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Facing the Real World with a Mountain of Debt

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Your MPNs are the binding legal documents that you signed to receive your student loans. By signing those notes, you indicated your commitment to repay your loans. ... – PowerPoint PPT presentation

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Title: Facing the Real World with a Mountain of Debt


1
Facing the Real World with a Mountain of Debt
  • Stafford and Grad PLUS
  • Exit Interview

2
What to Know Now That You Owe
  • Now that you are leaving school, it is important
    that you review your rights and responsibilities
    regarding your Federal Stafford and Grad PLUS
    Loans.
  • Your Master Promissory Notes (MPNs) also contain
    your Rights and Responsibilities. Your MPNs are
    the binding legal documents that you signed to
    receive your student loans. By signing those
    notes, you indicated your commitment to repay
    your loans.

3
Things you should know about your MPNs
  • Your MPNs may have been used as a multi-year note
    if
  • your school was authorized for multi-year use or
  • you did not change lenders.
  • The multi-year feature of your MPNs is in effect
    for 10 years from the date of your signature, so
    if you go back to school, you may not be required
    to sign a new note. An MPN may be revoked
  • if you send a written notice to your lender,
  • if you declare bankruptcy, or
  • upon expiration of the 10-year period.
  • Your MPNs may have only been used for one year at
    a time because
  • your school was not authorized for or chose not
    to use the multi-year function,
  • you chose to sign a new note, or
  • you changed lenders.

4
It is important that you stay in touch with your
lender!
  • You must tell your lender about changes to your
  • name,
  • address, and
  • telephone number.
  • You must also let your lender know if you
  • withdraw from school,
  • drop below half-time enrollment,
  • transfer to a new school,
  • graduate, or
  • have a change in status that would affect your
    loan status (for example loss of eligibility for
    unemployment deferment by obtaining a job).

5
THE MOST IMPORTANT REASON FOR STAYING IN CONTACT
WITH YOUR LENDER
  • If you are having difficulties making your
    student loan payments, there are options to help
    you, such as deferment, forbearance, or an
    alternate repayment schedule (discussed later).

6
Can My Lender Sell My Loan?
  • Your lender may sell your loan to another
    holder, such as another lender or secondary
    market. If this happens, the original lender and
    new holder will notify you in writing, including
    the name, address, and telephone number of the
    new holder.  The terms and conditions of your
    loan will remain the same.

7
QUESTIONS
  • 1.) My lender needs to know when I
  • A. Change my name, address or phone number B.
    Change my enrollment status i.e., withdraw or
    drop below half- time attendance, transfer to a
    new school or graduate C. Have new and better
    employment D. Both A and B 2.) If I am having
    difficulty making my student loan payments, I
    should contact my lender to
  • A. Have them begin default procedures because
    there are no other options B. Discuss my need
    for a better-paying job because they might have
    an opening C. Find out about postponing my
    payment requirements with a forbearance or
    deferment D. None of the above

8
When Repayment Begins
  • Stafford Loans (subsidized and unsubsidized)
  • Your Stafford Loans will have a grace period of
    six months before you enter repayment. This grace
    period begins the day after you stop attending
    school at least half-time.
  • Each loan has only one six-month grace period. If
    you took some time off from school, you may have
    already used the grace period on some of your
    Stafford Loans, so you may go directly into
    repayment on those loans as soon as you leave
    school.
  • Your loan holder will advise you of your first
    payment due date while you are in your grace
    period.

9
When Repayment Begins
  • Grad PLUS Loans
  • Grad PLUS Loans entered repayment on the date
    they were fully disbursed however, as long as
    you were enrolled at least half-time, you
    qualified for an in-school deferment.
  • You are eligible for a six-month grace period
    which begins the day after you drop below
    half-time enrollment before your Grad PLUS loan
    enters repayment again. If not, your first
    payment will be due within 60 days after leaving
    school or dropping to a less than half-time
    status.
  • Your loan holder will advise you of your first
    payment due date shortly after you leave school
    or drop below half time.

10
If you do not receive payment information from
your loan holder, it is your responsibility to
contact them!
  • Interest information You are responsible for
    paying the interest that has accrued on your
    unsubsidized Stafford and Grad PLUS Loans from
    the time of the first disbursement. Though you're
    not required to make payments while in school,
    you should pay as much of the interest as
    possible to avoid a higher principal balance that
    will occur if the interest is capitalized (added
    to your principal balance).  Lenders will
    typically capitalize the interest that accrued on
    your loans while you were in school on the day
    your loans enter repayment. 

