RESPONSIBLE EDUCATION repayment STRATEGIES

RESPONSIBLE EDUCATION repayment STRATEGIES Date: March, 2019

Keep Good Records – A Student’s To Do List • Get all loan documents together: keep them on file! • Promissory notes • Disclosure statements • Award Letters • Exit interview information • Open and READ student loan mail • Bookmark loan servicer’s websites • Notify loan servicer(s) of name & address changes • Document calls to servicer: date/time of call & person who handled the call • Keep important numbers available • Consider using an interactive tracking/budging tool like Intuit’s Mint.com

Education Financing Options Options for Students: • Federal Loans: • Perkins Loans • Direct Subsidized and Unsubsidized • PLUS Loan for Graduate Students • Private/Alternative Loans • Institutional Loans Options for Parents: • Federal PLUS Loans (undergraduate students only) • Cosign a Private/Alternative Loan • Private Parent Loans

Private loans are almost always unsubsidized for the life of the loan Repayment terms vary Choice of repayment options may be available Residency and internship deferments may be available Forbearances may be available Consult your loan servicer Private Loan Repayment TIP: Refer to your promissory note and/or your servicer to determine your available options

Identify Your Servicers • Federal and/or private loans may not all be with one servicer • Buying and Selling of Students Loans: • Original lender may have sold a student’s loan • This means a student has a new loan “holder” and/or “servicer” For example, a FFELP loan may have been sold to the Department of Education (ED) who now holds the loan and is having it serviced by one of is federal loan servicers such as: • Great Lakes • Navient • Nelnet • FedLoan Servicing (PHEAA) • Borrowers must be notified if the service provider of loan changes • The terms of a federal loan, as specified in the promissory note, will not change if sold or transferred to another servicer

Finding Your Federal and Private Student Loans Federal Student Loans National Student Loan Data System www.nslds.ed.gov Private Student Loans (reported to the consumer reporting agencies) www.annualcreditreport.com

Subsidized vs Unsubsidized Loans SubsidizedLoans Have no interest cost while student is in school, in grace (if applicable), or in a period of authorized deferment UnsubsidizedLoans Borrower is responsible for interest that accrues from the time of disbursement • EXAMPLES • Direct Subsidized Loans* • Consolidation Loans- portion of underlying eligible subsidized loans • Some institutional loans (see promissory note or aid office) • EXAMPLES • Direct Unsubsidized Loans • PLUS Loan for Graduate Students • Consolidation Loans- unsubsidized portion, which includes the unsubsidized Stafford loans plus any Perkins • Private Loans *Effective July 1, 2012, Subsidized Stafford Loans are no longer available for graduate students. Note: Consolidated Appropriations Act (Public Law 112-74) temporarily eliminated the interest subsidy during the 6-month grace period on subsidized Stafford loans made from July 1, 2012 through June 30, 2014. The subsidy resumed for loans made on or after July 1, 2014. Source: This information was gathered 1/2017 from: https://studentaid.ed.gov/sa/

Relative Cost of a Student Loan • Interest Rate • The rate charged to borrow money • The higher the interest rate, the higher the total loan cost • Borrower Benefits/Repayment Incentives • Interest rate reductions • Credits to loan balance • Some benefits and repayment incentives impose eligibility requirements such as signing up for automatic debt or making a certain number of on-time payments

Understanding Fixed and Variable Interest Rates Interest Rates: The rate charged to borrow money. An interest rate can be either “fixed” or “variable.” Which should you get? It depends on your financial situation and your personal preference.

Loan Interest Rates * Federal student loan information was gathered September 2018 from. https://studentaid.ed.gov Rates, fees and availability of federal loan products are subject to change by the Federal Government. Check this web site for the most up-to-date information about federal loan products. * Based on a November 2018 review of competitors' loan programs and repayment features.

Interest capitalization occurs when unpaid interest is added to the principal amount of a loan, increasing the principal amount outstanding Examples: On a $50,000 loan, interest capitalized at the end of a 12 month deferment would be $3,400 with an interest rate of 6.5% with a loan term of 10 years. This will increase the total loan cost by $1,295.60 over the life of the loan On a $100,000, the interest capitalized at the end of a 12 month deferment would be $6,800 with an interest rate of 6.5% with a loan term of 10 years. This will increase the total loan cost by $2,591.20 over the life of the loan Impact of interest capitalization Source: Information gathered on 9/24/18 http://www.finaid.org/calculators/scripts/interestcap.cgi

Grace Period - period of time after a borrower graduates, leaves school or drops to less than half-time Payments may not be required during this period No application required Loan specific, varies according to loan – once used completely, it’s gone Direct Subsidized and Unsubsidized loans have a six-month grace period Private and Institutional loans: check your promissory note Unsubsidized federal loans continue to accrue interest during the grace/separation period Taking advantage of a grace period does not adversely impact credit Understanding Grace/Separation Periods

Track Dates You Need to Take Action • Tip: • This is one of the most important items to document. List the date that you have to take action on your loan. This can either be the graduation date or the date your grace period expires. This can be confirmed by your servicer(s). Action Date*

Student borrowers can always prepay federal student loans without penalty Some private student loans can also be prepaid without penalty NOTE: student borrowers should check with their servicer Be aware of the relative cost After making the scheduled monthly payment, make additional payments towards private loans and/or unsubsidized federal loans that have the highest interest rates and/or most frequent capitalization to save money Loan payments are typically applied first toward fees, then interest, and finally principal – check your loan agreement for additional information Paying Off Loans Early

