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TRANSCRIPT
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Repayment Realities:Preparing Your Students to Succeed
Objectives
• Understand the realities students entering repayment are facing
• Learn three simple steps to help your students successfully address these realities
• Learn different ways to reach your students• Discover resources available to you and your
students
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Realities Borrowers are Facing
Today’s Realities
Reality #1• Borrowers have loans with multiple
lenders/servicers and– Are confused– Don’t know where all of their loans are– Are not applying for deferments or repayment plans
with all of their lenders
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Today’s Realities
Reality #2• Borrowers need our help now more
than ever– Approximately 40-50% of deferment and
income-based repayment applications are incomplete
– Borrowers are having a difficult time managing their payments
Today’s Realities
Reality #3• Schools could see increases in default rates
– Forgotten loans could translate into loan default– Students with unaffordable payment plans could
become frustrated and stop paying on their loans
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What You CanDo to Help
bank or credit union that provides the funding for students
Lender
Organization hired to help administer the student loan process and assist borrowers during repayment
Servicer
Government agency that provides support to students and money for college through grants and loans
Department of Education
Explain Who’s Who
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Eliminate the Confusion
• Explain that:– Their loans may have been sold to other lenders or
to the Department of Education– They’ll receive a letter by mail if their loans are sold– Letter will state:
• Change of servicing from Great Lakes to ED/servicer• Future payments will need to be made to ED• They may have other loans with Great Lakes that may not
be transferred
• Great Lakes serviced loan is put to ED and then assigned back to Great Lakes– “Hometown Bank has elected to sell your Academic
Year 2008/2009 Stafford student loan(s) to the U.S. Department of Education.”
– “Effective mm-dd-yyyy, Great Lakes will service this Stafford loan account on behalf of the U.S. Department of Education.”
Borrower Communication
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• Non-Great Lakes serviced loan is put to ED and then assigned to Great Lakes– “Hometown Bank has elected to sell your Academic
Year 2008/2009 Stafford student loan(s) currently serviced by National Servicer to the U.S. Department of Education.”
– “Effective mm-dd-yyyy, Great Lakes will service this Stafford loan account on behalf of the U.S. Department of Education.”
Borrower Communication
Simple Steps to Successful Repayment
• Provide your students with a three-step approach to ensure successful repayment
Step 1Help borrowers to know who they owe and how muchStep 2
Help borrowers determine the right repayment plan Step 3
Stress to borrowers the importanceof staying on top of their loans
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Step One: Know Who They
Owe and How Much
Start with NSLDS
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NSLDS - Summary Page
NSLDS - Loan Detail
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Tracking Non-Federal Loans
• All loans are reported to the credit bureaus• Students can obtain a listing of their
non-federal loans on their credit report• Free credit reports are available at
annualcreditreport.com
Obtaining a Credit Report
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Obtaining a Credit Report
• What’s needed– Name– Address– Social Security number– Personal information check
• Questions based on information in the credit file– Lender for a particular credit or loan account – Loan payment amount– Previous address
Sample Credit Report
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Step Two:Help Borrowers Determine the Right Repayment Plan
Counseling Borrowers
• Remind students that they have options• What is in their immediate future?
– Are they going to graduate school?– Do they have a job?– What other expenses will they have?
• Help borrowers determine their goals for repaying their loans– Defer monthly payment – Pay off quickly– Lower monthly payment
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Counseling Borrowers
• Next, have borrowers calculate their student loan debt through the various repayment plans
• Finally, have them look at their budget– Student loan payment shouldn’t exceed more than
10-15% of monthly income
Borrower’s Budget
Housing30%
Transportation15%
Food14%
Student LoanPayments10-15%
Savings10%
Household7%
Everything Else7-14%
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Standard Repayment
• Equal monthly payments of at least $50 (depending on their loan balance) for up to 10 years
• Borrowers will automatically be enrolled in the standard repayment plan
• Option for borrowers who want to repay loans off in the shortest time with the lowest amount of interest accrued
Standard Repayment Chart
$25,000 $287 $9,524 $34,524
Loan Amount MonthlyPayment
Total Interest Paid
Total Paid1
(LOAN + INTEREST)
1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan
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Graduated Repayment
• Monthly payments start lower and gradually increase over time for up to 10 years
• More interest will be paid over 10 years• Option for borrowers who have cash flow
problems early on, but expect that their income will increase steadily over time
Graduated Repayment
Loan AmountMonthly Payment
Years 1-2Years 3-10
Total Interest Paid
Total Paid1
(LOAN + INTEREST)
1An unsubsidized Stafford loan at 6.8% interest, with a 10-year amortized repayment plan.
