Financial Fitness: MONEY Matters Financial Literacy and Education University of Colorado Denver Spring 2015 Presenter: M. Lesa Briggs
After this presentation, you will be able to: Evaluate your student loans and repayment options Understand how to build and maintain your credit How your current spending habits impact your financial future
What are student loans? Self-help for educational purposes and expenses Debt that MUST be paid back Debt that can deferred while enrolled at least ½ time
Types of Student Loans Federal Loans Federal Perkins Loans Direct Loans (Subsidized and Unsubsidized) Direct (Parent) PLUS Loans Direct (Grad) PLUS Loan Alternative (Private) Student Loans Institutional Student Loans NOTE: No Prepayment Penalties
Federal Perkins Loan FAFSA required (need based) Funds very limited 5% interest rate (fixed) 9 month grace period $5,500 annual limit /$27,000 aggregate Must sign Promissory Note with the school attending Repaid to School Attended Available to Undergraduate and Graduate students May need to apply by school s priority deadline to be considered, if applicable NOTE: Do NOT consolidate with other loans due to the low FIXED low interest rate.
Federal Direct Student Loans Must complete FAFSA to receive Fixed interest rate for life of loan 6 month grace period before repayment Must sign Master Promissory Note & Entrance Counseling to disburse Borrower may be charged an origination fee and/or default fee (currently 1.073%) Can be awarded subsidized (undergraduates only) or unsubsidized or both Various Repayment, Deferment and Forbearance options
Federal Direct Student Loans Subsidized: Gov t pays interest while in school Interest begins to accrue after you graduate or cease to be enrolled at least ½ time. Unsubsidized Interest starts to accrue as soon as the funds are disbursed to your school (only on the amount disbursed)
Examples of Monthly Payments based on 6.8% interest rate with standard 10 yr repayment period $3,500 $50 per month $5,000 $58 per month $7,000 $81 per month $10,000 $116 per month $15,000 $174 per month $25,000 $290 per month $50,000 $581 per month
Alternative (PRIVATE) Student Loans Consumer loans not federally protected Borrowed in the student s name Based on credit eligibility May require a cosigner Variable but competitive interest rates Interest accrues immediately Repayment usually begins 6-9 months after enrollment ceases or graduation Fewer Repayment and Deferment options
Repayment Plan Options (Choose a plan that fits your budget) Standard (most cost effective plan) 10 year repayment Minimum $50 Less Interest paid over time Graduated (Initial payments interest only) Starts with lower payment and Increases over time 10 year repayment More interest payments over time
Repayment Plan Options (Continued) Income Based and Contingent: based on household AGI, family size, your state of residence Spouse loan debt considered Recalculated annually (income changes) Up to 25 years (after 25 years, balance forgiven) Pay income tax on any amount forgiven (untaxed) Experiencing a financial hardship May pay more for the loan overtime Payment lower than standard repayment amount, $0, or interest only *NOTE: Direct Loans are not eligible for the Income Sensitive Repayment Plan
Repayment Plan Options (Continued) Extended - Fixed or Graduated Repayment If more than $30,000 loan balance Up to 25 years Lower payment than standard plan due to extended time to repay More interest paid over time
Repayment Plan Options (Continued) - Pay As You Earn Monthly payment based on household AGI, family size, your state of residence (10% of income) Loan debt must be more than income Payment may be less than interest that accrues monthly or $0 Up to 20 years to repay (Loan forgiven after 20 years) Spouse loan debt considered Recalculated annually (income changes) Experiencing a financial hardship
Consolidation Up to 30-year repayment (repayment begins 60 days after disbursed) Lower monthly payment No loan application fee Single Payment by combining multiple loans (can delay while in grace) Fixed interest rate (no cap) Must be in repayment or in grace period Experiencing Hardship May lose Deferment, Forbearances, and Cancellation Options If in Default, must met satisfactory repayment options first Stafford/Direct, PLUS, Grad PLUS, Nursing & Perkins only Alternative loans not eligible
Consequences of Default Reported to credit bureau Loan becomes immediately due in full Ineligible to receive state or federal financial aid Federal and state income tax refunds withheld Wages may be garnished Assigned to collection agency or federal government Borrower responsible for attorneys fees and collection costs Suspension of professional license or certificate
Wisdom on student loans If borrowing an unsubsidized loan, pay the interest while you are in school. When possible, pay extra on your student loan during repayment. Take advantage of any borrower benefits offered by your student loan lender. (Ex. Automatic Deduction, interest discounts) If changing repayment plans, must continue to make payments on current plan until new plans has been approved. Never miss a payment.
