) If you expect your income toincrease steadily over time, this plan may beright for you.Your initial monthly paymentswill be equal to either the interest thataccumulates on your loans or half of the

payment you would make each month usingthe Standard Plan, whichever is greater.However, your monthly payments will neverincrease to more than 1.5 times what youwould pay with the Standard Plan.

Example D: Let's say that you owe $15,000 inDirect Subsidized Loans when your loans enterrepayment and that the interest rate on yourloans is 8.25 percent. Under the GraduatedPlan, your repayment period may be as long as15 years, and you will start out paying about$103 each month on your loans. By the timeyou reach the last year of your repaymentperiod, your monthly payments will haveincreased to about $244. In this example, youwill repay a total of about $28,762 ($15,000 inprincipal and $13,762 in interest).

EXAMPLE DThis example shows Direct Unsubsidized Loans repaid at 8.25percent interest under the Graduated Repayment Plan for 15years (180 payments).

LoanAmount

BeginningMonthlyPayment

EndingMonthlyPayment

TotalAmountRepaid

$15,000 $103 $244 $28,762*

*$15,000 in principal and $13,762 in interest

9

Graduated/ExtendedRepayment Table

Amount of DebtLength of

Repayment PeriodMay Not Exceed

Less than $10,000$10,000 - $19,999$20,000 - $39,999$40,000 - $59,999$60,000 or more

I 2 Years15 Years20 Years25 Years30 Years

Income Contingent Repayment(ICR) PlanThis plan gives you the flexibility tomeet your Direct Loan obligationswithout causing undue financialhardship. Each year, your monthlypayments will be calculated on thebasis of your Adjusted Gross Income(AGI), family size, and the totalamount of your Direct Loans.Toparticipate in the 1CR Plan, you mustsign a form that permits the InternalRevenue Service to provideinformation about your income tothe U.S. Department of Education.This information will be used torecalculate your monthly payment,adjusted annually based on theupdated information.

If your payments are not large enoughto cover the interest that hasaccumulated on your loans, the unpaidinterest will be capitalized once eachyear. However, capitalization will notexceed 10 percent of the originalamount you owed when you enteredrepayment. Interest will continue toaccumulate but will no longer becapitalized.

The maximum repayment period is 25years. If you make payments under theStandard Plan or the I 2-year ExtendedPlan and then switch to the ICR Plan,those periods are counted towardyour 25-year repayment period.Timespent in other plans or in defermentor forbearance does not count towardthe maximum 25 years. If you haven'tfully repaid your loans after 25 yearsunder this plan, the unpaid portion willbe discharged.You will, however, haveto pay taxes on the amount that isdischarged.

The ICR FormulaYou will pay an amount based on theAdjusted Gross Income (AGI) youreport on your federal income taxreturn, or, if you submit alternativedocumentation of income (see page9), you will pay an amount based onyour current income. If you aremarried, the amount you pay will bebased on your income and yourspouse's income.

1 0

One of the ICR Plan's protective measuresis a cap on your monthly payments at 20percent of your discretionary income.Under the ICR Plan, you will pay thelesser of:

the amount you would pay if yourepaid your loans in 12 years,multiplied by an income percentagefactor that varies with your annualincome; or20 percent of your discretionaryincome, which is your AG1 minus thepoverty level (as defined by HHSpoverty guidelines) for your familysize, divided by 12.

Calculating your monthly payment underthe ICR Plan involves the following seriesof steps:

Step 1:Determine monthly payments based onwhat you would pay over 12 years usingequal monthly installments.To do this,multiply the principal balance by theconstant multiplier for the interest rateon your loan. (See pages A-2 and A-3.) Ifthe exact interest rate is not listed,choose the next highest rate forestimation purposes.

Repayment Booklet

Step 2:Multiply the result by the income percentagefactor that corresponds to your income. Ifyou are married, choose the factor thatcorresponds to your and your spouse'scombined income. (See page A-4 for a chartof income percentage factors.) If your incomeis not listed, choose the income percentagefactor that corresponds to the next highestincome for estimation purposes, orinterpolate to determine the correct incomepercentage factor. (See page A-6 to followthe steps necessary to interpolate.)