11
SAVE SOME MONEY
  • There is no penalty for making payments while in
    school or during a grace period. Paying ahead
    will decrease the total amount of interest that
    you pay on your loan and may help you to repay
    your loan faster.

12
Repayment Tips
  • Make sure you have all your loan records
    organized.
  • It is important that you keep all of your loan
    papers and correspondence.
  • Keep copies of everything.
  • Create a monthly budget
  • Know the amount of your student loan payments.
  • Your lender automatically arranges a standard
    repayment schedule, but will provide you with
    information about other options (discussed in the
    next topic).
  • Make sure that you factor your student loan
    payments into your monthly budget.
  • Check to see if your lender offers automatic
    payment withdrawal.
  • This is an easy way to make sure your payments
    are made on time.
  • Some lenders even lower your interest rate if you
    sign up for this option.
  • You may be eligible to deduct up to 2,500 of the
    student loan interest you paid! Contact the IRS
    or a tax advisor for more information, or review
    IRS publication 970, "Tax Benefits for
    Education," available at www.irs.gov.

13
QUESTIONS
  • 1.) The grace period on my student loan begins
  • A. The day after I drop below half-time status
    B. The day after graduation C. Both A and
    B D. When my eligibility for student loans
    expires 2.) I can save money on my Grad PLUS
    repayment by
  • A. Making payments during school B. Applying
    for a deferment C. Making larger payments than
    required D. Both A and C

14
Repayment Options
  • You have the option to prepay each loan, pay
    each loan on a shorter schedule, and change
    repayment plans. The following are the repayment
    schedules available for Stafford and Grad PLUS
    Loans

15
Standard Repayment Schedule
  • Minimum monthly payment is 50, but may be higher
    depending on balance
  • Equal monthly payment amount
  • Maximum repayment period of 10 years

16
Graduated Repayment Schedule
  • Begins with lower payment amounts that increase
    over time.
  • Maximum repayment period of 10 years
  • More interest will accrue over the life of the
    loan because the principal balance decreases at a
    slower rate.

17
Income-Sensitive (Federal Family Education Loan)
Repayment Schedule
  • An adjusted payment amount based on gross income
  • Payment cannot be lower than your monthly
    interest amount
  • Eligibility and payment amount verified annually
  • Up to a 15-year repayment period
  • More interest will accrue over the life of the
    loan because the principal balance decreases at a
    slower rate.

18
Income-Contingent (Federal Direct Loan Program)
Repayment Schedule
  • An adjusted payment amount based on gross income
    and family size
  • Eligibility and payment amount verified annually
  • More interest will accrue over the life of the
    loan because the principal balance decreases at a
    slower rate.

19
Income-Based Repayment Schedule
  • Available for payments made on or after July 1,
    2009
  • An adjusted payment amount based on income and
    family size
  • Payment will not be more than 15 percent of the
    amount by which your adjusted gross income
    exceeds 150 percent of the poverty line for your
    family size
  • If the monthly payment amount is not enough to
    pay accrued interest on a subsidized Federal
    Stafford Loan (or the subsidized portion of a
    Federal Consolidation Loan), the Department of
    Education will pay the remaining interest for a
    period of three years.
  • Eligibility re-evaluated annually
  • More interest may accrue over the life of the
    loan because the principal balance decreases at a
    slower rate.
  • Any outstanding loan balance after 25 years will
    be forgiven
  • Very few borrowers will have a remaining balance
    after 25 years.
  • The amount that is forgiven may be taxable.

20
Extended Repayment Schedule
  • Available to new borrowers on or after October 7,
    1998, who have a balance of more than 30,000 in
    student loans from the Federal Family Education
    Loan Program or from the Federal Direct Loan
    Program
  • Payment amounts can be either fixed annually or
    graduated
  • Maximum repayment term is 25 years
  • More interest may accrue over the life of the
    loan because the principal balance decreases at a
    slower rate.

