1 Welcome to The Basics of Borrowing Presented by the National Association for College Admission Counseling Tuesday, December 9, 2008

2 Agenda Introduction –Applying for aid –Overview of student loans Types of loans Loan availability Should students take out loans to pay for college?

3 Agenda, cont. How much can students/families afford to borrow? How do you determine what type of loan is best in a given situation?

4 Agenda, cont. How will a student repay the loan? What happens if a borrower cant repay a student loan? Q & A

5 Todays Presenters Natala (Tally) Hart, Senior Advisor for Economic Access, The Ohio State University Edie Irons, Communications Director, The Institute for College Access & Success (TICAS)

6 Todays Presenters, cont. Karen E. Lanning, Vice President of Communications and Research, National Council of Higher Education Loan Programs (NCHELP) Tim Christensen, Consultant on College Access and Success (moderator)

7 Applying for Aid Families need a foundation in basic financial literacy –May be unfamiliar with budgeting –May never have used credit Take-away: Financial literacy site for middle and high school students at

8 Types of Aid Grants and scholarships (gift aid) –Do not have to be repaid –May be renewable or non-renewable Loans –Must be repaid Work-study –Subsidized wages in return for work during semester

9 Sources of Aid Federal State Institutional Private

10 Loans Are Also Financial Aid Federal –As available as ever, even in this credit market Features –Fixed interest rates –Flexible repayment options –Opportunities for deferment, forbearance, forgiveness, and cancellation (discussed later)

11 Federal Need-Based Loans Perkins Subsidized Stafford Features of federal need-based loans –Low interest rates –Delayed repayment –In-school interest subsidy

12 Federal Non-Need-Based Loans Unsubsidized Stafford Parent PLUS Grad PLUS

13 Federal Non-Need-Based Loans, cont. Higher interest rates –6.8 percent fixed rate for unsubsidized Stafford Interest accrues during school and deferments Payments on PLUS loans are due while the student is in school

14 Federal Loan Resources Take-away: The financial aid chapter in NACACs Guide to the College Admission Process at es/Marketplace/Pages/AdmissionGuide.aspx es/Marketplace/Pages/AdmissionGuide.aspx Take-away: The National Association of Student Financial Aid Administrators Student Aid Program Summary accessible from

15 Private Loans Not really financial aid but a financing tool like a home equity loan or credit card Less available due to credit crunch Only used as a last resort after other financial aid options

16 Financial Aid Availability Federal loans available to all eligible students Recent federal government action to ensure loan availability Private loans and PLUS require a credit check Take-away: The Federal Trade Commissions site on free annual credit reports at alt156.shtm ) alt156.shtm

17 Applying for Financial Aid Complete and submit the Free Application for Federal Student Aid (FAFSA) at (avoid.coms!) Early estimates of aid eligibility –FAFSA4caster Read, understand, and follow instructions from each institution under consideration –When is a College Board Profile form needed?

18 Applying for Financial Aid, cont. Getting help completing the FAFSA –Federal Student Aid Information Center ( FED-AID) –College Goal Sunday Understand changes in the FAFSA –Independent student definition Emancipated, foster, and homeless youth Using FAFSA on the Web –Obtaining a PIN in advance of deadlines

19 Applying for Financial Aid, cont. Apply for as many scholarships as possible Keep careful records of all activities Read and respond to all follow-up correspondence

20 Applying for Financial Aid, cont. Take-away: NACACs Applying for Financial Aid in 7 Easy Steps at etplace/Pages/FA7EasySteps.aspx etplace/Pages/FA7EasySteps.aspx Take-away: NACACs Steps to College newsletter at s/Pages/FinancialAid.aspx s/Pages/FinancialAid.aspx Take-away: U.S Department of Educations (ED) FASFA4caster at

21 Applying for Financial Aid, cont. Take-away: ED FAFSA Demonstration site, accessible from english/fafsademo.jsp?tab=preparing english/fafsademo.jsp?tab=preparing Take-away: FAFSA completion assistance from College Goal Sunday at Take-away: Changes in the independent student definition for at y html y html

22 Applying for Financial Aid, cont. Take-away: Tips on How to Get Scholarships at ps html ps html

23 Warning Signs of Scholarship Scams The scholarship is guaranteed or your money back." "You can't get this information anywhere else." "I just need your credit card or bank account number to hold this scholarship." "We'll do all the work." "The scholarship will cost some money." "You've been selected" by a "national foundation" to receive a scholarship - or "You're a finalist" in a contest you never entered.