Step 3:Next, calculate your discretionary incomeby subtracting the poverty level for yourfamily size from your adjusted grossincome. (See page A-5 for HHS PovertyGuidelines Chart).

Then use the following equation to figureyour monthly payment as a portion ofyour discretionary income:

Monthly discretionary incomepayment = (Discretionary income x.20) + I 2

Step 4:Compare the results of steps 2 and 3.Yourpayment will be the lesser of these results.

117

Example E: You are a singleborrower with a family size of one,and your prior year AG1 was$15,000.You owe $15,000 in DirectSubsidized Loans when yourrepayment period begins, and theinterest rate on your loans is 8.25percent.Your beginning paymentwould be about $104 a month.Thisamount is less than 20 percent of

your monthly discretionary income(which would be $1(6). In thisexample, you would repay your loansin about 25 years, and you wouldrepay a total of $35,096 ($8,991 inprincipal and $26,105 in interest).Note that in this example, you wouldnot repay the total principal amountAfter 25 years, the remaining balanceon the loan would be discharged.

EXAMPLE EThis example shows Direct Unsubsidized Loans (with capitalized interest)repaid at 8.25 percent under the Income Contingent Repayment(ICR) Plan.

LoanAmount

AdjustedGross Income

Beginning Number of Years TotalMonthly Payment in Repayment Repayment

$15,000 $15,000 $104* 25 $35,096**

*Calculated as follows:

Step 1: Multiply the principal balance by the constant multiplier for 8.25%interest (.0109621). (For constant multipliers, see the chart on page A-2).0.0109621 x 15,000 = 164.4315

Step 2: Multiply the result by the income percentage factor that corresponds tothe borrower's income. (For income percentage factors, see the chart onpage A-4). 63.85% (0.8887) x 164.43 15 = $104

Step 3: Determine 20 percent of discretionary income. (See page A-5 forpoverty guidelines chart.) icK[$15,000 - $8,050] x 0.20 + 12 = $116

Step 4: Payment is the amount determined in step 2 because it is less than 20percent of discretionary income.

**$8,991 in principal and $26,105 in interest***poverty guideline for a family size of one

12

Example F: You are a borrower with afamily size of one, and your prior yearAGI was $30,000. You owe $15,000 inDirect Subsidized Loans when yourrepayment period begins, and theinterest rate on your loans is 8.25percent.Your beginning monthlypayment would be $146.This amount isless than 20 percent of your monthlydiscretionary income (which would be$366). In this example, you would repayyour loans in about 14 years and wouldrepay a total of about $25,034 ($15,000in principal and $10,034 in interest).

Repayment Booklet

Alternative Documentationof IncomeIf you are in your first year ofrepayment, you will be required tosubmit alternative documentation ofyour current income (that is, otherthan IRS-reported AG1) to theDepartment.You will probably berequired to submit alternativedocumentation in your second year ofrepayment also. Such documentationincludes pay stubs and canceled checksor, if these are unavailable, a signedstatement explaining your income

EXAMPLE FThis example shows a borrower with a family size of one and a $30,000AGI repaying $15,000 in Direct Subsidized Loans at 8.25 percent interestunder the ICR Plan.

$15,000

- a :-

0 . 0

. - ..

$30,000 $146* 14 $25,034**

*Calculated as follows:Step 1: Multiply the principal balance by the constant multiplier for 8.25%

interest (.0109621). (For constant multipliers, see the chart on page A-3).0.0109621 x 15,000 = 164.4315

Step 2: Multiply the result by the income percentage factor that corresponds tothe borrower's income. (For income percentage factors, see the chart onpage A-4).88.77% (0.9089) x 164.4315 = $146

Step 3: Determine 20 percent of discretionary income. (See page A-5 forpoverty guidelines chartr*[$30,000 - $8,050] x 0.20 12 = $366

Step 4: Payment is the amount determined in step 2 because it is less than 20percent of discretionary income.

