Student Loan Repayment

An overview of options

Repayment

• Your students may have a variety of student loans. The three types of loans you will encounter most often will be:– Private Student Loans– Perkins Loans– Federal Student Loans

Each kind of loan has different repayment options.

Private Loans

• Issued by a private lender to the student. • Repayment terms are set by the promissory

note.• Very few options for deferment and

forbearance, loan discharge or loan forgiveness.

• Not discharged by bankruptcy.• Cannot be consolidated with Federal or Perkins

loans.

Perkins Loans

• First payment due nine months after student graduates or leaves school.

• Standard repayment term is ten years. • Can be consolidated with Federal Student Loans, but

may lose interest rate and some forgiveness benefits. • Eligible for deferments and forbearances, loan

discharge and cancellation options. (See FSA Handbook at: http://ifap.ed.gov/fsahandbook/attachments/1213FSAHbkVol6Ch4.pdf for more details.)

Federal Student LoansA Brief History

• Federal Student Loans became available with the passage of The Higher Education Act of 1965.

• The amount that a student may borrow, and their options for repaying, deferring, forbearing, and discharging their loans are set in federal statute.

Federal Student Loans

• Since July 1, 2010 all Federal Student Loans have been issued by the William D. Ford Direct Loan Program (FDLP). – No private capital involved in the process. – Funds issued directly by the Department of

Education. – Accounts worked by Department of Education

approved servicers.

Loan Servicers

• The Department of Education uses four main servicers for their loans– PHEAA http://www.myfedloan.org/ – Nelnet http://www.nelnet.com/home.aspx – Great Lakes https://www.mygreatlakes.org/ – Sallie Mae https://www.salliemae.com/ – Previous Servicer ACS https://

www.acs-education.com/CS/Jsp/general/home.jsp

Federal Student Loan Limits

• Dependent Students $31,000.00– Excluding students whose parents cannot borrow

PLUS Loans.– Only $23,000.00 may be subsidized loans.• A Subsidized Student Loan is a loan for which the

Department of Education has agreed to pay the interest that accrues while the student is in school, in their six month grace period, or during a deferment period.

Federal Student Loan Limits

• Independent Students $57,500.00– This limit also applies to Dependent Students

whose parents cannot borrow Plus Loans. – Only $23,000.00 may be subsidized loans. • An Independent Student is one that is:

– Over 24 years old (as of January 1 of the calendar year)– Married– In the military– A parent– An orphan, or was a dependent or ward of the court

Federal Student Loan Limits

• Graduate Students $138,500– Only $65,500.00 may be subsidized student loans.– Graduate Students may apply for Graduate Plus

Loans • Have a fixed 8.5 percent interest rate• Are unsubsidized loans• Repayment begins 60 days after loan is fully disbursed,

but may be deferred while the student is in school at least half time• Grace period does not apply.

Federal Student Loans

• First payment is due six months after the student graduates, leaves school, or is enrolled less than half time.

• Standard repayment term is ten years. • Repayment term may be extended for up to

thirty years by consolidation. • Qualifies for deferments, forbearances, and

loan discharge and forgiveness options.

Federal Student Loans

• Repayment Options– Standard Repayment Term is a ten year term. – Large balances can extend a repayment term for

up to 30 years. The longer the repayment term, the more interest that accrues on the debt.

– May also qualify for repayment plans based on income, such as Income Based Repayment (IBR), and in some cases Income Contingent (ICR) or the Pay As You Earn plan.

Income Based Repayment

• Allows students to make monthly payments that are fifteen percent of their discretionary household income. Can never be more than the amount the student would pay under the standard ten year repayment plan.

• Payment amount is recalculated each year based on income and family size. (Student needs to reapply every year.)

• Payments count toward Public Service Loan Forgiveness.

Income Contingent Repayment

• Similar to Income Based Repayment Plan. Monthly payment amounts are based on household income, family size, and loan amount.

• As with IBR, any balance left owing at the end of 25 years is forgiven.

• Only available under the Direct Loan Program.