21
Comparison of Repayment Options
  • As noted above, your payment amount depends on a
    variety of factors, including your loan balance
    and in some circumstances, your income and family
    size.  To provide you with a comparison of
    payment options, weve developed this scenario
  • You are single and have two children.  Your gross
    income is 30,000 annually (2,500 monthly).  For
    the year in question, the poverty level for your
    family size (three in your household) is
    17,600. 
  • 150 percent of the poverty level is 26,400. 
    Your income exceeds this amount by 3,600.
  • You have borrowed 32,000 in Grad PLUS loans. 
    The interest rate for these loans is 8.5
    percent. 
  • Based on this scenario, here are some approximate
    payment amounts for each option

22
Based on this scenario, here are some approximate
payment amounts for each option For specific
questions about your payment amount, check with
your loan holder.
23
QUESTIONS
  • 1.) Which of the following repayment options
    requires a minimum monthly payment of 50 and has
    a maximum repayment period of 10 years?
  • A. Standard repayment B. Adjusted repayment
    C. Adjusted repayment D. Extended
    repayment 2.) Which repayment plans may increase
    the total interest I pay over the life of the
    loan?
  • A. Graduated B. Income sensitive C.
    Extended D. All of the above 3.) Under the
    standard repayment schedule, I will
  • A. Repay my loans over a 30-year period B.
    Have a maximum repayment period of ten years C.
    Pay a minimum of 100 per month D. Repay my
    loan based on the amount of money I earn

24
Solutions for Repayment Problems
  • Repaying your student loan is a VERY serious
    obligation. Remember, you are required to make
    your student loan payments even if you
  • do not complete your education,
  • do not complete your program within the regular
    completion time for that program,
  • do not find employment, or
  • feel that the education you received did not meet
    your expectations.

25
You Have Options
  • If you are having trouble making your scheduled
    monthly payment, there are options to help lower
    your monthly payment, such as an alternate
    repayment schedule (described previously), or you
    may temporarily postpone your payments through
    deferment or forbearance.

26
Deferment
  • You are entitled to a deferment of your loan if
    you meet certain criteria. There are numerous
    ways to qualify
  • At least half-time enrollment at an eligible
    school
  • Graduate fellowship program
  • Rehabilitation program
  • Unemployment
  • Economic hardship
  • Military service

27
Deferment
  • You are responsible for paying the interest that
    accrues on your unsubsidized Stafford Loans and
    your Grad PLUS Loans during all periods of
    deferment. On subsidized Federal Stafford Loans
    the government pays the interest during deferment
    periods.
  • The date on which you first received your oldest
    outstanding student loan determines your
    eligibility for deferments. For more information,
    contact your lender/loan holder or use Mapping
    Your Future's Deferment Navigator at
    mappingyourfuture.org/money/deferments.htm.

28
Deferment
  • To request a deferment
  • contact your loan holder,
  • submit the required documentation for the
    deferment, and
  • continue making payments on your account while
    waiting for notification of approval.

29
Forbearance
  • If you are unable to make your scheduled
    payments, but do not meet the criteria to qualify
    for a deferment, the loan holder may grant
    forbearance to allow you to
  • reduce the amount of your payment or
  • temporarily stop making payments.

30
Forbearance
  • You must contact your loan holder to request
    forbearance. Most forbearance is discretionary -
    it is completely up to your loan holder to grant
    one. Your loan holder might grant forbearance
    under the following conditions
  • If you are experiencing personal problems (such
    as poor health or economic hardship)
  • If you are affected by circumstances such as a
    local or national emergency, military
    mobilization, or natural disaster
  • If you have exhausted your eligibility for an
    internship deferment
  • If you are serving in a position that may qualify
    you for loan forgiveness, partial repayment of
    your loan, or a national service educational
    award
  • Under certain provisions, loan holders are
    required to grant forbearance, such as if your
    student loan payment is greater than 20 percent
    of monthly income or if you are in an internship
    or residency.

31
REMEMBER
  • No matter what type of loan you have, you are
    responsible for paying the interest that accrues
    during forbearance. You may choose to either pay
    the interest as it accrues or allow it to
    capitalize. Unpaid accrued interest is added to
    the principal balance of the loan, which
    increases the total outstanding debt and can
    increase your monthly payment.

32
Deferment Is Better Than Forbearance Because
  • Deferments are entitlements. If you are eligible
    for a deferment, your lender must grant you one.
    However, you must fill out the proper forms and
    submit the required documentation to prove your
    eligibility.
  • Forbearance is almost always discretionary. It
    is granted entirely at the lenders discretion.
  • The federal government pays the interest that
    accrues on your subsidized Stafford loans during
    periods of deferment. You pay all interest that
    accrues during periods of forbearance.
  • Both deferment and forbearance are useful options
    available to you if you are having difficulty
    making your monthly payments.
  • You have to ask your lender for
    deferment/forbearance, and you have to follow up
    to make sure your request was received,
    processed, and approved.

