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1 © 2003 NSLP How will I repay my student loan? Money Management Options. Principles of Loan Repayment Presented by Todd Woodlee National Student Loan Program

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Page 1: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

1© 2003 NSLP

How willI repay my student loan?Money Management Options.

Principles of Loan Repayment

Presented by Todd WoodleeNational Student Loan Program

Page 2: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

2© 2003 NSLP

Why we are here

n Answer questions about your student loan debt

n Discuss players and terms and conditions of student loan

n Give you strategies for managing your student loan debt in/out of school

n Money Management tips and web resources

Page 3: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

3© 2003 NSLP

Your Student Loan Team

n School – provides education

n Lender – makes the loan

n Servicer – manages loan for your lender

n Secondary market – buys loan from your lender

n Guarantee agency (NSLP) – insures loan for your lender

Page 4: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

4© 2003 NSLP

n Your lender may sell your loan to another lender or use a servicer to manage your account

n Your lender must notify you of the new lender or servicer’s name, address, phone number

n If you have multiple lenders, you may request that one lender purchase all your loans so you can make one payment to one lender and keep your original loan terms

Your Loan May be Sold

Page 5: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

Borrowing a Stafford Loan

n Subsidized Stafford– need based– government pays interest while in school,

grace or deferment periods

n Unsubsidized Stafford– non-need based – borrower pays all interest– interest is added (capitalized) to principal

balance when repayment begins

Page 6: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

6© 2003 NSLP

Subsidized Loans

n Federal Stafford

n Federal Perkins

n Primary Care Loans (PCL)

n Loans for Disadvantaged Students (LDS)

n Some Institutional Loans

Page 7: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

7© 2003 NSLP

Unsubsidized Loans

n Federal Unsubsidized Stafford

n Private Loans

n Some Institutional Loans

Page 8: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

8© 2003 NSLP

Repayment tip #1

n Pay interest on your unsubsidized Stafford loan before it is added to your loan (capitalized) to avoid paying interest on interest

Estimate interest capitalization on your loan FinAid! calculator at www.finaid.org/calculators/interestcap.phtml

Page 9: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

9© 2003 NSLP

Interest Raten Variable rate with 8.25 % cap, adjusted

annually on July 1

n Two different interest rates:

3.46% during in-school, grace and deferment for 2002-03 (91 Day T-Bill + 1.7%)

4.06% during repayment for 2002-03 (91 Day T-Bill + 2.3%)

T-Bill Rate: http://wwws.publicdebt.treas.gov/AI/OFBills

Page 10: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

10© 2003 NSLP

Repayment

n Begins six months after you leave school or drop to less than half-time study

n Typical repayment is 10 years with $50 minimum monthly payment

n You may prepay all or part of loan without penalty

n You have a choice of four repayment plans and can change your plan annually

Page 11: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

11© 2003 NSLP

Repayment Plan Options

n Standard– equal payments of at least $50 for up to 10 years

n Graduated– begins with lower payment which gradually increases over 10 years

n Income-Sensitive– payment adjusted annually over 10 years based on income and

student loan debt

n Extended– extends payment to 25 years if student loan debt over $30,000 and

first loan borrowed after 10/7/98

Page 12: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

12© 2003 NSLP

Sample loan repaymentsStandard Repayment Option – 10 year repayment

Payment amounts based on 8.25% maximum interest rate

203,75665,2561,700138,500

147,14447,1441,227100,000

88,29928,29973660,000

67,71821,71856446,000

44,15014,15036830,000

33,85910,85928223,000

$ 22,075$ 7,075$ 184$ 15,000

Total PaymentsInterestPaymentLoan

Page 13: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

13© 2003 NSLP

n Know how much you are borrowing and how much you can afford to repay based on your potential income

n The average medical school debt

for Public Institution Med Student Class of 2002

was $91,389

with monthly payments of $928

Repayment tip #2

Page 14: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

14© 2003 NSLP

Web Resources

n Occupational Outlook Handbook Salary Informationhttp://stats.bls.gov/oco/home.htm

n Mapping Your Future Debt/Salary Wizardwww.mapping-your-future.org/apps/debtwizard/index.cfm

Page 15: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

15© 2003 NSLP

n Find your education loan balances atwww.nslds.ed.gov

n Calculate what you can afford to borrow using Mapping Your Future’s Debt/Salary Wizard

www.mapping-your-future.org/apps/debtwizard/index.cfm

Repayment tip #2

Page 16: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

16© 2003 NSLP

Repayment tip #3

n Keep track of your lender and notify your lender of any changes or if you have difficulty with payments

n Know your student loan repayment options

Find Repayment Assistance on NSLP’s website at www.nslp.org/repay.htm

Page 17: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

17© 2003 NSLP

n Use automatic debit to make your payments on time

n Take advantage of benefits and repayment incentives offered by your lender

– Discounts for automatic debit of payments

– Fee rebates and reductions

– Interest rate reductions for on-time payments

Repayment tip #4

Page 18: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

18© 2003 NSLP

Your Guide to Repaying Your Loan

n Borrow only what you need and can afford to repay

n Your lender will provide you with a disclosure with loan amount, payment amount and due date

