Student Loan Debt

Julie Shields-Rutyna

Director of Early College Planning

Kendra Lider Johnson

Director of Integrated Communication and Education

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• MEFA is a not-for-profit state authority that works to make higher education more accessible and affordable through community education programs, college savings plans and low-cost financing options.

• MEFA created the U.Fund® and the U.Plan® college savings plans and has provided affordable fixed interest rate college loans for 30 years.

• MEFA has assisted hundreds of thousands of families in financing a college education.

About MEFA

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Agenda

• Facts and Figures

• Resources for Making Good Decisions

• Minimizing Debt

• Managing Debt

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• “Student-loan debt tops $1 trillion” – WSJ, 3/22/12

• “Over 60 and still paying student loans” – Money MSN, 4/5/12

• “A generation hobbled by the soaring cost of college” – NYT, 5/12/12

• “Student loans have basically ruined my life” – Yahoo, 6/27/12

• “Student loan debt is worse than it seems” – CBS News, 9/5/12

• “Student loan debt hits record high, study shows” –NBC News,

10/18/12

Student Loans in the Headlines

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Of the private, not-for-profit 4 year colleges with the highest tuition costs – 70 percent are in New England and the Mid-Atlantic area

Of the private, not-for-profit 4 year colleges with the highest net prices – 55 percent are in New England and the Mid-Atlantic area

Of the 13 states with the highest average student debt, half are the 6 states in New England

Within the United States, Massachusetts has the highest concentration per capita of colleges and universities that cost over $40,000 a year

Facts and Figures

Sources: US Department of Education, Project on Student Debt, 2012

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Facts and Figures

• 25% of borrowers in 2008 graduated from 4-year colleges with at least $30,526 in student loan debt

• 10% of borrowers graduated with at least $44,668 in student loan debt

• 1.5% of borrowers graduated with at least $100,000 in student loan debt

• What will the percentages be in 2018?

Source: Project on Student Debt, 2010; Kantrowitz, n.d.; Kantrowitz, 2012

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Expected Lifetime Earnings Relative to High School Graduates, by Education Level

Sources: The College Board, Education Pays 2010, Figure 1.2; U.S. Census Bureau, 2009; calculations by the authors.

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Estimated Cumulative Earnings Net of Loan Repayment for Tuition and Fees, by Education Level

Sources: The College Board, Education Pays 2010, Figure 1.3; U.S. Census Bureau, 2009; The College Board, 2009; calculations by the authors.

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• Net Price Calculators

– http://collegecost.ed.gov/netpricecenter.aspx

• Financial Aid Shopping Sheet – http://www.consumerfinance.gov/students/knowbeforeyouowe/

• MEFA’s College Cost Calculator

• Retention & Graduation rates

– http://nces.ed.gov/collegenavigator/

• Gainful Employment

– Loan repayment rates

– Debt-to-income ratios

Resources for Making Good Decisions

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Financial Aid Shopping Sheet

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• Over 25 Locations Across Massachusetts in late March/April

• Follow-up to College Financing Seminar to provide key, timely information

• Topics include:

– Understanding award letters and bills

– Loan options (parent and student)

– Payment Plans

– Working with the Financial Aid Office for special circumstances such as job loss or other reduction of income

• Register for MEFA emails to receive location details

After The Acceptance Regional Seminars

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• College retention and graduation rates

• College graduate employment rates

• College major

• Career choice

• Starting salary

• Parent support

• Living choices

Is Debt Manageable?

Considerations

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Strategies to Minimize Debt

• Prioritizing saving

• Working a summer job (student)

• Applying for scholarships

• Using Net Price Calculators to identify affordable schools

• Appealing financial aid decision

Before College

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True or False

> “Saving for college means no financial aid.”

False

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Savings will help!

• Gives you more education options—different types of colleges, payment for books, etc.

• Reduces or may eliminate the

need to borrow loans

• Can work less and study more

• Minimum impact on aid eligibility

• Knowing a parent is saving for college is motivating to a child

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Income makes a far greater difference than savings!

Income & Asset Impact – Family Size: 4

Family A Family B Family C Family D

Income $40,000 $60,000 $60,000 $60,000

Assets $0 $0 $30,000 $60,000

EFC $231 $3,371 $3,371 $4,085

Difference $3,140 $3,140 $3,854

This example is an estimate only. Based on 2013-14 Federal Methodology (one child in college).

