New Aid Officers Workshop 2011

1. New Aid Officers Workshop 2011 G General Audiences All ages admitted. No content that would be objectionable to most parents. Polite language. No swearing. Only mild violence.

3. Student Loans Stephen Brower Associate Director Financial AidHardin-Simmons University Financial Aid sbrower@hsutx.edu

4. Student Loans - Agenda • Terminology • Federal Loans & Background • Life Cycle of a Loan • Entrance / Exit Counseling & MPN • Federal Loans Types • Perkins • PLUS – undergrad & grad • DL Terms & Comparison of Sub & Unsub • Loan Limits; Proration Requirements • Interest Generation, Accumulation • R2T4 • Federal Direct Consolidation Loan • Repayment Facts and Options • Deferments and Forbearances • Consequences of Default (borrower and school) • Private Loans • Questions

5. Terminology • Free Application for Federal Student Aid = FAFSA ≠ FASFA ≠ FAFSER ≠ SAFSER ≠ RAFSA • Term = Semester often used interchangeably • Academic Year = A period of at least 30 weeks of instructional time during which a full-time student is expected to complete at least 24 semester or trimester hours, or at least 36 quarter hours, at an institution that measures program length in credit hours; at least 900 clock hours at an institution that measures program length in clock hours • Cost of Attendance = The student's Cost Of Attendance includes tuition, fees, and standard allocation designed to cover reasonable living expenses while attending school. The cost of attendance is determined by the school using guidelines established by federal regulations. (also known as Cost of Education or Student Budget) • FAO = Financial Aid Office

6. Terminology • FAM = Financial Aid Management (system) Datatel®, TopSchool®, Poise®, PowerFAIDS®, Oracle®, Banner® • DL vsStafford • ACH (Automated Clearing House) aka EFT (Electronic Funds Transfer) = movement of funds from lender to school, from school to student • R2T4 = Return to Title IV; process of returning unearned FSA funds (federal Title IV funds)

7. Federal Loans

8. Background • On January 1, 2011, total US educational debt stood at $830,000,000,000.00, which equals $2,700 for every man, woman & child in the USor $33,200 for every resident of Texasor $345,800 for every resident of Dallasor $83,000,000 for every resident of Waxahachie

9. Background • In 2000, 36% of all US college graduates graduated with some loan debt; by 2110, that percentage had increased to 66% • In 2000, 5% of all US college graduates defaulted on repayment of their loans within 3 years following graduation; in 2010 that rate had nearly tripled to 14.7%

10. Lifecycle of a Direct Loan Eligibility Determined by combining: Information & awards from FAFSA Other awards & payments Limited by the Cost of Attendance

11. 2011/2012 DL Limits 11

12. Lifecycle of a Direct Loan Eligibility DLs are entered into the FAM & then transmitted to Dept of Ed. Origination

13. Lifecycle of a Direct Loan Eligibility Funds transmit from DoEd to school on appointed disbursement day Origination Disbursement

14. Lifecycle of a Direct Loan Eligibility Repayment Origination Disbursement

15. Required Processes

16. www.studentloans.gov • Entrance Counseling • First-time borrowers • Inform them of their rights and responsibilities of taking out this loan www.nslds.ed.gov • Exit Counseling • All loan recipients that depart from your institution • Graduate, withdraw, transfer, do not return • No Exit Counseling = no transcripts / no diploma Loan Counseling

17. Document executed by borrower, which spells out the terms & conditions of the loan disbursements, use and repayment • If the note is for multiple loan periods and varying amounts, the lender may elect to have the borrower use a Master Promissory Note Promissory Note

18. Federal Loan Types

19. Oldest active educational loan • Institution administers this loan • Previous allocations came from the Dept of Ed, now schools operate this loan from repaid funds • Fixed 5% interest rate • Repayment begins 9 months after student ceases to be enrolled at least 1/2 time • Minimum payment as low as $30 • Maximum repayment term is 10 years Federal Perkins Loan

20. Federal PLUS Loan is a loan for parents of dependent students • Parent borrower is fully liable for loan (may require endorser) • FAFSA not required by regulation, but schools can require it if they wish • Eligibility • Parent must be the natural or adoptive parent of the student, or spouse of one of those people • Parent must be a US Citizen, U.S. National or eligible NC • Parent must have no Title IV loans in default • Parent must be credit worthy, or have credit worthy endorser Federal Parent Plus Loan

21. Eligibility (ref. FSA Handbook) • Borrower must complete a FAFSA • U.S. Citizen attending at least half-time, seeking a Graduate or Professional degree • Borrower must pass a credit evaluation • Loan Limits • COA minus other aid Federal Graduate Plus Loan

22. Federal Direct Loan U.S. Citizen, U.S. National, permanent US Residents & aliens, or Eligible non-citizen (ref. FSA Handbook) Enroll 1/2 time in a degree seeking program SAP - Satisfactory Academic Progress No default / overpymt on any Title IV Aid Register with selective service Must complete FAFSA

23. Subsidized DL (Need-based) Interest: ED pays during • In-school • Grace • Deferment • Student pays during • Repayment Unsubsidized DL (Non need-based) Interest: Student responsible for all • Can be capitalized, or • Student can choose to pay interest Direct Loans: Sub vs. Unsub

24. Need vs non-Need

25. DL aggregate loan limits • * And dependent student whose parent is unable to obtain a PLUS loan; denial of parent’s PLUS produces add’l unsub

