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ABC WORKSHOP 2012 LOANS. Types of Loans Loan Processes and Requirements Repayment Options.

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Presentation on theme: "ABC WORKSHOP 2012 LOANS. Types of Loans Loan Processes and Requirements Repayment Options."— Presentation transcript:


2 Types of Loans Loan Processes and Requirements Repayment Options

3 FEDERAL LOANS Federal Direct Subsidized Loan Federal Direct Unsubsidized Loan Perkins PLUS GradPlus

4 FEDERAL DIRECT SUBSIDIZED LOAN Need-based Loan Interest rate: 3.4% Origination Fee: 1% Grace Period: 6 months Department of Education pays interest In-School Grace period Deferment Student pays interest once repayment begins Only undergraduate students are eligible Student must be enrolled at least half time Student must be meeting SAP

5 FEDERAL DIRECT UNSUBSIDIZED LOAN Non-Need based Loan Interest rate: 6.8% Origination Fee: 1% Grace period: 6 months Student pays interest Interest is capitalized Student can choose to pay interest while enrolled Undergraduates and Graduates are eligible Student must be enrolled at least half time Student must be meeting SAP

6 FEDERAL LOAN LIMITS Dependent Undergraduate Student Subsidized LoanAdditional Unsubsidized Loan Freshman$3,500$2,000 Sophomore$4,000$2,000 Junior/Senior$5,500$2000 Maximum Total Debt:$31,000 ($23,000 can be subsidized) Independent Undergraduate Student Subsidized LoanAdditional Unsubsidized Loan Freshman$3,500$6,000 Sophomore$4,000$6,000 Junior/Senior$5,500$7,000 Maximum Total Debt:$57,500 ($23,000 can be subsidized)

7 FEDERAL LOAN LIMIT Graduate/Professional Student Unsubsidized Loan$20,500/academic year Maximum Total Debt$138,500 ($65,500 may be subsidized)

8 PERKINS Need-based loan Federal Loan, Institution acts as Lender and Servicer Interest Rate: 5% Grace period: 9 months Maximum repayment term: 10 years Undergraduate and Graduate students are eligible

9 PERKINS LOAN LIMITS Undergraduate annual limit $5,500 Undergraduate Aggregate limit $27,500 Graduate annual limit $8,000 Graduate Aggregate limit $60,000

10 PLUS LOAN Parent Loan for Undergraduate Students (PLUS) Non-need based loan Can borrow up to COA Borrower must be credit worthy Interest Rate: 7.9% Origination fee: 4% If the parent is denied, the student may receive a Federal Direct Unsubsidized loan at Independent Undergraduate loan limit

11 GRAD PLUS Loan for Graduate Students Non-need based loan Borrower must be credit worthy Interest Rate: 7.9% Origination Fee: 4% Can borrow up to COA No aggregate limit

12 ALTERNATIVE LOANS Interest rates are usually variable Origination and repayment fees vary Co-signer typically required Most require school-certification

13 ALTERNATIVE LOANS Possible solution for International Students SAP Ineligible students Non-degree seeking students Students who have reached federal loan aggregates

14 LOAN PROCESSES AND REQUIREMENTS Entrance Counseling Promissory Note Exit Counseling

15 ENTRANCE COUNSELING First-time borrowers Inform them of their rights and responsibilities in taking out this loan

16 PROMISSORY NOTE Document signed by borrower, which includes terms and conditions of the loan disbursements, use, and repayment Mater Promissory Note Good for ten years Covers multiple loan periods and varying loan amounts of the same type of loan

17 EXIT COUNSELING All borrowers that leave an institution must complete exit counseling Includes graduating, withdrawing, transferring, or not returning

18 LOAN NOTIFICATION The institution is required to notify the borrower that a loan disbursement has been made, and that the borrower may reduce or cancel the disbursement

19 DIRECT LOAN PRORATION Must occur when: A student’s academic program is less than a year in length A student is completing a period of enrollment that is less than one academic year Standard proration formula: Amount of direct loan student could have for grade level ÷ 24 x enrolled hours

20 LOAN REPAYMENT Single source for all federal loan info including Borrower info Loan amounts Interest accrued Servicer info

21 WAYS TO REPAY Standard – Monthly payment remains consistent for 10 years Graduated – Monthly payments are lower at first but then increase every 2 years over the 30 year repayment term Income-sensitive – Monthly payments are based on your monthly gross income Extended – Monthly payments over a 25 year plan

22 WAYS TO REPAY, CONT’D Income Contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship”; (25 year forgiveness) Income Based- Monthly payments will not exceed 15% of the amount by which your adjusted gross income exceeds 150% of the poverty line for your family size. (25 year forgiveness)

23 OTHER LOAN TERMS Deferments Forbearance Default Cohort Default Rate

24 DEFERMENT Period of postponing payments Federal government will pay interest for the borrower with a Subsidized DL Entitlement Some possible deferment situations: Education Peace Corps/ Military

25 FORBEARANCE Temporary cessation, reduction, or extension of payments Student is responsible for interest that accrues Borrower is willing but temporarily unable to pay

26 DEFAULT Failure to meet the terms of the promissory note Failure to repay Failure to attend Borrower is considered to be in default after being delinquent for 270 days Borrower is subject o wage garnishment, seizure of income tax refunds, lottery winnings, license non- renewal, sued by DOE Student not eligible for federal financial aid Damage to the borrower’s consumer credit score

27 DEFAULT Satisfactory Repayment Arrangements Six on-time voluntary payments Rehabilitation Nine on-time voluntary payments Consolidation can “fix” a defaulted loan

28 COHORT DEFAULT RATE Includes DL loans, and loans underlying DL consolidation loans CDR = % of borrowers who enter repayment in a given federal fiscal year who then default within the next 3 fiscals years High rate has consequences for schools >15% = loss of 1 installment/semester >15% = 30 day hold on 1st time, 1st year borrowers > 40% = loss of participation in Title IV funding


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