**$15,000 in principal and $10,034 in interest***Poverty guideline for a family size of one

1 j 9

sources.The Department requiresthis alternative documentation fromborrowers in their first year (andsometimes second year) ofrepayment because the most recenttax returns of such borrowersusually cover time they were inschool (and probably not working fulltime).Thus, the AGIs the Departmentreceives from the IRS for theseborrowers would not accuratelyreflect their incomes at the time theyenter repayment.

If you are not in your first or secondyear of repayment, you may still berequired to submit alternativedocumentation of income if your AGIis not available or if your AGI doesnot reasonably reflect your currentincome. In addition, you may chooseto submit alternative documentationof current income if special circum-stances, such as loss of employmentfor you or your spouse, warrant anadjustment to your monthly payment.

Please note that if you are marriedand submit alternative documentationof income for any of the reasonsdiscussed above, you will also berequired to submit alternativedocumentation for your spouse.

Minimum $5 PaymentIf your income is less than or equalto the poverty level for your familysize, your monthly payment will bezero. If your calculated monthlypayment is greater than zero but lessthan $5, you will be required to

make a $5 monthly payment. If yourmonthly payment is calculated to bemore than $5, you will be requiredto pay that calculated amount.

Information for MarriedBorrowersYou and your spouse's total AGI willbe used to calculate your monthlypayments under the ICR plan. Eachof you will be required to providewritten consent to disclose your taxreturn information. If you submitalternative documentation of income,your spouse must also submitalternative documentation. If yourspouse does not submit thenecessary information, you will notbe eligible for the ICR plan.

If both you and your spouse haveDirect Loans, you can repay yourloans jointly.Your payments will bebased on your joint debt and jointincome.While you are not requiredto repay your loans jointly, it isimportant to remember that if onlyone of you chooses to repay yourloans under the ICR plan, theDepartment will use your and yourspouse's total AGI (or alternativedocumentation of income) todetermine the monthly paymentsunder the ICR plan. It is alsoimportant to note that repaying yourloans jointly does not make you oryour spouse financially responsiblefor each other's loans.

14

Example G: You and your spouse want torepay your Direct Subsidized Loans underthe ICR Plan.Your family size is two, andyour joint prior year AGI was $25,000.Youowe $10,000 in Direct Loans, and yourspouse owes $5,000, for a total of $15,000in loans. Based on your joint income andyour outstanding balances, your beginningmonthly payment would be $129.Thisamount is less than 20 percent of yourmonthly discretionary income (whichwould be $236). In this example, you andyour spouse would repay your loans inabout 16 years and would repay a total of

Repayment Booklet

about $27,974 ($15,000 in principal and$12,974 in interest)

The ICR Plan Prior toJuly 1, 1996The current 1CR payment formula becameeffective July 1, 1996. Borrowers whowere in repayment under the ICR Planprior to July 1, 1996, and have remained inrepayment under the ICR Plan willcontinue to make payments in accordancewith the provisions of the old formula.They have, however, the option ofswitching to the current plan.

EXAMPLE GThis example shows a married couple with a family size of two and a$25,000 AGI.They are jointly repaying $15,000 in Direct SubsidizedLoans ($10,000 for one spouse and $5,000 for the other) at 8.25percent interest under the ICR Plan.

LoanAmount Gross Income Monthly Payment in Repayment Repayment

Adjusted Beginning Number of Years Total

$15,000 $25,000 $129* 16 $27,974**

*Calculated as follows:Step I:Add the Direct Loan balances of the husband and wife together to

determine the aggregate loan balance.$5,000 + $10,000 = $15,000

Step 2: Multiply the principal balance by the constant multiplier for 8.25%interest. (.0109621) (For constant multipliers, see the chart on page A-3).0.0109621 x 15,000 = 164.4315

Step 3: Multiply the result by the income percentage factor that corresponds tothe joint income. (For income percentage factors, see the chart on pageA-3.) 78.63% (0.7991) x 164.4315 = $129

Step 4: Determine 20 percent of discretionary income.** (See page A-5 forpoverty guidelines chart.)[$25,000 - $10,850] x 0.20 + 12 = $236

Step 5: Payment is the amount determined in step 3 because it is less than 20percent of discretionary income.