33
What if I Have Multiple Loans and/or Lenders?
  • If you are in this situation, there are some
    options for you that may make repaying your loan
    easier.

34
Combining Loans
  • This may be an option for you if you have
    multiple lenders or make minimum monthly payments
    on multiple loans.
  • This may make it possible to have one monthly
    payment to one lender.
  • In order to combine your loans
  • determine which lender can best serve you and
  • request that this lender purchase your other
    loans.

35
Federal Consolidation Loan
  • Through the Federal Consolidation Loan program,
    a lender buys all of your eligible loans and
    combines them into one new loan. Consolidation
    offers both benefits and drawbacks
  • Extended repayment of up to 30 years based on
    your balance
  • One monthly payment
  • Option to prepay a Federal Consolidation Loan or
    change repayment plans
  • Fixed interest rate
  • Extra interest over the life of the loan, if you
    choose a longer repayment period
  • Loss of eligibility for certain deferment,
    forgiveness, cancellation, and grace period
    benefits
  • Different lenders may offer different borrower
    benefit programs and you may lose some former
    borrower benefits if you consolidate

36
Federal Consolidation Loan
  • You must be in your grace period or repayment on
    all of your loans to apply for a Federal
    Consolidation Loan. If you choose to waive your
    grace period, your grace period will end as of
    the day the consolidation loan is completed. If
    you previously consolidated while your loans were
    in an in-school status, you also waived your
    grace period. (In-school consolidation was
    eliminated for applications received beginning
    July 1, 2006.)

37
Federal Consolidation Loan
  • If you are interested in this type of loan, you
    should contact your lender/servicer to determine
    if it is in your best interest. If your
    lender/servicer does not provide Federal
    Consolidation Loans, they may be able to refer
    you to a lender who does. You can consolidate
    your loans with any lender that provides Federal
    Student Loan Consolidations.  Before choosing
    which lender to consolidate with, it is a good
    idea to research multiple consolidation lenders
    and look for the best repayment incentives.
  • NOTE Most FFEL lenders do not currently offer
    consolidation loans. If you cannot find a FFEL
    lender to consolidate your student loans, contact
    the Federal Direct Consolidation Loan program at
    (800) 557-7392. 

38
Consolidation repayment example
  • You have the following loans you're considering
    consolidating Loan A 2,625 balance, 4.13
    percent interest Loan B 3,500 balance, 5.2
    percent interest Loan C 5,500 balance, 6.1
    percent interest Loan D 5,500 balance, 6.8
    percent interest
  • If you consolidate these loans (a total of
    17,125), you'll have 15 years (180 months) to
    repay your Consolidation Loan. The weighted
    average interest rate of the loans is 5.839
    percent. This is rounded up to the nearest 1/8th
    of one whole percent, resulting in your fixed
    interest rate of 5.875 percent.
  • If you repay your Consolidation Loan under an
    equal payment plan, your monthly payment will be
    143.36. In the end, you will have paid
    25,804.18, which includes 8,679.18 in interest.

39
QUESTIONS
  • 1.) I am obligated to repay my student loans
  • A. Only if I am satisfied with the education I
    received B. If I obtain employment within six
    months of graduation C. As soon my salary is at
    the median level as determined by Labor
    Department D. Regardless of what happens, but
    there are a few situations in which my loan may
    be canceled
  • 2.) If I dont qualify for a deferment but am
    unable to make payments, I should
  • A. Leave the country since I cant pay my
    student loan B. Check with my lender about a
    forbearance C. File for bankruptcy D. Do nothing
    and wait for my school or lender to contact me
  • 3.) A consolidation loan may offer the following
  • A. Extended repayment schedule B. Fixed interest
    rate C. Both A and B D. New deferment options E.
    Faster loan repayment

40
Loan Cancellation
  • You are generally obligated to repay your
    student loan, regardless of what happens. In
    fact, federal student loans usually are not even
    discharged or cancelled due to bankruptcy.
    However, there are a few situations in which your
    loan may be cancelled
  • You die
  • You are totally and permanently disabled
    (requires certification from a physician and is
    subject to a conditional period of three years)
  • Your school fails to pay a refund if you withdraw
  • You are unable to complete your program of study
    due to school closure
  • Your loan was falsely certified as a result of
    identity theft
  • Your school falsely certified or fraudulently
    completed a loan application in your name without
    your approval
  • Contact your loan holder if you think you may be
    eligible.