24 Warning Signs of Scholarship Scams Take-away: Scholarship Scams at cholarship/index.shtml cholarship/index.shtml

25 Spotting Deceptive Private Loan Practices Names, seals, logos, etc., that imitate the U.S. governments look and feel Promotions and incentives (e.g., gift cards) meant to divert from assessment of loan terms and conditions Requests for personal information over the phone or Internet Check on suspicious lenders with state attorney general, local consumer protection agency, or Better Business Bureau

26 Spotting Deceptive Private Loan Practices, cont. Take-away: Student Loans: Avoiding Deceptive Offers at mer/credit/cre43.shtm mer/credit/cre43.shtm

27 Should Students Take Out Loans to Pay for College? In many cases grant aid alone will not meet demonstrated need Federal student loans provide lower interest rates and more favorable terms than private loans Loan burden should be minimized –Average for an undergraduate is $20,000 –More than that is a red flag

28 Minimizing Loan Burden Never borrow more than needed Budget carefully: the cost of attendance can be reduced Consider working more during summer months or school year, but do not over-commit

29 Minimizing Loan Burden, cont. Work vs. loans –How much work is too much? How much loan is too much? Moving students and families to a balanced approach –More than 15 hours during the academic year is not recommended for full-time students Private loans and credit card debt are the most expensive, risky ways to borrow for college

30 How Much Can Students/Families Afford to Borrow? Know in advance who will be responsible for repayment Consider likely future career, income, and monthly repayment amount Consider impact on post-college finances, including purchasing a car or a home, starting a family, career choice, and saving for retirement

31 How Much Can Students/Families Afford to Borrow? (cont.) Know about reducing or eliminating monthly repayment amounts –Income-based repayment available for federal loans –Forgiveness for public service and other careers Take-away: The student loan repayment calculator at dardcalculator.htm dardcalculator.htm

32 What Type of Loan Is Best in a Given Situation? Perkins Loans have the most favorable interest rate (5%): –Availability varies by school –Perkins Loans are need-based Subsidized federal Stafford loans should be considered next, after Perkins –6% interest rate for ; declines in the next few years –Also need based

33 What Type of Loan Is Best in a Given Situation? (cont.) Unsubsidized Stafford and PLUS loans for parents should be considered next Only consider private loans as a last resort after all other options have been exhausted

34 Considering Private Loans Evaluate the interest rate, repayment, and other terms very carefully –Higher interest rates –In-school repayment –Few options for borrowers having trouble making payments Be aware that having a co-signer with an excellent credit score can result in more favorable terms

35 Considering Private Loans (cont.) Re-evaluate choice of college –If the only way to attend is with considerable private loans on top of maximum federal limits, consider whether choice of college is really worth the risk, debt and expense –There may be more affordable colleges that are comparable

36 Considering Private Loans (cont.) Take-away: Student Loan Options in a Tight Credit Market at et_options.pdf et_options.pdf Take-away: Questions to ask about private loans at questions.vp.html questions.vp.html

37 Considering Private Loans (cont.) Take-away: Private Student Loans: A Guide to Responsible Borrowing at rials/PrivateLoanMaterials/PrivateLoansAwar enessBrochure.pdf rials/PrivateLoanMaterials/PrivateLoansAwar enessBrochure.pdf Take-away: Private Student Loans: Understanding the Cost of Borrowing at rials/PrivateLoanMaterials/CostofStudentLoa nBrochure.pdf rials/PrivateLoanMaterials/CostofStudentLoa nBrochure.pdf

