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Successful Student Loan Repayment Michelle Pezzulli Sallie Mae, Campus Programs. Agenda. Determining Your Loan Portfolio Debt Management Considerations Loan Repayment Plans Considering Consolidation Q&A. Identifying Your Loan Situation.

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  • Determining Your Loan Portfolio
  • Debt Management Considerations
  • Loan Repayment Plans
  • Considering Consolidation
  • Q&A
identifying your loan situation
Identifying Your Loan Situation

Determining What’s Best For You

When it comes to repaying your student loans, you need a plan that fits your individual circumstances and allows you to repay with confidence. As we move through the presentation, we’ll cover options to assist you in making choices so that you can select the best student loan repayment plan for your situation.

identifying your loan situation4
Identifying Your Loan Situation

If you fail to repay (default on) these student loans, it can:

  • Negatively impact your credit rating
  • Prompt withholding of your federal and state tax refunds
  • Limit your job selection (many companies run credit checks on job applicants)
  • Rescind your professional license
  • Trigger garnishment of your wages
  • Raise the interest rate you pay on a car or home loan
identifying your loan situation5
Identifying Your Loan Situation
  • What types of education loans do you have?
    • For example, do you have Stafford Loans, Perkins Loans, Consolidation Loans?
  • Who is the lender or service provider for each of your student loans?
    • Most education loans are issued under one or two of the following programs: FFEL or FDLP
  • How many loans do you have?
  • How much and when did you borrow each loan?
    • This will help you determine the best repayment option.
identifying your loan situation6
Identifying Your Loan Situation

Understanding loan types

  • Stafford Loans: Low interest student loans that are regulated by the federal government. The loans are either subsidized or unsubsidized.
  • Subsidized – Need based with accruing interest paid by the government while the borrower is in school, during a grace period and during eligible deferments
  • Unsubsidized – Non-need based with accruing interest paid by the borrower during the life of the loan
  • Stafford loan repayment begins six months after the borrower leaves school or drops to less than half time status. The loans have a variable interest rate this is adjusted annually and is capped at 8.25%.
  • Private Loans – Private loans from banks, colleges, family members, and credit card debt. These loans cannot be included in a federal consolidation loan.
update on loan types
Update on Loan Types

Stafford Loan Terms

  • Annual variable* interest rate, capped at 8.25%
    • current rate: in school = 6.54%; in repayment = 7.14%
    • Interest rate changes each July 1
    • Up to 10-year repayment period
    • Stafford loans first disbursed after 7/1/06 have a fixed rate of 6.8%
  • Government pays interest on subsidized Stafford loans during school, grace & deferment periods
  • Interest accrues at all times on unsubsidized Stafford loans; interest may be paid by borrower or capitalized at repayment
  • Lender Options: FFELP Lender or Federal Direct Loan Program
    • your school determines which program is used
  • 6-month grace period

* Applies to older Stafford loan first disbursed prior to July 1, 2006

update on loan types8
Update on Loan Types

Private Loans

  • Private Loans
    • Terms differ depending on lender
    • Check loan promissory note for specific terms
    • Generally, repayment period up to 15 or 25 years depending on loan balance
debt management
Debt Management

Before you can choose your Loan Repayment Terms, you need a plan.

  • Choose a repayment timeline to meet financial goals
  • Choose a repayment timeline for today and tomorrow
  • Tools for portfolio management
    • Loan consolidation calculator
        • Tools and resources
    • Credit Resources
      • Credit rating –

      • Identity theft –
debt management10
Debt Management

Repayment strategies are borrower specific

  • Tailored to meet the borrower’s financial goals
    • Pay student loan debt quickly
    • Pay higher rate debt first
    • Save to buy a house, start a family
    • Relocate, go into business, start a practice
debt management11
Debt Management

When it comes to determining a repayment strategy to fit your needs, remember that a “one size fits all” approach does not work.

The following slides illustrate the various repayment options but cannot be used to determine your repayment strategy.

Be sure to consult with your lender and use the tools at your disposal.

repayment plans
Repayment Plans

Standard (level) Repayment

  • This plan requires equal monthly payments that include principal and interest. This is the most commonly chosen plan. It offers:
  • The same payment amount for the entire term
  • Typically, the lowest overall cost
  • No penalty for early payoff
  • Drawback: The monthly payments may be more than some borrowers can afford
standard level repayment payment example
Standard (level) Repayment – Payment Example

Standard Repayment is the most commonly selected repayment plan and

minimizes the amount of overall interest you will pay.

* Assumes current interest rates

** Assumes 10 year repayment terms

repayment plans14
Repayment Plans

Graduated Repayment

  • This plan provides lower monthly payments that increase at predetermined intervals during the repayment term. It is for all borrowers whose incomes may be lower at first, but will increase. It offers:
    • Lower initial monthly payments
    • Predictable increases in monthly payment amount
    • No penalty for early payoff
  • Drawback: The borrower will pay for lower payments with higher interest costs
graduated repayment payment example
Graduated Repayment– Payment Example

Graduated Repayment allows borrowers to pay lower monthly payment while transitioning from school to work. The payments increase at set intervals and level off on a pre-determined date.

* Assumes current interest rates

** Assumes 10 year repayment terms

repayment plans16
Repayment Plans

Extended Repayment

  • This plan extends the repayment term for up to 25 years if your loans total more that $30,000, and providing all your loans were disbursed after October 7, 1998. If offers:
  • Low fixed or interest only payments
  • Choice of level or graduated repayment schedules
  • No penalty for early payoff
  • Drawback: Higher interest costs
extended repayment payment example
Extended Repayment– Payment Example

Extended Repayment provides an additional 5 years of repayment terms to borrowers who qualify. The extension in repayment terms provides payment relief.