41
Teacher Loan Forgiveness
  • For Stafford Loans there is a loan
    discharge/forgiveness program for teachers
    meeting certain criteria
  • First loan was made on or after October 1, 1998
  • Teach in qualifying low-income school for 5
    consecutive years

42
Public Service Employee Forgiveness
  • There is a loan forgiveness program for public
    service employees with Federal Direct Loans or a
    Federal Direct Consolidation Loan. You may be
    eligible to have the interest and principal for
    your non-defaulted loans forgiven if you
  • Made 120 monthly payments on the eligible loans
    after October 1, 2007, and
  • Are employed in a public-service job at the time
    of such forgiveness and have been employed in a
    public-service job during the 120-month period.

43
Loan Forgiveness for Service in Areas of National
Need
  • For each school, academic, or calendar year of
    full-time employment in an area of national need
    you complete on or after August 14, 2008, up to
    2,000 of your outstanding student loan balance
    will be forgiven. No more than 10,000 total will
    be forgiven, and you shall receive no forgiveness
    for more than five years of service.
  • See
  • http//mappingyourfuture.org/paying/loanForgiveDe
    tails.htmnationalneed
  • for more details. This program is subject to
    federal funding allocation and availability.

44
Contact your loan holder with questions or if you
think you may be eligible for any of the programs
mentioned.
45
Loan Repayment Programs
  • There are other programs available to help
    borrowers repay loans. These include, but are not
    limited to, the following
  • AmeriCorps service program www.americorps.org or
    (800) 942-2677
  • Loan repayment for serving as an enlisted person
    in the National Guard or Reserve programs
    (contact your recruiter for information)

46
QUESTIONS
  • 1.) My loan may be discharged if I
  • A. Meet income requirements due to
    unemployment B. Become totally and permanently
    disabled C. Take specific courses in college D.
    Signed the loan application but dont remember
    signing it

47
Delinquency and Default
  • It is very important that you make your loan
    payments on time. If you are having trouble
    making your monthly payment, you should
    immediately contact your loan holder.  There
    are options to assist you, but you must ask for
    assistance!

48
Delinquency and Default
  • If you fail to make your student loan payments
    for 270 days, your loan will default. The
    consequences of defaulting on your loan are very
    serious and can result in the following
  • Damage to your credit rating, which could impact
    your ability to borrow (for example, you may be
    denied a car loan)
  • Referral of your account to a collection agency
  • The addition of collection costs to your debt
  • Garnishment of your wages
  • Withholding of your state or federal Treasury
    payments (including federal tax refunds, Social
    Security benefits, etc.)
  • Civil lawsuit, which could result in court costs
    and legal expenses
  • Loss of deferment and forbearance entitlements
    and flexible repayment options
  • Loss of eligibility for further financial aid
  • Suspension of a professional license

49
For More Information
  • To monitor all of your federal student loan
    debt, you may access the National Student Loan
    Data System (NSLDS) on line at www.nslds.ed.gov
    or call toll-free 1-800-999-8219. You will need
    your federal PIN number to view your loan
    history. Please note that this website does not
    list your alternative or private student loans.

50
Help with a Dispute or Problem
  • The Federal Student Aid (FSA) Ombudsman works
    with student loan borrowers informally to resolve
    loan disputes that the borrower is unable to
    resolve with the loan holder or guarantor. The
    goal is to find creative alternatives for
    borrowers who need help with their federal loans.
    You can reach the FSA Ombudsman at
  • Office of the Ombudsman United States
    Department of Education 4th Floor UCP-3/MS
    5144 830 First Street NE Washington, DC
    20202-5144 Toll-free phone (877)
    557-2575 Internet fsahelp.ed.gov or
    ombudsman.ed.gov

51
QUESTIONS
  • 1.) If I fail to make payment for 270 days, I
    enter default and the following things could
    happen
  • A. Suspension of a professional license B. My
    credit will be damaged C. My wages could be
    garnished D. All of the above
  • 2.) If I have problems making payments on my
    student loans, I should contact
  • A. My loan holder for my Federal Stafford and
    Grad PLUS Loans B. My school C. The U.S.
    Department of Education D. The Department of the
    Treasury

52
Good luck in your future!
  • Don't forget these tips for successful repayment
    of your student loans
  • Keep your loan holder informed.
  • Make sure you have all your loan records
    organized.
  • Know the amount of your student loan payments.
  • Include student loan payments in your budget.
  • Know when your loan payments begin.
  • Contact your loan holder immediately if you are
    having trouble making your monthly payments.
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