Pay as You Earn

• Must be a new borrower as of October 1, 2007, and must have received a disbursement of a Direct Loan on or after October 1, 2011.

• Must have a financial hardship, if the student qualifies payments are ten percent of discretionary income.

• Payment change as income increases. Any amount left owing after 20 years is forgiven.

Consolidation

• Is consolidation a good idea for the student?– Does the student have more than one servicer?• If they do, they may want to consolidate to put all of

their loans in one place so that they may keep track of them. • If they have Perkins Loans, they will lose their 5%

interest rate, and will lose their Perkins forgiveness options for that loan.

Student Loan Forgiveness

• Public Service Loan Forgiveness:– Only available for Direct Loans. – Allows borrowers who work full time at a

qualifying public service organization and who have made 120 on-time, full, scheduled monthly payments to have any balance left owing after 120 payments forgiven.

Qualifying Payments

• Can be based on IBR and ICR monthly payment amounts.

• Does not have to be a fully amortized payment unless the borrower has remained on a standard repayment plan.

• “On Time” means received no later than fifteen days from the due date.

Qualifying Employers

• “Any employment with a federal, state, or local government agency, entity, or organization or a non-profit organization that has been designated as tax-exempt by the IRS under section 501(c)(3) of the Internal Revenue Code”.

• The type or nature of employment with the organization does not matter for PSLF, nor does the type of service the organization offers.

Other Information

• The borrower must be employed at a qualifying employer for the entire 120 month payment period.

• The borrower can change employment between qualifying employers during the 120 month period.

• Borrowers can fill out a certification each year and submit it to the Department of Education, or they can wait and submit one form when the 120 payments have been completed. The form can be found at: http://www.studentaid.ed.gov/sites/default/files/ECF_PSLF.pdf.

Federal Employers

• Section 5379 of Title 5 USC authorizes federal agencies to establish a program under which they may repay Federally-made, insured, or guaranteed student loans as an incentive to recruit or retain highly qualified personnel.

• In return, the employee must sign a service agreement to remain in the service of the agency for at least three years.

Teacher Loan Forgiveness

• Up to $5,000 in loan forgiveness if the chief administrative officer of the school they are employed at certifies that they were:– A full time elementary teacher who demonstrated

knowledge and teaching skills in reading, writing, math, and other areas of the elementary school curriculum

– A full time secondary teacher who taught in a subject area that was relevant to their major.

Teacher Loan Forgiveness

• Up to $17,500 in loan forgiveness if the chief administrative officer of the school certifies that:– The teacher is a highly qualified full-time math or

science teacher in an eligible secondary school– The teacher is a highly qualified special education

teacher whose primary responsibility was to provide special education to children with disabilities.

Requirements

• Must teach for five complete and consecutive years.

• The school must meet one of these requirements:– Be a Title I School– Have been selected by the Department of

Education based on their determination that at least 30% of the schools children qualify for services provided by Title I

Additional Requirements

– The school may be listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits.

– All elementary and secondary schools operated by the Bureau of Indian Education (BIE) or operated on Indian reservations by Indian tribal groups under contract with BIE qualify as schools serving low-income students even is they are not listed in the annual directory listed above.

Quality Educator Loan Forgiveness

• Offered by the State of Montana– Forgiveness of up to $3,000.00 a year for up to

four years. – Must be a full time educator with a valid license. – May teach in a Montana school district, an

educational co-op, the Montana School for the Deaf and Blind, the Montana Youth Challenge Program, or a state youth correctional facility.

Quality Educator Loan Assistance

• The school must be considered an impacted school. (Determined by the Office of Public Instruction.)– Rural– High percentage of economically disadvantaged

students. – Have been determined to have a challenge in

closing the achievement gap. – May be in an area impacted by critical educator

shortages.

Deferment and Forbearance

• Once the student is out of school and grace has expired they are going to be required to begin making payments. Their payment amount will initially be based on the standard ten year repayment term.