**$15,000 in principal and $12,974 in interest***Poverty guideline for a family size of two

15

Choosing a PlanYou might be wondering whichrepayment plan is best for you andyour circumstances.The table onpage 15 is a simple way to comparemonthly payments under the fourplans.The worksheets and charts inthe appendix enable you to estimateyour monthly payments under eachof the repayment plans.

Remember that you don't necessarilywant to choose a plan just because itoffers the lowest monthly payments.While doing so may seem tempting,this may not be the best course ofaction for every borrower. You mayneed more information about whatyou can afford before you select a plan.

Preparing a monthly budget can helpyou see what you can afford. Abudget will show you what's comingin (income) and what's going out(expenses), as well as where it's going.It could show you that you can affordlarger monthly loan payments thanyou thought, or it could show youthat you need to cut back onnonessential spending so you canmeet your loan obligations. For moreinformation on budgeting, request acopy of Budgeting Pays Off After Schoolfrom the Direct Loan Servicing Center.

The staff at the Direct Loan ServicingCenter can also help you choose arepayment plan. Once you'veconsidered your options, call theServicing Center at 1-800-848-0979

if you need advice.The ServicingCenter staff can arrange analternative repayment plan for you ifyou document that you have specialcircumstances and that none of theother plans meets your needs.

Switching PlansIf you ever decide that the plan youselected no longer meets yourneeds, you can switch to anotherrepayment plan.The maximumrepayment period for your new planmust be longer than the amount oftime your loans have already been inrepayment. For example, you couldswitch from the Extended Plan tothe Standard Plan only if you hadbeen in the Extended Plan less than10 years (the maximum StandardPlan repayment period). Periods ofauthorized deferment andforbearance are not included incalculating the amount of time youhave been in repayment.

If you are switching to the 1CR Plan,any period of repayment in theGraduated Plan, in an alternative plan,or in an Extended Plan in whichpayments are based on a repaymentperiod of greater than 12 years doesnot count as part of your 1CR 25-yearmaximum term. Any period ofrepayment in the Standard Plan or inan Extended Plan in which paymentsare based on a repayment period of12 years or less does count as partof your ICR 25-year maximum term.Any periods of authorized deferment

16

or forbearance do not count as partof the 25 years, regardless of whichrepayment plan you were usingduring those periods.

Call or write the Servicing Center ifyou decide you want to switch plans.

Making PaymentsFor student loans, you begin yourrepayment period six months afteryou graduate, leave school, or dropbelow half-time enrollment.The six-month delay is called a grace period.

For Direct PLUS Loans, your firstpayment will be due no later than 60days after the date the loan is fullydisbursed.Thus, repayment may beginwhile your child is still in school.

You will receive a billing statementeach month for the first year ofrepayment. All your Direct Loanswill be included on one statement,and one payment each month willcover all your loans.

You must keep the Servicing Centerinformed of any changes to yourname and/or address so that yourbilling statements and coupon bookwill reach you. Remember that youare responsible for making yourpayments on time, regardless ofwhether you receive billingstatements or a coupon book.Theaddress to which you will be sendingyour payments is given on thecorrespondence you receive fromthe Servicing Center, along with theServicing Center's toll-free telephonenumber and correspondence address.

Repayment Booklet

Getting HelpRepaying your Direct Loans on timewill help you establish or maintain agood credit rating. Of course, theremay be times when you have troublemaking paymentsfor example, ifyou are unemployed, if you becomeinjured and can't work, or if youreturn to school. For these andother reasons, you can postponemaking payments.

If you think you qualify for apostponement such as a defermentor forbearance, contact the ServicingCenter. (See the Glossary on page 20for definitions of "deferment" and"forbearance?) For moreinformation on postponingrepayment, request a copy of BillTrouble? Don't Default...Defer! fromthe Servicing Center.

