Loan Basics Karen Trail and Julie Brumbaugh Texas Woman’s University 2015 ABC Workshop

Agenda Student loan programs and regulations Application process and eligibility Repayment options

Federal Student Loans Federal Direct Subsidized Loan Federal Direct Unsubsidized Loan Parent PLUS Loan Graduate PLUS loan Perkins

Federal Direct Subsidized Loan Need based loan for undergraduates only Origination fee: 1.068% (as of October ) Fixed interest rate: 4.29% (as of July ) July 1 rate is adjusted for new loans

Federal Direct Subsidized Loan Grace period: 6 months Interest does not accrue – paid by Dept. of Ed Enrolled at least half time During 6 month grace period* During other times of deferment Must meet SAP and enroll at least half time

150% Subsidized Usage Limit Applies (SULA) Effective 7/1/13 and applies to new borrowers or borrowers with a zero balance taking out a new loan May only receive Sub for 150% of the published program length

150% Subsidized Usage Limit Applies (SULA) MEP-SUP=REP Maximum eligibility period (MEP) Subsidized usage period (SUP) Remaining eligibility period (REP)

150% Subsidized Usage Limit Applies (SULA) Eligibility lost after students exceeds MEP Cannot receive any more sub May receive unsub up to yearly limit in its place Interest begins to accrue

Federal Direct Unsubsidized Loan Non-need based loan Borrowers is undergrad, grad, or professional Origination fee: 1.068% Fixed interest rate: 4.29% undergrad, 5.84% grad

Federal Direct Unsubsidized Loan Grace period: 6 months Interest accrues while student is in school Interest capitalizes Student can elect to pay interest while enrolled Must meet SAP and enroll at least half time

Independent Undergraduate Student Base Eligibility (Sub or Unsub) Additional Unsubsidized Loan Freshman$3,500$6,000 Sophomore$4,500$6,000 Junior/Senior$5,500$7,000 Maximum Total (Aggregate) Limit: $57,500 ($23,000 can be subsidized) Graduate/Professional Student Unsubsidized Loan$20,500/academic year Maximum Total (Aggregate) Limit:$138,500 ($65,500 may be subsidized) Dependent Undergraduate Student Base Eligibility (Sub or Unsub) Additional Unsubsidized Loan Freshman$3,500$2,000 Sophomore$4,500$2,000 Junior/Senior$5,500$2000 Maximum Total (Aggregate) Limit: $31,000 ($23,000 can be subsidized)

Parent PLUS Loan Non-need based loan Can borrow up to cost of attendance (COA) Borrower is parent of dependent undergrad Student must be enrolled at least half time Origination fee: 4.272% Fixed interest rate: 6.84%

Parent PLUS Loan Credit check required Additional PLUS loan counseling required for low credit Additional unsub up to independent limit may be awarded if parent does not pass credit check Repayment begins after loan is fully disbursed

Graduate PLUS Loan Non-need based loan Can borrow up to COA, no aggregate limit Borrower is graduate or professional student Origination fee: 4.272% Fixed interest rate: 6.84%

Graduate PLUS Loan Credit check required Loan payments deferred while at least half time 6 month grace period, interest continues to accrue Must be enrolled at least half time

Direct Loan Application Process FAFSA Eligible student in eligible program with Pell eligibility determination complete Entrance counseling First time borrowers informed of their rights and responsibilities Completed at

Direct Loan Application Process Master Promissory note Includes terms and conditions of the loan disbursement and repayment Valid for 10 years and covers multiple loans Completed on

Direct Loan Application Process Exit Counseling Information on repayment Must be complete when student drops below half-time or graduates Completed on PLUS loan application at

Direct Loan Notification Institution is required to notify the borrower within 14 days that a loan disbursement has been made and that the borrower may reduce or cancel the disbursement.

Direct Loan Proration Applies to subsidized and unsubsidized loans Required if: Student’s academic program is less than 1 year in length Student’s remaining period of study is less than 1 year in length Amount of direct X loan student could have for grade level

Direct Loan Proration Standard proration formula: Actual enrolled hours Amount of direct X loan student could have for grade level

Perkins Loan Need based loan Borrower is undergrad, grad, or professional No origination fee Fixed interest rate: 5% Interest does not accrue while in school or grace Grace period: 9 months Institution is lender and servicer Must meet SAP and enroll at least half time

Perkins Loan Annual Limit: $5,500 undergrad, $8,000 grad/prof Lifetime Limit: $27,500 undergrad, $60,000 grad/prof Maximum repayment period is 10 years Program ending Sept. 30, 2015 unless congress approves another extension Grandfathering may apply to some students

Alternative Loans Non need based loans Private banks State loans (College Access Loan, B-On-Time Loan) Fees, interest rates, terms vary Most require school certification May require credit check or cosigner

Student Loan Repayment Single source with record of all federal loans Borrower info Loan amounts Interest accrued Servicer info

Repayment Plans Standard – 10 years; equal monthly payments Graduated – 10 years; monthly payments start low and increase every 2 years Income sensitive repayment – monthly payments based on annual income and change as income changes Extended – 25 years; fixed or graduated monthly payments

Repayment Plans Income contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship” (25 yr forgiveness) Income Based – monthly payments will not exceed 15% discretionary income (25 yr) Pay As You Earn – monthly payments will not exceed 10% of discretionary income (20 yr)

Loan Repayment Terms Forbearance – Period of time payments are postponed, reduced or extended Interest accrues Deferment – Period of time payments are postponed for approved set of reasons Interest on subsidized loans does not accrue*

Loan Repayment Terms Default – payments delinquent for 270 days Consolidation – Combines loans into one, requiring one monthly payment to one servicer Can fix defaulted loan

Cohort Default Rate (CDR) Includes Direct 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 fiscal years

Cohort Default Rate (CDR) High rate has consequences for schools >15% = loss of 1 installment/semester >15% = 30 day hold on 1 st time, 1 st year borrowers >40% = loss of participation in Title IV funding

Resources Studentaid.gov FAQs broken down by loan type Repayment calculators IFAP – ifap.ed.gov Handbooks, regulations, current notifications This site is your best friend! YouTube – FederalStudentAid channel Videos on a variety of topics including repayment

Questions?

Direct Loans Trivia Game! Question #1 Which of the following students are eligible to receive Direct Subsidized Loans?

Direct Loan Trivia Game! Question #1 A. Undergraduate students only? B. Both undergraduate and graduate students? C. Graduate Students only? D. Student and parent borrowers?

Direct Loan Trivia Game Answer to Question #1 The answer is A Undergraduate students only.

Direct Loan Trivia Game! Question #2 When calculating the amount of a student’s eligibility for Direct PLUS loans, which of the following factors are considered?

Direct Loans Program Trivia Game! Question #2 A. Students grade level ? B. Students expected graduation date ? C. Expected Family Contribution ? D. Students aggregate Direct Loan debt?

Direct Loan Trivia Game! Question #2 The answer is C Expected Family Contribution is a factor for calculating loan amounts.

Direct Loan Trivia Game! Question #3 Maximum Direct Loan limits may differ according to the student’s ?

Direct Loans Trivia Game! Question #3 A. Program of study and academic year ? B. Age and grade level ? C. Program of study and grade level ? D. Age and academic year ?

Direct Loan Trivia Game! Answer to Question #3 The answer is C. Program of study and grade level will affect the eligibility and frequency of Direct Loan amounts and limits.