• If they cannot afford to make the payment, they may seek to qualify for another repayment plan, or they may request a deferment or a forbearance.

Deferments

• Temporarily postpone monthly payments if you meet specific requirements. – If the loan is a subsidized loan, The Department of

Education will pay any interest that accrues on the loan while it is in deferment.

– The two most commonly used deferments are the Unemployment Deferment (up to three years), and the Economic Hardship Deferment (up to three years).

Forbearance

• Forbearance of student loan payments is not an entitlement. The specific requirements for a forbearance may vary from servicer to servicer, and are at their discretion.

• Interest that accrues during a forbearance is not paid by The Department of Education, and is capped when the forbearance ends.

• May increase monthly payment amount and total balance due.

Loan Discharge

• Federal Student Loans and Perkins Loans may be discharged completely due to certain other circumstances. – If a student or borrower passes away, their loans

will be forgiven. Their family is not responsible for repayment of the loan.

– If a borrower becomes totally and permanently disabled (as defined by the Department of Education) their loan may be discharged.

Federal Student Loans

• Have no statute of limitations.• Are typically not discharged in bankruptcy. • Are considered to be in technical default when

they are 270 days or more past due. – The penalties for default are severe:• Collection costs are added at 24%• Wages are garnished at 15%• State and Federal Tax refunds are taken or “offset”• SSI and SSDI benefits are garnished

Default

• Who defaults? • National 2-Year default rate for 2011 is 10.0%• National 3-Year default rate for 2010 is 14.7% • Overall MUS 2-Year default rate is 8.23.

FFELP VS. PUT/DL Rates 2 Year

School Name 2011 2 YR MGSLP Rate PUT/DL Rate

Helena College 12.39% 3.81% 14.99%

Great Falls College 11.24% 3.81% 14.46%

Miles Community College 13.02% 4.29% 18.03%

MSU Billings 7.71% 1.43% 10.57%

Dawson 11.32% 0.00% 16.44%

Western 9.12% 3.25% 13.98%

MT Tech 11.20% 3.43% 15.42%

Flathead Valley CC 15.42% 7.61% 17.15%

Northern 8.82% 9.03% 8.71%

MSU Bozeman 4.21% 1.02% 6.28%

University of Montana 8.34% 2.07% 12.15%

MUS TOTALS 8.23% 2.36% 11.42%

FFELP VS. PUT/DL 3 Year

School Name 2010 3 YR MGSLP Rate Rate

Helena College 13.96% 7.14% 23.81%

Great Falls College 11.86% 5.46% 22.12%

Miles Community College 12.57% 10.14% 20.00%

MSU Billings 11.79% 7.29% 17.68%

Dawson 12.94% 12.00% 14.29%

Western 13.01% 5.29% 27.27%

MT Tech 9.43% 4.38% 15.57%

Flathead Valley CC 19.37% 12.24%

28.39%

Northern 13.04% 8.33% 18.82%

MSU Bozeman 5.79% 3.41% 10.61%

University of Montana 8.77% 5.33% 15.13%

MUS Totals 9.17% 5.56% 15.80%

What do students need

• To be aware of their options for loan forgiveness and income based repayment plans before they leave school.

• Understand who their servicer is and how to contact them as soon as the loan is disbursed.

• Be aware of the financial impact of not receiving their degree.

What can students do now?

• Identify how much they owe in student loans, and who is servicing them.

• Set up an online account with their servicer. This will allow them to contact their servicer regarding their in school status, changes in contact information, or to request a deferment or a forbearance.

• Check NSLDS periodically for servicer changes.

Consider making payments now

• Payments made while in school on a subsidized loan go directly to the principal due on the loan.

• Payments made on an unsubsidized loan go to interest first, and help decrease the amount of interest that is capitalized on the loan.

• Make extra payments on the loan.

Contact Information

• If you have any questions, you may contact us any time.– Cheryl Poelman-Allen: cpoelman@montana.edu– 406-444-0390– Caitlin Kemnitz: ckemnitz@montana.edu– 406-444-0383