$25,000$141
$338$10,882 $35,882
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Income-Based Repayment• Reduced monthly payments for borrowers who
demonstrate a partial financial hardship (based on loan debt, income, and family size)
• Eligibility is re-evaluated each year• At the end of 25 years of repayment and 300
payments, any remaining balance may be forgiven
• Option for borrowers who need an affordable payment adjusted based on their income
Income-Based Repayment
Monthly payment is 15 percent of X
X = monthly AGI (adjusted gross income) –
150 percent of monthly poverty level
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Income-Based Repayment
• If monthly payment is amount not enough to pay accrued interest
SUBSIDIZED STAFFORD LOANS
The Department of Education will pay the remaining interest for up to three years
UNSUBSIDIZED STAFFORD LOANS
The interest will accrue and be capitalized at the end of the income-based repayment plan
Income-Based Repayment
$486$556$176$24715% of X
$3,244$3,712$1,179$1,647X
$2,756$2,288$1,821$1,353150% of Poverty Level
$6,000$6,000$3,000$3,000Monthly AGI
4321Family Size
Borrower 4Borrower 3Borrower 2Borrower 1
Borrower 1 & 2$287$25,000
Borrowers who Qualify for IBR
Standard Monthly PaymentLoan Amount
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Maximum Qualifying Income Examples
$108,308$100,000
$62,276$50,000
$48,466$35,000
$39,360$25,000
$30,053$15,000
$25,450$10,000
AGILOAN DEBT
$119,528$100,000
$73,496$50,000
$59,686$35,000
$50,480$25,000
$41,273$15,000
$36,670$10,000
AGILOAN DEBT
Family Size = 1 Family Size = 3
The examples assume an interest rate of 6.8% and poverty line for 48 contiguous states or DC.
IBR Roadblocks
• Qualifying for a reduced payment can be a challenge for some borrowers because their financial situation changes frequently
• 40-50% of IBR applications are returned – Supporting documentation not included– Incomplete application– Tax returns not signed
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Income-Sensitive Repayment*• Reduced monthly payments based on income
and total loan amount for up to 10 years• Lender must grant a forbearance for up to 5
years if the loan cannot be repaid within 10 years
• Borrowers need to reapply every year• Option for borrowers who need their monthly
payment to fluctuate with their income over a period of 10 years
*For FFELP loans only
Income-Sensitive Repayment
Loan Amount Monthly Payment Total Interest Paid
Total Paid1
(LOAN + INTEREST)
$25,000$120(Year 1)
$313(Year 2-10)
$10,293 $35,293
1Example assumes an annual salary of $36,000.
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Income-Contingent Repayment*
• Reduced monthly payments based on income, family size, and total loan amount, and for up to 25 years
• After 25 years, any remaining debt will be discharged
• Option for Direct loan borrowers who plan to pursue careers with lower salaries
*For Federal Direct loans only
Income-Contingent Repayment
Loan Amount Monthly Payment Total Interest Paid
Total Paid1
(LOAN + INTEREST)
$25,000$219
(Initial Payments)
$251(Final Payments)
$14,271 $39,271
1Example assumes an annual salary of $36,000.
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Extended Repayment
• Payments that are fixed or gradually increase over 25 years for loan debt that exceeds $30,000
• More interest is paid over the life of the loan• Can be used as an alternative to consolidation• Option for borrowers who have larger loan debt
and need lower monthly payment
Extended Repayment
$30,000 $208 $32,466 $62,466
Loan Amount MonthlyPayment
Total Interest Paid
Total Paid1
(LOAN + INTEREST)
1An unsubsidized Stafford loan at 6.8% interest, with a 25-year amortized repayment plan.
