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Student Loan Repayment An overview of options. Repayment Your students may have a variety of student loans. The three types of loans you will encounter.

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Presentation on theme: "Student Loan Repayment An overview of options. Repayment Your students may have a variety of student loans. The three types of loans you will encounter."— Presentation transcript:

1 Student Loan Repayment An overview of options

2 Repayment Your students may have a variety of student loans. The three types of loans you will encounter most often will be: – Private Student Loans – Perkins Loans – Federal Student Loans Each kind of loan has different repayment options.

3 Private Loans Issued by a private lender to the student. Repayment terms are set by the promissory note. Very few options for deferment and forbearance, loan discharge or loan forgiveness. Not discharged by bankruptcy. Cannot be consolidated with Federal or Perkins loans.

4 Perkins Loans First payment due nine months after student graduates or leaves school. Standard repayment term is ten years. Can be consolidated with Federal Student Loans, but may lose interest rate and some forgiveness benefits. Eligible for deferments and forbearances, loan discharge and cancellation options. (See FSA Handbook at: 13FSAHbkVol6Ch4.pdf for more details.) 13FSAHbkVol6Ch4.pdf

5 Federal Student Loans A Brief History Federal Student Loans became available with the passage of The Higher Education Act of 1965. The amount that a student may borrow, and their options for repaying, deferring, forbearing, and discharging their loans are set in federal statute.

6 Federal Student Loans Since July 1, 2010 all Federal Student Loans have been issued by the William D. Ford Direct Loan Program (FDLP). – No private capital involved in the process. – Funds issued directly by the Department of Education. – Accounts worked by Department of Education approved servicers.

7 Loan Servicers The Department of Education uses four main servicers for their loans – PHEAA – Nelnet – Great Lakes – Sallie Mae – Previous Servicer ACS https://www.acs-

8 Federal Student Loan Limits Dependent Students$31,000.00 – Excluding students whose parents cannot borrow PLUS Loans. – Only $23,000.00 may be subsidized loans. A Subsidized Student Loan is a loan for which the Department of Education has agreed to pay the interest that accrues while the student is in school, in their six month grace period, or during a deferment period.

9 Federal Student Loan Limits Independent Students$57,500.00 – This limit also applies to Dependent Students whose parents cannot borrow Plus Loans. – Only $23,000.00 may be subsidized loans. An Independent Student is one that is: – Over 24 years old (as of January 1 of the calendar year) – Married – In the military – A parent – An orphan, or was a dependent or ward of the court

10 Federal Student Loan Limits Graduate Students$138,500 – Only $65,500.00 may be subsidized student loans. – Graduate Students may apply for Graduate Plus Loans Have a fixed 8.5 percent interest rate Are unsubsidized loans Repayment begins 60 days after loan is fully disbursed, but may be deferred while the student is in school at least half time Grace period does not apply.

11 Federal Student Loans First payment is due six months after the student graduates, leaves school, or is enrolled less than half time. Standard repayment term is ten years. Repayment term may be extended for up to thirty years by consolidation. Qualifies for deferments, forbearances, and loan discharge and forgiveness options.

12 Federal Student Loans Repayment Options – Standard Repayment Term is a ten year term. – Large balances can extend a repayment term for up to 30 years. The longer the repayment term, the more interest that accrues on the debt. – May also qualify for repayment plans based on income, such as Income Based Repayment (IBR), and in some cases Income Contingent (ICR) or the Pay As You Earn plan.

13 Income Based Repayment Allows students to make monthly payments that are fifteen percent of their discretionary household income. Can never be more than the amount the student would pay under the standard ten year repayment plan. Payment amount is recalculated each year based on income and family size. (Student needs to reapply every year.) Payments count toward Public Service Loan Forgiveness.

14 Income Contingent Repayment Similar to Income Based Repayment Plan. Monthly payment amounts are based on household income, family size, and loan amount. As with IBR, any balance left owing at the end of 25 years is forgiven. Only available under the Direct Loan Program.

15 Pay as You Earn Must be a new borrower as of October 1, 2007, and must have received a disbursement of a Direct Loan on or after October 1, 2011. Must have a financial hardship, if the student qualifies payments are ten percent of discretionary income. Payment change as income increases. Any amount left owing after 20 years is forgiven.

16 Consolidation Is consolidation a good idea for the student? – Does the student have more than one servicer? If they do, they may want to consolidate to put all of their loans in one place so that they may keep track of them. If they have Perkins Loans, they will lose their 5% interest rate, and will lose their Perkins forgiveness options for that loan.

17 Student Loan Forgiveness Public Service Loan Forgiveness: – Only available for Direct Loans. – Allows borrowers who work full time at a qualifying public service organization and who have made 120 on-time, full, scheduled monthly payments to have any balance left owing after 120 payments forgiven.

18 Qualifying Payments Can be based on IBR and ICR monthly payment amounts. Does not have to be a fully amortized payment unless the borrower has remained on a standard repayment plan. “On Time” means received no later than fifteen days from the due date.

19 Qualifying Employers “Any employment with a federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the IRS under section 501(c)(3) of the Internal Revenue Code”. The type or nature of employment with the organization does not matter for PSLF, nor does the type of service the organization offers.

20 Other Information The borrower must be employed at a qualifying employer for the entire 120 month payment period. The borrower can change employment between qualifying employers during the 120 month period. Borrowers can fill out a certification each year and submit it to the Department of Education, or they can wait and submit one form when the 120 payments have been completed. The form can be found at: PSLF.pdf. PSLF.pdf

21 Federal Employers Section 5379 of Title 5 USC authorizes federal agencies to establish a program under which they may repay Federally-made, insured, or guaranteed student loans as an incentive to recruit or retain highly qualified personnel. In return, the employee must sign a service agreement to remain in the service of the agency for at least three years.