Consolidate WithDirect LoansA Federal Direct Consolidation Loancan also simplify repayment for someborrowersparticularly those whohave both Direct Loans and otherfederal student loans. Regardless ofhow many federal student loans youare repaying, you may benefit fromconsolidating your loans into a singleaccount because:

You can qualify even if you're stillin school.The interest rate on a DirectConsolidation Loan for which anapplication is received betweenFebruary 1, 1999 and June 30,2003 is based on the weightedaverage of the interest rates onthe loans being consolidated,

1713

rounded to the next highestone-eighth of one percent.Thisrate shall not exceed 8.25percent. It is a fixed interest ratethat remains the samethroughout the life of the DirectConsolidation Loan.

You may pay based on yourincome.You'll have more repaymentchoices than ever before.

You can change your repaymentplan at any time.You get everything on onemonthly statement.

You can qualify even if you are indefault.There is never a penalty forearly payoff of your loan.There is no minimum ormaximum amount you mustconsolidate.

By consolidating your educationloans, you will have only onepayment, one place to send yourmonthly payment and only onephone call to report a change ofaddress or phone number, request adeferment or forbearance, or ask aquestion about your loan(s).

You Can Consolidate WhileYou Are In SchoolIf you are attending school at leasthalf time, have a Direct Loan or areattending a Direct Loan school andhave at least one Direct Loan or aFederal Family Education Loan (FFEL)in an "in-school" period, you areeligible for in-school consolidation,and it can make yourlife easier.

You Can Consolidate If youAre In DefaultIf you are in default, you may stillconsolidate your loans; however, yourcredit report will show a paid-in-fulldefault entry. Consolidation will limitfurther collection costs and willallow you to pay off your defaultedloan with the lowest possiblepayment. If you are in default andwould like more information, call I-800-621-3115.

For AdditionalInformation About DirectConsolidation LoansIf you are interested in a DirectConsolidation Loan you should callthe Direct Loan Origination Center'sConsolidation Department at:

1-800-557-7392

You can also find up-to-dateinformation on the Direct Loan website. The URL is:

www.ed.gov/DirectLoan

How to Apply for a DirectConsolidation LoanYou may apply for a DirectConsolidation Loan electronically viathe Direct Loan web site at:

http://www.ed.govIDirectLoankonsolidihtxrd

You may also download the DirectConsolidation Loan Application inpdf format from the web. To requesta paper application packet, contactthe Consolidation Department via e-mail at

loan_consolidation@maiLeds.com

18

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20

Frequently Asked Questions

I. Is there a penalty for repaying my loans early?

No.You may prepay all or part of the unpaid balance on any Direct Loan atany time without penalty. Be careful to specify which loan you areprepaying. The Servicing Center will apply the prepayment first to anycharges or collection costs, then to interest, and last to principal.

2. What happens if I don't pay back my loans?Your loans will become delinquent and will eventually go into default.Yourloans are reported to major credit bureaus when you are 90 days late makingpayments. Default occurs when you are 180 days late making a payment.Theconsequences of default are serious and can include a damaged credit rating,loss of eligibility for further federal student aid, withholding of wages and taxrefunds, and legal actions (such as lawsuits) being taken against you.

3. What happens if, as a parent, I'm already repaying a Direct PLUSLoan, then I take out another one for the same or another child? Howdoes this affect my monthly payments?The Servicing Center will send you one monthly bill for both loans. Depending on therepayment plan you have selected and the amount of your loans, your monthlypayment is likely to increase.

4. When will my payments be due?Payments will be due each month.The Servicing Center will inform you ofyour payment due date.You will receive a bill approximately two weeks priorto your payment due date. However, you must still make your monthlypayment whether or not you receive your bill. If you would like to change theday of the month your payment is due, contact the Servicing Center.

S.Will my payment history be reported to credit bureaus?Yes.Your account balance and status will be reported to credit bureaus on aregular basis. Just as failing to repay your loan can damage your credit rating,repaying your loan responsibly can help you establish a good credit rating.

6. What happens if my Direct Subsidized and Direct Unsubsidized Loansare in repayment and I decide to go back to school?You may be eligible to postpone your loan payments with an in-schooldeferment if you are attending an eligible school at least half time. If you areattending less than half time and think you might have difficulty repaying yourloans, contact the Servicing Center.You may be able to obtain a forbearanceto postpone your payments.