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Past Income

• Savings

• Other Assets

Present Income

• Salary

• Payment Plans

Future Income

• Parent Loans

• Student Loans

*Based on 10 years at an interest rate of 7%. This example is an estimate only and market conditions may change.

Saving vs. Borrowing

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Strategies for Saving

• Start saving as early as possible. Use time to your advantage.

• Use automatic transfers

• Get the word out and let your family and friends know that they may contribute or open a plan up on behalf of your child

• Have your child save too!

Time Value of Money

$0.00

$50,000.00

$100,000.00

$150,000.00

$200,000.00

$250,000.00

$300.00 $0.00 $21,477.87 $51,925.44 $95,088.69 $156,278.00

$100.00 $0.00 $7,159.29 $17,308.48 $31,696.23 $52,092.67

$50.00 $0.00 $3,579.65 $8,654.24 $15,848.11 $26,046.33

0 60 120 180 240

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Loans Are a Reality

1. Start with federal student loans

2. Don’t borrow more than you need

3. Don’t borrow more than you can afford

4. Pay attention to fees, terms and conditions

5. Get the advice and support you need

6. Use a combination plan

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• Student is the sole borrower

– No co-signer or credit check

– No payments due while enrolled

• Federal Direct Stafford Loan – Two types:

• Subsidized – Fixed interest rate of 3.4% begins after graduation

• Unsubsidized – Fixed interest rate of 6.8% begins immediately

• Federal Perkins Loan

– Fixed 5% interest rate begins after graduation

– Loan availability varies by college; not all colleges participate

Federal Student Loans

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Federal Student Loan Repayment

• Standard

– Most cost effective

• Graduated

– Useful if you expect a sharp rise in income over time

• Extended

– Useful if you need a lower monthly payment

• Income-Based Repayment

– Lowest monthly payment

• Consolidation

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Strategies to Minimize Debt

• Using payment plan

• Graduating in fewer semesters

• Attending a less expensive college

• Choosing a specific major for its career prospects

• Working while in school

• Renting textbooks

• Living at home and commuting

• Parents working additional jobs

During College

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Strategies to Minimize Debt

• Income-Based Repayment

• Loan forgiveness benefit at work

• Deferment

• Forbearance

• Considering income when choosing career

• Lifestyle choices

After Graduation

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When Debt is Unmanageable

• Loan is declared in default when delinquent for 360 days

• 1 in 6 borrowers are in default- $76 Billion

Long-term repercussions:

• Wages, taxes and social security can be garnished to collect loan payments

• Inability to borrow additional loans to finish education

• Student loans cannot be discharged in bankruptcy

What students can do:

– Work with loan servicer to avoid delinquency and default- Don’t avoid their calls

– Stay informed of repayment, deferment and forbearance options

– Contact Dept. of Ed and/or Ombudsman if you are having difficulty working with loan servicer

– www.studentaid.gov

– www.asa.org

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• MEFA.org

• MEFA semi-monthly email service for parents

• E-books, online seminars, videos and calculators

• Link to financial aid apps & scholarship search engine

• “Ask a MEFA Expert” and Customer Service Center- 800-449-MEFA

• Like us on facebook! facebook.com/mefaMA

• Follow us on Twitter! @mefatweets

MEFA as Your Planning, Saving and Paying for College Resource

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• Education Pays, The College Board: http://trends.collegeboard.org/education_pays

• Federal Student Aid Loan Repayment Options: http://studentaid.ed.gov/repay-loans/understand/plans

• Financial Aid Shopping Sheets, annotated: http://www2.ed.gov/policy/highered/guid/aid-offer/annotatedshoppingsheet.pdf

• “Who Graduates with Six-Figure Education Debt?” Mark Kantrowitz: http://www.finaid.org/educators/20120801sixfiguredebt.pdf

• “Student Debt and the Class of 2011,” Project on Student Debt: http://projectonstudentdebt.org/

• “Choice of College Major Can Mean Millions…” U.S. Census Bureau: http://www.census.gov/newsroom/releases/archives/education/cb12-196.html

Additional Reading