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Loans

Loans. ABC Workshop 2012. Loans. Types of Loans Loan Processes and Requirements Repayment Options. Federal Loans. Federal Direct Subsidized Loan Federal Direct Unsubsidized Loan Perkins PLUS GradPlus. Federal Direct Subsidized Loan. Need-based Loan Interest rate: 3.4%

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Loans

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  1. Loans ABC Workshop 2012

  2. Loans • 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

  7. Federal Loan Limit

  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 • www.studentloans.gov

  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 • www.nslds.ed.gov

  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 • www.nslds.ed.gov

  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

  29. Questions?

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