Title IV Loans: Understanding The Basics Objectives Review Title IV loans and their basic terms Review some changes to Title IV loans RMASFAA Conference 2012, Omaha, NE Just the Basics: entrance/exit counseling, repayment topics, servicers, etc Types of Title IV Loans Changes for 2012-13 Subsidized Direct Loan Unsubsidized Direct Loan Parent Loan Loan Loan Interest rate on undergraduate, Subsidized Direct Loans remains at 3.4% until July 1, 2013 Up-front interest rate rebate for on-time payment on subsidized/unsubsidized and Grad loans to be eliminated and professional students will no longer be able to receive a SUBSIDIZED loan Interest subsidy on Direct Subsidized Loans to be eliminated during the six-month grace period (only for a two-year time period on new loans between 7/1/12-6/30/14). 1
Type of borrower Financial need required Subsidized Undergrad Independent Unsubsidized Undergrad Independent Professional Yes No* No* but must qualify! *Loan can replace (cover) the Expected Family Contribution (EFC) Parent Parent of Undergrad, student No* but must qualify! Undergrad Independent Yes Credit check required Interest rate Interest accrual Fees Subsidized Unsubsidized Parent No No Yes Yes No 3.4% 6.8% 7.9% 7.9% 5% Deferred while in school at least half time & during periods of deferment 1% of the loan amount Begins to accrue from first disbursement date 1% of the loan amount Begins to accrue from first disbursement date 4% of the loan amount Begins to accrue from first disbursement date 4% of the loan amount Deferred while in school at least half-time, in grace period, & during periods of deferment None Annual Subsidized Limits 1 st Year Undergraduates = $3,500 2 nd Year Undergraduates = $4,500 Remaining Undergraduate Years = $5,500 Prep work needed to enroll as undergrad = $2,625 Prep work needed to enroll in grad/prof if student has bachelor s degree = $5,500 Teacher Certification if student has bachelor s degree = $5,500 /Professional Students = $0 as of 7/1/2012 Annual Unsubsidized Limits All dependent undergraduates whose parents can borrow = $2,000 1 st and 2 nd year undergraduates whose parents cannot borrow and independent students = $6,000 Remaining undergraduate years for dependent students whose parents cannot borrow and independent students = $7,000 Preparatory work needed to enroll as undergraduate = $6,000 Preparatory work needed to enroll in graduate/professional program if student has bachelor s degree = $7,000 Teacher Certification if student has a bachelor s degree = $7,000 /Professional Students = $20,500 2
Annual Limits Undergraduates = $5,500 s = $8,000 Annual Limits Annual maximum depends on cost of attendance and other financial aid received Aggregate Limits $31,000 Undergraduates (up to $23,000 may be subsidized) Independent and Undergrads Whose Parents Cannot Borrow $57,500 (up to $23,000 may be subsidized) Students Subsidized = $65,500 Unsubsidized = $138,500 and higher for certain health professions Undergraduate = $11,000 for students who have not completed 2 years; $27,500 for all other students = $60,000 (includes loans borrowed at undergrad level) Basic Requirements Master Promissory Note Entrance and Exit Counseling Required for subsidized and unsubsidized and borrowers Required for also (i.e. Mapping Your Future or ECSI) May be conducted one of three ways: In person By audiovisual presentation By interactive electronic means Master Promissory Note (MPN) Required for Direct Subsidized & Unsubsidized, Loans and Binding legal document Terms and conditions under which student agrees to pay back the loan Basic terms should be reviewed in Entrance and Exit Counseling Must provide option to complete the MPN by paper if they wish Note that a NEW MPN will be coming soon from the DOE! Multi-year option is not required by schools or borrowers 10 years If multi-year feature used, schools must notify students of new loans and either actively or passively allow students to accept or decline 3
Entrance and Exit Counseling Terminology U.S. Department of Education online counseling for Direct Loans Entrance counseling studentloans.gov Exit counseling nslds.ed.gov Counseling can also be in-person or by audio-visual, but regardless of method, documentation of completion is key! Supplemental counseling can help students better understand their borrowing obligations Capitalization This is the addition of unpaid interest to the principal balance of a loan. Grace Period Once you are no longer enrolled at least half time in an eligible program you ll receive a 6-month grace period on your Direct Subsidized or Unsubsidized Loans during which you are not required to make principal payments. For Loans, it is a 9-month grace period on both principal and interest. Loan Repayment Plans Grace period Subsidized 6 months from last date of attendance or drop below half-time attendance Unsubsidized 6 months from last date of attendance or drop below half-time attendance Parent None None 9 months from last date of attendance or drop below half-time attendance There are six repayment plans available for and loans Standard d Extended Income-sensitive Income-contingent Income-based 4
Standard Repayment Repayment terms Subsidized Up to 10 years for standard, graduated & incomesensitive*; Up to 25 years for incomebased, incomecontingent*, and extended Unsubsidized Up to 10 years for standard, graduated & incomesensitive*; Up to 25 years for incomebased, incomecontingent*, and extended Up to 10 years for standard, graduated & incomesensitive*; Up to 25 years for incomebased, incomecontingent*, and extended * Income-sensitive for FFELP borrowers only * Income-contingent for Direct borrowers only Parent Up to 10 years for standard, graduated & incomesensitive*; Up to 25 years for extended Up to 10 years 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 d Repayment Extended Repayment Monthly payments start lower and gradually increase over time for up to 10 years More interest will be paid over 10 years Option for borrowers who have cash flow problems early on, but expect that their income will increase steadily over time 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 5