26. Must occur when a student’s academic program is less than 1 year in length; an AY = at least 30 weeks • Must occur when a student is completing a remaining period of enrollment that is less than one academic year • Standard proration formula: Amount of DL student could have for grade level ÷ 24 x number of enrolled hours DL Loan Proration

27. Interest Rates & Fees • Perkins Loans – no fees • Fixed IR = 5% • Direct Loans – 0.5% orig fee • Actually 1.5% minus 1% rebate) • Undergrad sub = fixed IR of 4.5% • All other DLs = fixed IR of 6.8% • Direct Parent PLUS / Grad PLUS – 2.5% orig • Actually 1.5% minus 1% rebate) • fixed IR 7.9% To retain rebates,1st 12 pymts must be on time

28. Interim Phase – time student is in school & for 6 months thereafter In-school Deferment, Grace Periods Sub (interest accrues, but is paid on borrower’s behalf by fed. govt.) vs. Unsub (accrues interest) • Repayment Phase - at end of grace All DLs Direct Loan Interest

29. Independent Sophomore borrows $7500 and wants to know what his interest payments will be each quarter • Go to the Repaying my loans section on the MPN (or online www.aie.org calculators) • $7500 @ 6.8% = $39.67 + $500 @ 6.8% = $2.83 • $39.67 + $2.83 = $42.50/month • How much will I owe in interest with out making monthly payments? • 3 years left in school, six month grace = 42 months X $42.50 = $1785 Unpaid Interest Example

30. Return of Title IV funds back to the federal government of funds (including federal loans) a student did not “earn”; Title IV funds are awarded at the beginning of a term on the assumption the student will complete the term & “earn” 100% of the award; funds must be returned if that does not happen • Death • Withdrawal from all classes prior to completion of 60% of the semester or term (whether calendar days or clock hour calculation) • All Fs = defacto withdrawal R2T4

31. Federal education loans that may be consolidated ― FFELP ― Perkins ― Direct ― HEAL • No minimum loan amount • Thirty-year repayment (maximum) • Interest rate will be a fixed interest rate, capped at 8.25% • A weighted average is used to figure the interest rate and then it is rounded up to the nearest 1/8 of a percent. Federal Consolidation Loan

32. Consolidation Repayment

34. DL • Enters at end of grace period (6 months after student graduates or drops below half-time) • Parent PLUS loan • Enters repayment 60 days after full disbursement (parent can request deferment while student is enrolled at least half-time and during six months following that – up to 25 years to repay) • Grad PLUS loan • Enters when borrower falls below halftime enrollment Repayment of Federal Loans

35. All federal loans • Keep loan holders current on student borrower contact information • Contact loan holders as quickly as possible, if a single missed payment is anticipated • Contact loan holders if payments cannot be made • Change in your financial circumstances • Loss of job • Pay off loans as quickly as possible Repayment of Federal Loans

36. Single information source for all federal loans – loan holder info, amounts owed including interest accrual www.nslds.ed.gov Repayment of Federal Loans

37. Standard – Monthly payment remains consistent for 10 years • Graduated – Monthly payments are lower at first but then increase every 2 years over the 30 yr repayment term • Income-sensitive – Monthly payments are based on your monthly gross income • Extended – Monthly payments over a 25 year plan. Must have a debt greater than $30,000 • Income Contingent – pymts based on annual calculations and adjusted so as not to cause “undue hardship”; (25 yrforgiveness) • Income Based Plan - 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 yr forgiveness) Ways to Repay Federal Loans

38. Period of postponing payments • Federal government will pay interest for the borrower on Subsidized DL • Entitlement • Some possible deferments: - Education - Peace Corps/ Public Service/ Military - Economic Hardship Deferments

39. Temporary cessation, reduction, or extension of payments • Student is responsible for interest that accrues • Borrower is willing but temporarily unable to pay Forbearances

40. Failure to pay back student loan • Student is considered in default after being delinquent for 270 days; lender may file claim as early as day 271 • Student is susceptible to wage garnishment, seizure of income tax refunds, lottery winnings, license non-renewal, sued by DOE • Student not eligible for fed. financial aid; 7- year damage to student credit history Default

41. Includes DL loans, and loans underlying DL consolidation loans (Perkins & PLUS not included in calculation) • 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 Cohort Default Rate (CDR)

42. Private Educational Loans

43. Designed to bridge the gap between other aid and total college costs Interest rates from 5% - 18%, usually based on Prime or LIBOR + margin Origination and repayment fees vary Co-borrower requirements (underwriting) Most now school-certified (lower repayment risk) Self-Certification Form Three Sequenced Disclosures Private (Alternative) Loans

44. Lifecycle of a PVT Loan Eligibility Determined by combining: Information & awards from FAFSA Other awards & payments Limited by the Cost of Attendance

45. Lifecycle of a PVT Loan Eligibility Private Loan process is a bit more complicated & time consuming Origination

46. PVT Loans Process

47. Lifecycle of a Direct Loan Eligibility Funds transmit from private lender to school on appointed disbursement day Origination Disbursement

48. Lifecycle of a Direct Loan Eligibility Repayment Origination Disbursement

49. Keep loan holders current on student borrower contact information • Contact loan holders as quickly as possible, if a single missed payment is anticipated • Contact loan holders if payments cannot be made • Change in your financial circumstances • Loss of job • Pay off loans as quickly as possible Repayment of Private Loans

50. Stephen Browersbrower@hsutx.edu Questions ???????