21

Repayment Booklet

7.What should I do if I can't make my loan payments?You should immediately contact the Servicing Center. A representative will assistyou in choosing a new repayment plan, applying for a deferment or forbearance,or making other necessary adjustments to help ensure that your loan paymentsare affordable.

8. Can my loans ever be discharged?Yes. A discharge releases you from all obligation to repay your loans.You canreceive a discharge with proof of the following:

IllYou become totally and permanently disabled. (This cannot be for acondition that existed at the time you applied for the Direct Loans,unless a doctor certifies that the condition substantially deterioratedafter the loans were made.)You are unable to complete a course of study because yourschool closed.The school falsely certified your eligibility.Your obligation to repay a loan is discharged in bankruptcy(in rare cases).

II1Your Direct Loans may be discharged upon your death.

You may not avoid repaying your loans because you did not complete yourprogram of study (for reasons other than school closure or false certificationof loan eligibility), did not like your school or program of study, or did notobtain employment after completing your studies.

9. Can I consolidate my Federal Family Education Loan (FFEL) Programloans with my Direct Loans under the same repayment plan?Yes. If you have other federal student loans, such as FFELs, in addition to yourDirect Loans, you might want to consider a Federal Direct ConsolidationLoan to simplify repayment. Consolidation allows you to make only onemonthly payment to cover all your loans (including FFELs). You'll also get thebenefits of Direct Loan consolidation, such as greater repayment flexibility.Toapply for a Federal Direct Consolidation Loan, contact the ConsolidationDepartment of the Direct Loan Origination Center.The toll-free telephonenumber is 1-800-557-7392.

17

Direct Loans

1

18

Glossarycapitalization Adding accumulated interest to the loan

principal rather than having the borrower makeinterest payments. Capitalizing interest increasesthe principal amount of the loan and the totalcost of the loan.

consolidation Consolidation is similar to refinancing, but thereis no loan fee. It simplifies loan repayment bycombining several types of federal educationloans into one new loan. (In the case of DirectLoan consolidation, the interest rate may belower than one or more of the underlying loans.)

deferment A temporary postponement of loan payments.

discharge The release of a borrower from the obligationto repay his or her loan.

forbearance A postponement of payments or a reduction inmonthly payment amounts for a limited andspecified period of time during which aborrower is willing but unable to make loanpayments. A forbearance may also be anextension of the repayment period. Allborrowers are charged interest duringforbearance.

grace period

interest

A six-month period before the first paymentmust be made on a Direct Subsidized orUnsubsidized Loan.The grace period begins theday after the borrower ceases to be enrolled atleast half time.

An expense of borrowing money that iscalculated as a percentage of the amountborrowed.

postponement See "deferment" and "forbearance:'

principal balance The amount owed on a loan or loans at anygiven time.The principal balance may includecapitalized interest.

repayment period The period during which a borrower isobligated to make payments on his orher loan(s). 23

Notes:

Repayment Booklet

1 9

r"Calculating YourDirect LoanMonthly Payment

Repayment Booklet

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CHART E:INCOME PERCENTAGE FACTORS(BASED ON ANNUAL INCOME)