38 How Will a Student Repay the Loan? Standard repayment plan –Lowest total interest costs over life of the loan –Ten-year repayment term Graduated repayment plan –Monthly payments are smaller at the beginning of the repayment period and increase over time –The maximum repayment term is ten years

39 How Will a Student Repay the Loan? (cont.) Extended repayment plan –Lengthens repayment term up to 25 years –Must have a minimum loan balance of $30,000 to qualify Income-sensitive repayment plan –Monthly payment varies according to gross monthly income –Payment includes at least monthly accruing interest Income-contingent repayment plan (in Direct Loan Program)

40 How Will a Student Repay the Loan? (cont.) Consolidation –Combine multiple loans into one convenient payment –Consolidation done mostly through the U.S. Department of Education recently –Lock in fixed interest rate on loans from before July 2006 Averages rates of all loans being consolidated

41 How Will a Student Repay the Loan? (cont.) Deferment –Examples include graduate school, Peace Corps or other public service, active military duty, unemployment, and economic hardship –Period during which payments are not required

42 How Will a Student Repay the Loan? (cont.) Forbearance –If borrower does not qualify for deferment but still needs relief, can appeal to lender or servicer for forbearance –Can reduce or postpone payments or extend the time for making payments –Forbearance requests typically are granted for periods of up to 12 months.

43 How Will a Student Repay the Loan? (cont.) Loan forgiveness and benefits –Teacher and nurse forgiveness (cancellation) for working in low-income or shortage areas –Borrower benefits (interest rate reduction) for electronic debit and on-time payments Borrower benefits and student loan interest deductions on tax returns

44 New Option: Income Based Repayment Effective July 2009 Keeps monthly payments affordable with caps based on income and family size Forgives any debt that remains after 25 years of payments

45 Income Based Repayment, cont. Monthly payments for earnings below 150 percent of poverty level for familys size are $0 Monthly payments for earnings above that are capped at 15 percent of earnings above 150 percent of poverty level Monthly payments usually amount to less than 10 percent of total income

46 New Option: Public Service Loan Forgiveness Forgives remaining federal student loan debt after 10 years of qualifying payment and eligible employment Loans must be through federal Direct Loan program

47 Public Service Loan Forgiveness, cont. Eligible employers/organizations include –Non-profit, tax-exempt 501(c)(3)s –Federal, state, local, or tribal governments, including military and public schools and colleges –AmeriCorps (full time) Employment/payments made after October 1, 2007 count toward 10-year requirement

48 How Will a Student Repay the Loan? (cont.) Take-away: Income-based repayment and public service loan forgiveness site at Take-away: The U.S. Department of Educations Repaying Your Loans at english/repaying.jsp english/repaying.jsp

49 How Will a Student Repay the Loan? (cont.) Take-away: Nursing Education Loan Repayment Program at tm tm Take-away: IRS Tax Topic 456: Student Loan Interest Deduction at

50 What Happens If a Borrower Cant Repay a Student Loan? Student loans must be repaid whether or not the student finishes his/her program of study Student loans are rarely dischargeable in bankruptcy

51 What Happens If a Borrower Cant Repay a Student Loan? (cont.) Default happens after nine months of non- payment –Default ruins credit score –Wages and even Social Security may be garnished –Tax refunds may be offset Communication with loan holder is key and may prevent default through alternative repayment arrangements

52 What Happens If a Borrower Cant Repay a Student Loan? (cont.) Take-away: NCHELPs Student Loan Guaranty Agencies at ncies%20List%2008.pdf ncies%20List%2008.pdf Take-away: The Federal Student Aid Ombudsmans Web page at

53 Q & A Continue to submit questions via We will select those questions with the broadest applicability An archive of todays Webinar will be posted on the NACAC Web site approximately one week from today. Thank you for participating in The Basics of Borrowing!