NSLDS The National Student Loan Data System is available for all students that have received Federal student aid (including student loans). Website: www.nslds.ed.gov NOTE: Review your history at least once a year.
What is credit? About credit A loan to pay for something *Student loans *Credit cards *Auto loan *Mortgage or Home Equity Loan
Credit cards Credit cards are good: For use in an emergency Necessary for some purchases, internet, air fare, hotels Safer than carrying cash Helps establish a credit history Credit cards are bad: Every dollar you spend has interest or fees attached Purchases cost more due to accrued interest Excessive credit card use and late payments can harm your credit rating and result in compounding debt Interest and late fees can really add up
Credit Card Example Balance Interest Rate Monthly payment Years to pay Total cost $2,200.00 18% $40.00 9.8 $4,683.00 $2,200.00 18% $55.00 5.2 $3,385.00 $2,200.00 18% $200.00 1.1 $2,422.00
What to look for Be sure that you ask questions and understand Term (length) Interest rate (variable, fixed, APR) Penalties (fees, etc.) Repayment options Hardship allowances
Understanding your credit score Q. What is a credit score? A. A number based on a statistical analysis of a person's credit history, which represents that person s creditworthiness. Basically, this score looks at your past credit activity and tells creditors whether or not you are a good credit risk or not.
How is Credit Worthiness Measured The Three Cs of Credit: Character History Capital Collateral Capacity Income/Debt
What is a good credit score? Below 600: Work on building credit Between 600 700: Reasonable, be careful Above 700: Generally considered Good Above 775-850: Viewed as Very Good to Excellent
Understanding your credit score A credit score is based on: Payment history 35% Amounts owed 30% Length of credit history 15% New credit 10% Types of credit in use 10%
Understanding your credit score (continued) How to build your credit score: Payment history (35%) Always, always pay on time. Amounts owed (30%) Use less than 50% of your available credit limit. Length of credit history (15%) Get one credit card from a major financial institution and keep it for a long time.
Understanding your credit score (Continued) What can a credit score can impact? Your ability to purchase a home, car or other large purchase (business loan) Interest rates charged for a home, car or other large purchase Insurance rates for car, rental and home insurance Employment opportunities Note: Pay attention to your spending habits. It can affect you in the long run.
Checking your credit report Get your FREE credit report every year Colorado residence can get credit reports twice a year for FREE Check your credit reports to understand your creditworthiness and to remove/review disputes, liens, judgments. Reports may vary so order from all three major credit bureaus (see below website) www.annualcreditreport.com *Transunion *Experian *Equifax
Others that review your credit Insurance companies Employers Colleges/University Land Lords Various credit agencies Utility companies Banks/Credit Unions
Identity Theft Destroy credit card applications & sensitive mail Monitor credit card and checking account balances Be aware of any use of your SSN Identity thieves need only a few key pieces of information to begin the identity theft process: Name -- Address Phone number -- Social Security Number Bank account -- Credit card numbers Driver's license number
Borrowing money Only borrow what you need or charge as necessary! Remember you must pay it back!
Review: Evaluate student loan repayment options Know which kind of loans you have Know your balance, lender and terms Choose the repayment option that s right for you Avoid default Understand how to build and maintain good credit Understand credit Understand your creditworthiness Build and maintain your credit score Request your free annual credit reports
Financial Fitness: MONEY Matters University of Colorado Denver Financial Literacy and Education Programs Presenter: M. Lesa Briggs Email: lesa.briggs@ucdenver.edu