* Assumes current interest rates

** Assumes 25 year repayment terms

repayment plans18
Repayment Plans

Income-Sensitive Repayment

  • This plan bases your payment amount upon your income and is adjusted annually. It works best for those experiencing financial difficulties and who may be in danger of defaulting. If offers:
  • A monthly payment based on a percentage of gross monthly income and the amount borrowed
  • No penalty for early payoff
  • Drawback: Significantly higher interest costs over the life of the loan
deferment and forbearance
Deferment and Forbearance

What is deferment?

  • If you find that you are unable to meet your monthly payment obligations, contact your lender right away. You may qualify for a deferment that will allow you to postpone making principal payments on your loan. The most common deferments granted are those for:
    • In- school periods --------granted without time limit
    • Unemployment ------------applied for annually for up to 36 months
    • Economic hardship-------applied for annually for up to 36 months
deferment and forbearance20
Deferment and Forbearance

What is forbearance?

  • For borrowers with temporary financial issues who do not meet the requirements for deferment, you may suspend your payments under certain circumstances by requesting forbearance. You will be responsible for the interest that accrues on your loan. This interest is added to the amount you owe and must be repaid when payments resume.
consolidation consideration
Consolidation Consideration
  • A Federal Consolidation loan allows the borrower to combine one or more of their eligible federal education loans into one new loan – and can extend the repayment term, allowing lower monthly payments.
  • Loan consolidation is a financial management strategy that can benefit both student and parent borrowers, although it may not be the best strategy for every borrower.
consolidation consideration22
Consolidation Consideration
  • Lender issues new loan and pays off the loan(s) put into the consolidation
    • Terms associated with individual loans no longer apply
  • Consolidation loan has its own interest rate and different payback terms
  • Consolidation loans may offer specific, unique borrower benefits
    • Benefits applicable to loans included in the consolidation are typically forfeited
  • Consolidation loans usually cannot be refinanced
    • Borrowers can reconsolidate under specific conditions
  • Consolidation loans do not have a grace period
    • Borrowers who consolidated while in-school, can expect to have a payment due around the time of graduation.
consolidation consideration23
Consolidation Consideration
  • Borrowers should be wary of:
    • Consolidation loans that include origination fees, prepayment penalties, credit checks or variable interest rates
      • Loans with these types of terms are likely not federal consolidation loans
    • Consolidating certain non-Stafford loans, e.g., Perkins loans, with interest subsidy benefits that will be lost upon consolidation
      • Borrowers may exclude these loans from consolidation until they no longer anticipate using subsidy benefits (e.g., grace and/or deferment periods)
      • Borrowers may include these loans in a subsequent consolidation loan at a later date
consolidation consideration24
Consolidation Consideration
  • Consult with your lender if you have any questions regarding:
    • Timing
      • Fixed vs. variable rate loans
    • Grace Period
      • Determining loans with grace periods
      • Determining loans without grace periods
    • Borrower Benefits
      • Compare Stafford loan benefits
      • Compare Consolidation loan benefits
    • Borrowers need to consider:
      • Longer repayment terms
      • Smaller monthly payments
      • Assistance with loan portfolio management
consolidation consideration25
Consolidation Consideration

Consolidation interest rate

  • Consolidation loans have a fixed interest rate for the life of the loan
  • To determine the fixed rate, a weighted-average is computed based on currentinterest rates of underlying loans
  • Calculated rate is rounded up to the nearest 1/8th percent
  • The interest rate is capped at 8.25%
consolidation loan payment example
Consolidation Loan– Payment Example

Consolidation combines the Stafford loan of $60,000 into a new loan with a new interest rate and a longer repayment term.

* Assumes 30 year repayment terms

consolidation consideration28
Consolidation Consideration

Affordable Monthly Payments

  • Consolidation loans do not have prepayment penalties
  • Monthly payment amount is scheduled and easier to budget
    • No interest rate fluctuations to affect the monthly payment amount
    • Payment schedule is set for life of repayment (except income-sensitive / income-contingent schedules, or in cases where deferment or forbearance periods are used)
    • Sallie Mae’s Direct Repay allows for convenient, on-time monthly payment
  • Borrowers can take advantage of making larger monthly payments to reduce total interest costs
    • By voluntarily making increased payments
      • Retains the flexibility to make only the minimum required payment when finances dictate
    • By adjusting the repayment terms (consult with lender regarding availability of this option) to increase the scheduled payment amount
      • Establishing a shorter repayment schedule assures pay off in a set amount of time
private loan considerations
Private Loan Considerations
  • Private Loan Repayment
    • Managing variable rate private loans
      • Payment amounts can change monthly, quarterly, or annually, depending on the loan terms
        • Harder to forecast
        • Requires careful budgeting
    • Fixed rate Federal consolidation loan with lower monthly payments can offer more funds to allow borrowers to focus on repaying their higher, variable rate private loans
    • Private consolidation loans are another option for borrowers who need more time to repay and want smaller monthly payment
      • Borrowers should closely examine private consolidation terms
consolidation consideration30
Consolidation Consideration
  • When considering consolidation, research your options:
    • Borrowers should consider:
      • Repayment can be a long-term relationship
      • Many, if not most, borrowers cannot reconsolidate under current rules
      • Many consolidation marketers are not the lenders
      • Ask who the lender/loan holder and loan servicer will actually be and whether this can change
      • Borrower benefits that may look too good to be true and require reading the fine print