Estimate your payments using theMapping Your Future Student Loan Repayment Calculator at www.mapping-your-future.org/features/loancalc.htm

Page 19: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

19© 2003 NSLP

n When possible, pay more than minimum monthly payment to reduce interest cost

n If you have difficulty repaying your loan contact your lender about:

– changing your repayment plan to lower your monthly payment

– getting a deferment or forbearance

– consolidating your student loans

Repayment tip #5

Page 20: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

20© 2003 NSLP

Budget before you borrow

n Estimate your monthly earnings

n Budget– pay yourself first, save 10% of

your take home– student loan payments– living expenses Use the EducationQuest Foundation

Budget Calculator at www.educationquest.org/calc.asp

Page 21: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

21© 2003 NSLP

Web Resources for Budgeting

n Money Matters for Students

www.smartcredittips.com/budg.html

n CNN Money

http://cgi.money.cnn.com/tools/

Page 22: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

22© 2003 NSLP

Joe’s Monthly Expenses:$ 800 Housing/Utilities$ 400 Car expenses$ 400 Food$ 650 Taxes (federal, state, FICA)$ 300 Personal$ 1,282 Student loan payment$ 300 Minimum credit card payment$ 130 Savings

$ 4,262 Joe’s Total Monthly Expenses

$ 4,166 Joe’s monthly salary$ 100,000 Student loan debt$ 10,000 Credit card debt

Can you afford your future expenses?

Page 23: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

23© 2003 NSLP

Deferment

n Delays repayment for a period of time if you are:

– attending school at least half-time– unemployed, but looking for a job– experiencing an economic hardship

n No interest is due on subsidized loans

n Contact your lender for information

Page 24: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

24© 2003 NSLP

Economic Hardship Deferment

n Debt burden is equal to or greater than 20% of monthly income (monthly gross or 1/12 of AGI)

n Wages don’t exceed minimum wage or poverty level

n Peace Corp Volunteer

n Est. $37,383 for $92,000 of debt

Page 25: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

25© 2003 NSLP

Forbearance

n Delays or reduces your payments if you have a financial hardship

n Interest continues to accrue on the loan

n Contact your lender for information

Page 26: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

26© 2003 NSLP

Repayment tip #6

n If you’re eligible, apply for a deferment, but make interest and principal payments when possible

Find deferment and forbearance information at Mapping Your Futurewww.mapping-your-future.org/payment/defernav.htm

Calculate interest cost at FinAid! www.finaid.org/calculators/interestcap.phtml

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27© 2003 NSLP

Consolidation

n Lets you combine different types of loans, and loans with different interest rates and lenders

n You must be in the grace period or repaying your loan

n You can repay over 10 to 30 years, depending on loan balance

Page 28: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

28© 2003 NSLP

Consolidation

n Fixed interest rate = weighted average interest rate, rounded up to the nearest 1/8%

n Maximum rate is 8.25%

n Standard, graduated, income-sensitive or extended repayment plans

n Contact lender to apply

Page 29: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

29© 2003 NSLP

Consolidation Pros & Cons

n May have lower fixed interest rate

n No fees, credit checks or prepayment penalties

n One payment, one lender

n Lower monthly payment

n Lose grace period if consolidate during grace

n Pay more total interest

n May lose some borrower benefits

n Combining loans with spouse may have consequences

Pros Cons

Page 30: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

Consolidation ExampleLoan 1 Loan 2 Loan 3 Loan 4

Stafford $18,500 Stafford $18,500 Stafford $18,500 Stafford $18,500

Consolidation Loan$74,000 30 years

Combined Monthly Payment $751

Use Consolidation Calculator at www.educationquest.org

New Monthly Payment $359

Page 31: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

31© 2003 NSLP

Taxpayer Relief Information

n Interest deduction: 2002, income up to $65,000 ($130,000 married) may deduct up to $2,500 in student loan interest payments

n Lifetime Learning Tax Credit: up to a $1,000 credit for tuition expenses

n Consult Tax advisor for details

Page 32: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

32© 2003 NSLP

Delinquency and Default

n Delinquent – 1 to 269 days late on payment

Borrower typically reported to credit bureau after 30 days late

n Default – 270 days late on payment

Page 33: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

33© 2003 NSLP

Consequences of Default

n You will lose federal or state income tax refunds and other federal or state payments

n You lose eligibility for other student aid and most federal benefit programs

n You will lose eligibility for student loan deferments

n Legal action can be taken

Page 34: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

34© 2003 NSLP

Consequences of Default

n You may lose your professional license

n Interest rate on your loan may increase

n The default is reported to national credit bureaus and your credit rating may be damaged

n Your wages may be garnished

n Collection charges and attorneys fees can be assessed on your loan

Page 35: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

35© 2003 NSLP

Your Rights & Responsibilities

n Your loan must be used only for educational purposes

n Your lender must provide a disclosure before loan is made, and when your loan must be repaid

n You are entitled to a copy of the promissory note before loan is made

n You must notify your lender if you:

– leave school, drop to less than half-time enrollment or change schools

– change your name, address, phone number, SSN, references, driver’s license number and state that issued driver’s license

Page 36: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

36© 2003 NSLP

Your Rights & Responsibilities

n Before leaving school, you must notify your lender of:– your permanent address– name and address of your expected employer, if known– address of your next of kin

n You must repay your loan, plus interest, even if you don’t finish school, are dissatisfied with your education, or can’t find a job

n Deferment or forbearance may be available

n You can prepay your loan at any time without penalty

Page 37: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

37© 2003 NSLP

Repayment tip #7

n Know your rights and responsibilities

n Read the fine print, keep copies of loan papers

n Beware of marketing jargon like “smart loan” or “save 53% now.” If it sounds too good to be true…

n Weigh the short-term and long-term ramifications and costs

Page 38: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

38© 2003 NSLP

Debt management tips

n Don’t borrow more than you need

n Get a part-time job during college

n Use credit cards only for emergencies and pay off the balance each month

Page 39: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

39© 2003 NSLP

To find information about your loan

n National Student Loan Data System

www.nslds.ed.gov or 800-4-FED-AID

Page 40: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

40© 2003 NSLP

Web Resources

n Occupational Outlook Handbook Salary Informationhttp://stats.bls.gov/oco/home.htm

n Mapping Your Future Debt/Salary Wizardwww.mapping-your-future.org/apps/debtwizard/index.cfm

n Money Matters for Students Budgeting Toolwww.smartcredittips.com/budg.html

Page 41: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

41© 2003 NSLP

Web Resources

n VISA Practical Money Skillswww.practicalmoneyskills.com

n Money Management Advicewww.debtadvice.org

n Bankrate.com Money Management Advicewww.bankrate.com

Page 42: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

42© 2003 NSLP

Web Resources

n EducationQuest Foundation Calculatorswww.educationquest.org/calc.asp

n NSLP Financial Management Toolswww.nslp.org/fmantool.htm

n Debt Management Help for Med Students/Residentswww.aamc.org/debthelp

Page 43: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

43© 2003 NSLP

Student Loan Ombudsman

If you are unable to resolve disputes with your school, lender, servicer or guarantor

Department of Education

www.ombudsman.ed.gov

877-557-2575

Page 44: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

44© 2003 NSLP

Use Credit Cards Wisely

n Don’t charge more than you can pay off when the bill comes

n Pay your bill before the due date

n Pay more than the minimum amount

n Avoid buying things you don’t need

Page 45: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

45© 2003 NSLP

The numbers speak for themselves…

If you have a $3,000 credit card balance with an 18 - 20% interest rate and pay only the minimum 3% monthly payment it will take 15 years to pay it off!

Over 15 years, you’ll pay double the initial amount.

Page 46: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

46© 2003 NSLP

Maintaining Good Credit

n Pay all bills on time/early

n Notify creditors of changes

n Limit number/use of credit cards

n Limit amount of available credit

n Review Credit Report annually

Page 47: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

47© 2003 NSLP

Good Credit cont.

n Have no more than 3 Credit Cards

n Don’t owe more than 30% on your available credit

Page 48: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

48© 2003 NSLP

What is a credit report?

n Summary of your credit accounts and how well you manage them.

n A Credit “Transcript”

n Willingness to pay

Page 49: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

49© 2003 NSLP

What’s in a credit report?

n Demographical Information: Address and employer information

n 7 years of Payment Performance

n Type of debt

n Available credit and current balances

n Inquiries

Page 50: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

50© 2003 NSLP

What’s a credit score?

n Numerical forecast of the likelihood you’ll default on future loan

n Based on credit history

n Credit “GPA”

n Developed by Fair, Isaac, Inc. (FICO)

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51© 2003 NSLP

Who uses credit scores?

n Lenders

n Prospective employers

n Landlords

n Insurance Companies

Page 52: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

52© 2003 NSLP

What factors affect your credit score?

n Payment history (35%)

n Amount owed (30%)

n Length of credit history (15%)

n New Credit (10%)

n Types of credit, mix (10%)

Page 53: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

53© 2003 NSLP

Sound financial advice…

Don’t live like a physician while you’re a student, so you don’t have to live like a student when you’re a physician!

-- American Association of Medical Colleges

www.aamc.org/students/medstudents/start.htm

Page 54: Principles of Loan Repayment How will I repay my student loan? … · 2019. 12. 21. · Consolidation Pros & Cons n May have lower fixed interest rate n No fees, credit checks or

54© 2003 NSLP

Education…….is when you read the fine print.

Experience…

….is what you get if you don’t.

-- Pete Seeger