22 Teacher Loan Forgiveness Up to $5,000 in loan forgiveness if the chief administrative officer of the school they are employed at certifies that they were: – A full time elementary teacher who demonstrated knowledge and teaching skills in reading, writing, math, and other areas of the elementary school curriculum – A full time secondary teacher who taught in a subject area that was relevant to their major.

23 Teacher Loan Forgiveness Up to $17,500 in loan forgiveness if the chief administrative officer of the school certifies that: – The teacher is a highly qualified full-time math or science teacher in an eligible secondary school – The teacher is a highly qualified special education teacher whose primary responsibility was to provide special education to children with disabilities.

24 Requirements Must teach for five complete and consecutive years. The school must meet one of these requirements: – Be a Title I School – Have been selected by the Department of Education based on their determination that at least 30% of the schools children qualify for services provided by Title I

25 Additional Requirements – The school may be listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits. – All elementary and secondary schools operated by the Bureau of Indian Education (BIE) or operated on Indian reservations by Indian tribal groups under contract with BIE qualify as schools serving low-income students even is they are not listed in the annual directory listed above.

26 Quality Educator Loan Forgiveness Offered by the State of Montana – Forgiveness of up to $3,000.00 a year for up to four years. – Must be a full time educator with a valid license. – May teach in a Montana school district, an educational co-op, the Montana School for the Deaf and Blind, the Montana Youth Challenge Program, or a state youth correctional facility.

27 Quality Educator Loan Assistance The school must be considered an impacted school. (Determined by the Office of Public Instruction.) – Rural – High percentage of economically disadvantaged students. – Have been determined to have a challenge in closing the achievement gap. – May be in an area impacted by critical educator shortages.

28 Deferment and Forbearance Once the student is out of school and grace has expired they are going to be required to begin making payments. Their payment amount will initially be based on the standard ten year repayment term. If they cannot afford to make the payment, they may seek to qualify for another repayment plan, or they may request a deferment or a forbearance.

29 Deferments Temporarily postpone monthly payments if you meet specific requirements. – If the loan is a subsidized loan, The Department of Education will pay any interest that accrues on the loan while it is in deferment. – The two most commonly used deferments are the Unemployment Deferment (up to three years), and the Economic Hardship Deferment (up to three years).

30 Forbearance Forbearance of student loan payments is not an entitlement. The specific requirements for a forbearance may vary from servicer to servicer, and are at their discretion. Interest that accrues during a forbearance is not paid by The Department of Education, and is capped when the forbearance ends. May increase monthly payment amount and total balance due.

31 Loan Discharge Federal Student Loans and Perkins Loans may be discharged completely due to certain other circumstances. – If a student or borrower passes away, their loans will be forgiven. Their family is not responsible for repayment of the loan. – If a borrower becomes totally and permanently disabled (as defined by the Department of Education) their loan may be discharged.

32 Federal Student Loans Have no statute of limitations. Are typically not discharged in bankruptcy. Are considered to be in technical default when they are 270 days or more past due. – The penalties for default are severe: Collection costs are added at 24% Wages are garnished at 15% State and Federal Tax refunds are taken or “offset” SSI and SSDI benefits are garnished

33 Default Who defaults? National 2-Year default rate for 2011 is 10.0% National 3-Year default rate for 2010 is 14.7% Overall MUS 2-Year default rate is 8.23.

34 FFELP VS. PUT/DL Rates 2 Year School Name2011 2 YRMGSLP RatePUT/DL Rate Helena College12.39%3.81%14.99% Great Falls College11.24%3.81%14.46% Miles Community College13.02%4.29%18.03% MSU Billings7.71%1.43%10.57% Dawson11.32%0.00%16.44% Western9.12%3.25%13.98% MT Tech11.20%3.43%15.42% Flathead Valley CC15.42%7.61%17.15% Northern8.82%9.03%8.71% MSU Bozeman4.21%1.02%6.28% University of Montana8.34%2.07%12.15% MUS TOTALS8.23%2.36%11.42%

35 FFELP VS. PUT/DL 3 Year School Name2010 3 YRMGSLP RateRate Helena College13.96%7.14%23.81% Great Falls College11.86%5.46%22.12% Miles Community College 12.57%10.14% 20.00% MSU Billings11.79%7.29%17.68% Dawson12.94%12.00%14.29% Western13.01%5.29%27.27% MT Tech9.43%4.38%15.57% Flathead Valley CC 19.37%12.24% 28.39% Northern13.04%8.33%18.82% MSU Bozeman5.79%3.41%10.61% University of Montana8.77%5.33%15.13% MUS Totals9.17%5.56%15.80%

36 What do students need To be aware of their options for loan forgiveness and income based repayment plans before they leave school. Understand who their servicer is and how to contact them as soon as the loan is disbursed. Be aware of the financial impact of not receiving their degree.

37 What can students do now? Identify how much they owe in student loans, and who is servicing them. Set up an online account with their servicer. This will allow them to contact their servicer regarding their in school status, changes in contact information, or to request a deferment or a forbearance. Check NSLDS periodically for servicer changes.

38 Consider making payments now Payments made while in school on a subsidized loan go directly to the principal due on the loan. Payments made on an unsubsidized loan go to interest first, and help decrease the amount of interest that is capitalized on the loan. Make extra payments on the loan.

39 Contact Information If you have any questions, you may contact us any time. – Cheryl Poelman-Allen: – 406-444-0390 – Caitlin Kemnitz: – 406-444-0383

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