Single Married/Head of Household

Income % Factor Income % Factor

7,669 55.00% 7,669 50.52%

8,050 55.37% 10,850 54.94%

10,552 57.79% 12,101 56.68%

13,578 60.57% 14,422 59.56%

15,000 63.17% 15,000 60.63%

16,673 66.23% 18,853 67.79%

19,629 71.89% 20,000 69.68%

20,000 72.73% 23,356 75.22%

23,356 80.33% 29,337 87.61%

25,000 82.65% 30,000 88.71%

29,337 88.77% 36,793 100.00%

30,000 89.77% 40,000 100.00%

36,793 100.00% 44,251 100.00%

40,000 100.00% 50,000 104.83%

44,251 100.00% 55,438 109.40%

50,000 107.59% 60,000 113.22%

53,185 111.80% 70,000 121.59%

60,000 117.15% 74,080 125.00%

68,101 123.50% 80,000 128.54%

70,000 124.69% 90,000 134.52%

80,000 130.93% 100,180 140.60%

90,000 137.17% 120,000 145.27%

96,452 141.20% 140,106 150.00%

100,000 143.41% 150,000 155.57%

110,592 150.00% 200,000 183.71%

150,000 172.81% 228,943 200.00%

196,984 200.00%

A-4 30

Repayment Booklet

CHART F: POVERTY GUIDELINES

To use this chart, you must first determine your family size, which is thenumber of the people whom you support. Include your children if they getmore than half their support from you. Include other people only if theymeet all of the following criteria:

They live with you.They now get more than half their support from you.They will continue to get this support from you.

Support includes money, gifts, loans, housing, food, clothes, car, medical anddental care, payment of college costs, and so on.

Next, find the column that represents your place of residence. Read downto your family size.This is the poverty guideline for you.

Family size All States and theDistrict of Columbia

(except Alaska, Hawaii)

Alaska Hawaii

I $8,050 $10,070 $9,260

2 10,850 13,570 I 2,480

3 13,650 17,070 15,700

4 16,450 20,570 18,920

5 19,250 24,070 22,140

6 22,050 27,570 25,360

7 24,850 31,070 28,580

8 27,650 34,570 31,800

More than 8 family

members add: 2,800 3,500 3,220

31

A-5

Repayment Booklet

INCOME PERCENTAGE FACTORWORKSHEETINCOME CONTINGENT REPAYMENT PLAN

If your income is not listed in Chart E, you can use this worksheet to interpolate thecorrect income percentage factor for the Income Contingent Repayment Formula.For example, let's say you are single and your income is $26,000.

Step One To interpolate, you must first find the interval between the closest Chart E income that is less than$26,000 and the closest Chart E income that is greater than $26,000. Subtract the closest lesser valuefrom the closest greater value. For this discussion, we will call the result "income interval!'

Value minus Closest Lesser equals Income IntervalE Value from Chart E

- $25,000 = $4,337

Closest Greaterfrom Chart

$29,337

Step Two Using Chart E, find the interval between the two income percentage factors that are given for theseincomes. Subtract the income percentage factor for the closest lesser value from the percentagefactor for the closest greater value.We'll call the result the "income percentage factor interval!'

for minus Percentage Factor for equals Income PercentageValue Closest Lesser Value Factor Interval

- 82.65% = 6.12%

Percentage FactorClosest Greater

88.77%

Step Three Subtract the closest lesser value shown on the chart from your income (for this example,$26,000).

minus Closest Lesser equals ResultValue from Chart E

- $25,000 = $1,000

Your Income

$26,000

Step Four Divide the result by the income percentage factor interval.

divided by Income Interval equals Resultfrom Step 1

+ $4,337 = 0.23057

Step 3 Result

$1,000

Step Five Multiply the result by the income percentage factor interval from Step 2.

multiplied by Income Percentage equals ResultFactor Interval

x 6.12 = 1.41%

Step 4 Result

0.23057

Step Six Add the result to the income percentage factor that corresponds to the closest lesser value.The result is your income percentage factor.

plus Percentage Factor for equals Actual IncomeClosest Lesser Value Percentage Factor

+ 82.65% = 84.06%

Step 5 Result

1.41%

Li 2A-7

Repayment Booklet

\

DIRECT SUBSIDIZED AND UNSUBSIDIZEDLOAN WORKSHEET PART I

This two-part worksheet allows you to compare monthly payments you wouldmake with each Direct Loan repayment plan. The principal balance is the totalamount you owe when your loans enter repayment, which includes anycapitalized interest. Charts you will need can be found on pages A-2 through A-4of this appendix.

STANDARD REPAYMENT PLANYou can estimate your monthly payments under the Standard Repayment Plan bymultiplying your principal balance by the constant multiplier (from Chart A) thatcorresponds to your interest rate.