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OPTIONS FOR PAYING BACK$40,000 IN DEBT, $36,000 SALARY
$246.94 (First Year)$375.54 (Tenth Year)$460.32 (Maximum)
$120.00 (Year 1)$512.59 (Years 2–10)
$226.67 (Years 1–2)$541.38 (Years 3–10)
$15,238.40
$17,412.56
$16,799.95
$31,332.88
$55,238.40
$57,412.56
$56,799.95
$71,332.88
$460.32
$43,289.00 $83,289.00$277.63
$350.81 (Initial)$402.19 (Final)
$22,834.89 $62,834.89
Consolidation Loans
• Will give borrowers a single payment for their federal loans
• May give borrowers a lower monthly payment• Option for borrowers with multiple servicers and
who want to make one payment each month
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Consolidation Loans
• Borrowers should consider the trade-offs– Interest rate may increase slightly when the weighted
average of consolidated loans is rounded to the nearest eighth percent
– May pay more in accrued interest– Perkins loan loses interest subsidy and some
cancellation options
Loan Forgiveness
• Teacher Loan Forgiveness– Borrowers who teach in an elementary or
secondary school that is designated as low income may be eligible to have a portion of their Stafford loan debt forgiven
– Teach five, consecutive years (one year after 1997-98)
– No outstanding balance on 10/1/98– Teach at a school included on ED’s Teacher
Cancellation Low-Income Directory
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Loan Forgiveness
• Public Service Loan Forgiveness– Borrowers who hold a public service job may be
eligible to have a portion of their Direct Loan debt forgiven after 120 qualifying monthly payments on or after 10/1/07
– Option for borrowers who pursue public service careers, have high debt and lower income
What Should Borrowers Expect During Grace
• The lender must offer the borrower a choice of repayment schedules, no more than six months before the first payment is due– The borrower must select a repayment schedule
within 45 days of the lender’s notification – If the borrower does not select a schedule, the lender
must establish the standard repayment schedule • Before the grace period ends, borrowers will
receive a coupon book and repayment schedule
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What Should Borrowers Do During Grace
• Contact their lender/servicer if they had a change in their name, address, or phone number– Many borrowers move after graduation so it’s
important that they inform the lender/servicer of these changes
• Use calculators – Determine their monthly payment– Find the plan to meet their goal
Step 3Stay on Top of Their Loans
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Keeping in Touch with Their Lenders
• Stress importance of informing each lender/ servicer of changes to – Name– Address– Telephone number
• 50-60% of all borrowers who default are in “skip”on the date of default
Readjust Their Plan
• Borrowers can change their – Payment due date– Repayment plan
• If the student encounters difficulty paying, remind them of their options– Deferment– Forbearance
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Deferment
• Postponement of loan payments that a borrower is entitled to as long as he/she meets eligibility requirements
• Borrower’s eligibility depends on him/her meeting specific criteria; the loan type; and the date the borrower received his/her first loan
• In most cases, borrowers must request a deferment and provide documentation necessary to support eligibility. Some deferments are automatic (e.g., in-school deferment)
Deferment
• The federal government pays the accruing interest on subsidized loans
• All deferments are borrower-specific– Time limits are enforced for each borrower
• Borrowers are entitled to a deferment if they meet eligibility requirements
• Today, economic hardship and unemployment are the most used deferments
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Deferment CriteriaLength of DefermentTypes of Deferment
No time limit
Up to 36 months
Up to 36 months
No time limit
No time limit
No time limit
Military
Economic Hardship
Unemployment
Rehabilitation Training Program
Graduate Fellowship
In-school
Deferment Roadblocks
• Changes to eligibility requirements for economic hardship deferment – Borrowers who had an HRD deferment, now do not
qualify even though their financial situation is the same
• 40-45% of deferment applications are rejected – Supporting documentation not included– Incomplete application
• Borrowers do not know to apply for a deferment with all of their lenders
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Forbearance
• Temporary postponement, reduction, or repayment extension of loan payments
• Interest accrues on all loans during the forbearance
• Borrower’s first payment is due no later than 60 days after the date the forbearance expires
• Offered at the discretion of the lender (except mandatory forbearance)
Forbearance
• Generally granted for up to 12-month intervals, but lenders set the maximum amount of forbearance time allowed and it varies from lender to lender
• Four types of forbearance:– Administrative forbearance – Discretionary forbearance– Mandatory forbearance– Mandatory administrative forbearance
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How to Reach Your Borrowers
Offer Supplemental Counseling
• Consider offering additional counseling to reach students– One-on-one exit counseling– Group or in-person exit counseling– NSLDS training for students
• Benefits of conducting in-person counseling– Assures “high risk” populations get the information
they need to be successful– Can gauge student’s level of understanding– Questions can be answered
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What Else Can You Do?
• Add these links to your school’s website– mygreatlakes.org– nslds.ed.gov– annualcreditreport.com
• Send mailings or e-mail messages on how to access NSLDS and find cumulative loan indebtedness
How Great Lakes Can Help
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Schedule a Student Seminar
• Schedule a free student seminar– Student Loan Repayment: Everything You Need to
Know– Contact us at [email protected]
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Order Brochures
• Order “Student Loan Repayment: Making It Happen” brochure
• Send with exit letters
Share Online Resources
• Tools available on mygreatlakes.org– Account Payment Plan Estimator– Federal Loan Consolidation Calculator– Forbearance Calculator– Budget Calculator– Financial IQ®
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Conclusion
Reality 1• Students entering repayment are facing new
challengesReality 2• Students have options to help them successfully
repay their student loansReality 3• You have tools and resources available to
help students face these new realities
Questions?