Delinquency & Default (Federal/Private Loans) Delinquency & defaults on student loans can adversely impact your credit history • Delinquency • Failure to make payment(s) on time. Missing even one payment can make a loan delinquent. • Reported to credit bureaus; affects borrowers credit history • Default • Failure to repay a loan • Collection agencies may take over adding to cost • Lender can take legal action • School can withhold records • Federal defaults could include wage garnishment & withholding of federal tax refunds • Student loans may not be discharged in bankruptcy

Grad PLUS loans issued on or after July 1, 2008, include a six-month post-school deferment that essentially aligns with the Stafford grace period Forbearance can also be used to temporarily postpone payment if necessary for Consolidation loans and older Grad PLUS loans Borrower can postpone repayment on federal loans via a deferment or forbearance Borrower has to meet the qualifying conditions for a deferment or a forbearance Ways to Defer Payments Federal Consolidation Loans and Grad PLUS loans do not have grace periods Direct Subsidized, Unsubsidized and some private loans offer grace periods

Application may be required depending on deferment type; recertification for subsequent deferment periods may also be required Federal student loan deferments are “borrower” specific, meaning eligibility is attached to the borrower and there is a max deferment time allotted for certain deferments The government pays interest on a borrower’s behalf for subsidized loans during authorized deferment periods Understanding Federal Loan Deferments Deferment: period when a borrower who meets certain criteria may postpone loan payments • Common Types of Deferments: • In-School • Economic Hardship • Unemployment • Military • Graduate Fellowship Note: Unsubsidized loans continue to accrue interest for which the borrower is responsible. Unless the interest is paid by the borrower, it may be capitalized (added to your principal balance) at the of the deferment period. To keep your total loan cost lower, you may want to consider paying all or some of the interest that accrues during this time.

Interest continues to accrue on subsidized and unsubsidized loans during a forbearance period. Interest that accrues during the forbearance remains the borrower’s responsibility. Unpaid interest may be capitalized at the end of the forbearance depending on the loan type and when the loan was disbursed. Additionally, there is a max forbearance time allotted. Understanding Federal Loan Forbearance Discretionary Forbearance: allows a borrower who cannot make scheduled payments to temporarily delay or reduce the payments TIPS: Be careful, the use of forbearance adds expense! Forbearances can help you stay out of delinquency and default! • Capitalization of interest increases the amount to pay back, and will result in a higher payment amount after the forbearance. To keep your total loan cost lower, you may want to consider paying all or some of the interest that accrues during this time. • Medical and dental school residents are eligible to receive a forbearance during their residency as long as the residency meets certain criteria such as being required for a degree, certificate, or licensing for professional practice or service. (Renewable on an annual basis in 12-month increments)

Federal Loan Repayment Plans Source: Information gathered 1/2017 from https://studentaid.ed.gov/sa/repay-loans/understand/plans

Federal Loan Repayment Comparison • Assumes $27,000 in undergraduate loans (subsidized loans totaling $19,000 and 4 unsubsidized loans of $2,000 each). Assumes current interest rate of 5.05% for all loans, annual income of $25,000, and household size of 1. Note: The DOE Calculator rounds the interest rate down to 5%. Source: Information verified 11/2018 from https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

Eligibility limited to Federal Direct Student Loan Program (FDLP), Stafford PLUS and Consolidation FFELP Stafford, PLUS and Consolidation are not eligible FFELP Borrowers may consolidate in the FDLP Additionally, borrowers must have: Made 120 on-time monthly payments beginning after October 1, 2007 during eligible public service employment. Payments must be made under one of the payment plans: Income Based, Pay As You Earn, Income Contingent, REPAYE, or any payment equivalent to the 10-year standard payment amount. Worked full time in eligible public service employment for ten years after October 1, 2007. At the time the remaining loan balance is forgiven, must be employed in an eligible public service job. Other loan forgiveness programs may also be available – do your research! Federal Loan Forgiveness Program for Public Service Employees

Federal Loan Forgiveness Program for Public Service Employees, cont. To be eligible for PSLF, the 120 required payments must be made under one or more of the following Direct Loan Program repayment plans: • Revised Pay As You Earn Repayment Plan (REPAYE Plan) • Pay As You Earn Repayment Plan (PAYE Plan) • Income-Based Repayment Plan (IBR Plan) • Income-Contingent Repayment Plan (ICR Plan) • 10-year Standard Repayment Plan • Any other Direct Loan Program repayment plan; but only payments that are at least equal to the monthly payment amount that would have been required under the 10-year Standard Repayment Plan may be counted toward the required 120 payments

Quick Comparison of Income Driven Federal Loan Repayment Plans Most IDR plans have two formulas--for those that do, borrowers always pay the lesser of the two. Source: December 2015 Department of Education FSA Presentation

Quick Comparison of Income Driven Federal Loan Repayment Plans Loan Forgiveness 20 years is for undergraduate borrowers and 25 years is for graduate borrowers Generally, payments on an IDR plan, 10-year standard plan, or periods of economic hardship deferment count toward forgiveness Source: December 2015 Department of Education FSA Presentation

Quick Comparison of Income Driven Federal Loan repayment Plans Interest Capitalization (unpaid interest added to the loan’s principal amount) Source: Department of Education FSDecember 2015 A Presentation

Quick Comparison of Income Driven Federal Loan Repayment Plans Eligible Loans Source: December 2015 Department of Education FSA Presentation

Know What You Owe Put together a snapshot of what you owe

Final Tips for Managing Your Loans and Finances

The information contained in this presentation is not comprehensive, is subject to constant change, and therefore should serve only as general, background information for further investigation and study related to the subject matter and the specific factual circumstances being considered or evaluated. Nothing in this presentation constitutes or is designed to constitute legal advice.

RESPONSIBLE EDUCATION repayment STRATEGIES