Principal balance multiplied by Constant Multiplier equals Estimated Monthly Paymentfrom Chart A (must be at least $50)

$ x = $

EXTENDED REPAYMENT PLANYou can estimate your monthly payments under the Extended Repayment Plan bymultiplying your principal balance by the constant multiplier (from Chart B) thatcorresponds to your interest rate.

Principal balance multiplied by Constant Multiplier equals Estimated Monthly Paymentfrom Chart B (must be at least $50)

$ x = $

GRADUATED REPAYMENT PLANYou can estimate your beginning monthly payment under the Graduated RepaymentPlan by multiplying your principal balance by the constant multiplier (from Chart C) thatcorresponds to your interest rate. Using this factor to calculate your monthly paymentwill ensure that your payment covers the monthly interest on your loans. However, yourmonthly payment must be at least one half of what you would pay under the StandardPlan. (See the calculation above.) Your monthly payment will be the larger of the twoamounts.

Principal balance multiplied by Constant Multiplier equals Estimated Beginningfrom Chart C Monthly Payment

$ x = $

l_,

A-9

Repayment Booklet

DIRECT SUBSIDIZED AND DIRECTUNSUBSIDIZED LOAN WORKSHEET PART 2

INCOME CONTINGENT REPAYMENT PLAN

Step One Multiply your principal balance by the constant multiplier (from Chart D)for the interest rate on your loans

Principal Balance multiplied by Constant Multiplier equals Resultfrom Chart D

$ x = $

Step Two Next, multiply the result from Step 1 by the income percentage factor(from Chart E) that corresponds to your income.

Step 1 Result multiplied by Income Percentage equals ResultFactor from Chart E

$ x = $

Step Three Calculate your discretionary income, which is AG1 minus the povertyguideline (from Chart F) for your family size.

AGI minus Poverty Guideline equals Discretionary Incomefrom Chart F

$ _ = $

Step Four Multiply your discretionary income by 20 percent.

Discretionary Income multiplied by .2 equals Result

$ x = $

Step Five Divide the Step 4 result by 12 months

Step 4 Result divided by 12 months equals ResultFactor Interval

$ = $

Step Six Compare the Step 2 result with the Step 5 result.The lower amount ismonthly If this amount is than $0 but less than $5,your payment. greater

you are required to make a $5 payment.

Step 2 Result Step 5 Result Estimated Monthly Payment

$ $

3 4

A-11

Repayment Booklet

DIRECT PLUS LOAN WORKSHEET

If you have a Direct PLUS Loan, this worksheet allows you to compare the monthly paymentsyou would make with each available Direct Loan repayment plan.The Principal balance is thetotal amount you owe when your loans enter repayment, which includes any capitalized interest.Charts you will need can be found on pages A-2 through A-4 of this appendix.

STANDARD REPAYMENT PLAN

You can estimate your monthly payments under the Standard Repayment Plan by multiplyingyour principal balance by the constant multiplier (from Chart A) that corresponds to yourinterest rate.

Principal Balance multiplied by Constant Multiplier equals Estimated Monthly Paymentfrom Chart A (must be at least $50)

$ x = $

EXTENDED REPAYMENT PLAN

You can estimate your monthly payments under the Extended Repayment Plan by multiplyingyour principal balance by the constant multiplier (from Chart B) that corresponds to yourinterest rate.

Principal Balance multiplied by Constant Multiplier equals Estimated Monthly Paymentfrom Chart B (must be at least $50)

$ x = $

GRADUATED REPAYMENT PLAN

You can estimate your monthly payment under the Graduated Repayment Plan by multiplying yourprincipal balance by the constant multiplier (from Chart C) that corresponds to your interestrate. Using this factor to calculate your monthly payment will ensure that your payment coversthe monthly interest on your loans. However, your monthly payment must be at least one half ofwhat you would pay under the Standard Plan. (See the calculation above.) Your monthly paymentwill be the larger of the two sums.

Principal Balance multiplied by Constant Multiplier equals Estimated Beginning Monthly Paymentfrom Chart C (must be at least $50)

$ x = $

A-13

,

:EST CCPY E

U.S. Department of EducationWashington, DC 20202

EMI

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EFF-089 (9/97)