Repayment Plans Comparison Income-Based Repayment Repayment Plan Standard d Extended Eligible Loan Program(s) FFELP & Direct Loans FFELP & Direct Loans FFELP or Direct Loans Repayment Term Application Process 10 years No 10 years No 25 years No Newest loan repayment plan Available for borrowers on or after July 1, 2009 Payments are capped at 15% of discretionary income for those who qualify Option for someone who is looking for the lowest possible monthly payment based on their income Income-Based Repayment HCERA of 2010 IBR Changes Reduced monthly payments for students who demonstrate a partial financial hardship (PFH) Eligibility is re-evaluated each year At the end of 25 years of repayment and 300 payments, any remaining balance may be forgiven Any loan amount forgiven may be taxable Payments count towards Public Service Loan Forgiveness Changes to the IBR program include: Cap monthly payments to 10% of discretionary income (as opposed to 15%) Forgive remaining debt after 20 years (as opposed to after 25 years) For new borrowers beginning July 1, 2014 6
Income-Sensitive and Income-Contingent Repayment Repayment Plans Comparison Income-Sensitive Monthly payments are based on income and total loan amount Must reapply every year 10-year repayment term FFELP loans only Income-Contingent Monthly payments are based on income and family size Must reapply every year 25-year repayment term Direct loans only Repayment Plan Income- Based Income- Contingent Income- Sensitive Eligible Loan Program(s) FFELP & Direct Loans Repayment Term Application Process 25 years Yes must reapply annually Direct Loans 25 years Yes must reapply annually FFELP Loans 10 years Yes must reapply annually Alternative Direct Loans 30 years Yes must reapply annually Terminology Public Service Loan Forgiveness Cancellation Under certain circumstances, you can have all or part of your loan canceled, or discharged. Loan Forgiveness Under certain circumstances, you can have all or part of your loan forgiven. Borrowers who work for a public service employer may be eligible to have a portion of their Direct Loan debt forgiven after 120 qualifying monthly payments on or after October 1, 2007 7
Loan Forgiveness Program for Teachers Borrowers who teach in an elementary or secondary school that is designated as low income may be eligible to have a portion of their loan debt forgiven Terminology Deferment A temporary suspension of loan payments for specific situations, such as reenrollment in school, unemployment, or economic hardship. For certain defined periods Interest payment not required during deferment for subsidized Loans or a Federal Loans Forbearance A temporary postponement or reduction of payments for a period of time due to financial difficulty Potentially eligible for forbearance if not eligible for a deferment. Interest will continue accruing whether loans are subsidized or unsubsidized Consolidation Loans Deferment Subsidized No payment required as long as student is enrolled at least halftime Unsubsidized No payment required as long as student is enrolled at least halftime Automatic in-school deferment while enrolled at least half-time Parent May request in-school deferment No payment required as long as student is enrolled at least halftime Will give borrowers a single payment for their federal loans May give borrowers a lower monthly payment Option for borrowers with multiple servicers and who want to make one payment each month 8
Consolidation Loans Special Direct Consolidation Loan Borrowers should consider the trade-offs Interest rate may increase slightly when the weighted average of consolidated loans are rounded to the nearest eighth percent May pay more in accrued interest A consolidated loan loses interest subsidy and some cancellation options ED offered a shortterm loan consolidation opportunity with special benefits from January 17 through June 30, 2012 Intended to assist borrowers with loans split among loan servicers Eligible borrowers were contacted by their servicer(s) Credit for previous IBR payments given for borrowers who consolidated into the Special Direct Consolidation Loan Who is Who? Loan Servicers Helping students understand Loan Servicer Aspire 1-855-475-3335 Contact Department of Education Servicer Lender Cornerstone Education Loan Services 1-800-663-1662 Direct Loan Servicing Center 1-800-848-0979 EdFinancial Services 1-855-337-6884 Government agency that provides support to students and money for college through grants and loans Organizations hired to help administer the student loan program and assist borrowers during repayment Banks or credit unions that provide private student loans to students. For Loans, the school is the Lender. EdManage 1-855-479-0490 FedLoan Servicing (PHEAA) 1-800-699-2908 Granite State Management and Resources 1-888-556-0022 Great Lakes Educational Loan Services 1-800-236-4300 Mohela 1-888-866-4352 Nelnet 1-888-486-4722 OSLA Servicing 1-866-264-9762 Sallie Mae 1-800-722-1300 9
Resources from the Department of Education ifap.ed.gov www.fafsa.gov www.pin.ed.gov www.studentaid.ed.gov www.loanconsolidation.ed.gov www.nslds.ed.gov www.nsldsfap.ed.gov www.fsapubs.gov Studentloans.gov Thanks for Attending Brenda Zastoupil, Financial Aid Director, University of Mary 701-355-8244 brendaz@umary.edu Carol Swenson, Sr. Marketing Associate, Great Lakes 888-683-9777 cswenson@glhec.org 10