How Much Debt Can You Repay?

Loan at 6% Minimum Annual Income Needed
Less than $5,000 $6,661
$5,000 to $9,999 $13,321
$10,000 to $24,000 $33,304
$25,000 + $67,704
Student Loan Payments Should Not Be More Than
10% of Gross First Year Salary

Loan Consolidation

Disadvantages:

Extended repayment periods mean more
interest paid over time and ultimately
an increased cost for the loan

Variable interest rates may actually go down

The grace period is forfeited and repayment
begins within 60 days

Loan Consolidation

Advantages:

Create one single payment

Generally the repayment period is
longer and monthly payments are
lower

Exchange variable interest rates
for a fixed rate

Federal Loan Consolidation

The Basics

- One loan created by combining all of
your federal student aid loans

- The new interest rate is a weighted average of
current loans’ interest rates

Consolidate during repayment or grace periods

Federal Loan Consolidation

The Basics

- One loan created by combining all of
your federal student aid loans

- The new interest rate is a weighted average of
current loans’ interest rates

Consolidate during repayment or grace periods

Repayment Options

Standard Repayment - Fixed payments, minimizes interest

Graduated Repayment - Payments go up over time

Income Contingent - Payments increase as your income
increases

Extended Repayment - For loans over $30,000 you have up to
30 years to repay

Private (Alternative) Loans

Offered by private lenders

Tend to cost more than federal loans

Have their own application but it must be approved
by the school

May require a credit check for approval

Loan Interest - Important Changes – July 2006

New fixed rates

NEW Stafford loans interest rate will be 6.8%

NEW PLUS loans interest rate will be 8.5%

No more consolidation while in school

Parent Loans

PLUS (Parent Loan for Undergraduate Students)

Loan provided by private lenders and
by the federal government

Repayment is the responsibility of the parent

Repayment begins 60 days after disbursement

Loan Maximums

Stafford/Federal Direct Loan

- 1st year: $2,625;
2nd year: $3,500;
3rd – 5th years: $5,500

- Graduate students: $8,500/year

- Aggregate totals:

- Undergraduates: $23,000

- Graduate students: $10,000

Student Loans - Subsidized vs. Unsubsidized Loans

A “subsidized” student loan:

The federal government pays the interest on
your loan while you are in school.
Once you graduate or leave school, you’re
responsible for the interest during
repayment.

An “unsubsidized” loan:

You’re responsible for paying the interest
which begins accruing (accumulating) when you
receive the loan. You can add the
interest to the principal while you’re in school.

Student Loans

One type is a Stafford or
Federal Direct Loan

- Provided by private lenders and
guaranteed by the federal
government OR provided by the
U.S. government directly to
students (Direct loans)

- All lenders offer the same rate on
Stafford/Federal Direct Loans

- Stafford Loans can be subsidized or
unsubsidized

MOST Students Use Financial Aid - One Option Is A Loan

Your choices are:

- Student Loans

- Parent Loans

- Private (Alternative) Loans

MOST Students Use Financial Aid

How are you paying
for college?

Two-thirds of
undergraduate students
graduate with some debt.

The average federal
student loan debt for
undergraduate students
was $19,202 for the 2003-
2004 year.

How Education Incorporates Characteristics and Loan Movement into Cost Estimates

Characteristics related to type of school attended and borrower’s level of
education are not accounted for in cost estimates for consolidation loans.

These characteristics are, however, used to define risk categories for nonconsolidation loans.

Education does not use these characteristics to define risk categories for consolidation loans because:

- consolidation loans could reflect multiple underlying loans with
different risk categories, and

- other differences, such as default rates of underlying loans, are more
likely to significantly affect the estimated costs of consolidation loans,
according to Education officials.

How Education Incorporates Characteristics and Loan Movement into Cost Estimates

In general, Education incorporates characteristics and loan movement into
cost estimates by:

grouping loans that share similar characteristics into risk categories:

- consolidation loans with an underlying defaulted loan;

- consolidation loans without an underlying defaulted loan.

forecasting loan volume for each risk category, taking into account the
movement of loans between the FFELP and FDLP programs.

applying various assumptions to the categories, such as rates of
interest and rates of default. Consolidation loans that include an
underlying defaulted loan, for example, are assumed to default at a
higher rate.

Financial Indicators

Arrears & default rates (by
socioeconomic group, gender,
tertiary institution, academic
discipline, and amount of loan)

Interest rate subsidy level

Loan recovery ratio

Administrative costs compared to
overall portfolio (and distribution of
main expense categories)

Cash flow projections

Evolution of real value of assets

Distribution of funding sources

Dependency on government
resources

Mobilization of non-government
resource

Return on investment

Institutional Operations Indicators

Management indicators (measuring
the efficiency and quality of internal
processes)

Satisfaction of beneficiaries

Turnover of personnel

Indicators of promotion of the
student loan program (awareness of
the program and understanding of
the terms and obligations)

Demand and Targeting Indicators

Evolution of higher education
enrollment rate

Proportion of beneficiaries from low
and medium income families

Gender distribution of students and
beneficiaries

Geographical distribution of students
and beneficiaries

Distribution of students and
beneficiaries by academic program

Coverage (number of beneficiaries
over student population)
Academic results of beneficiaries
(compared to general student
population)

Performance indicators

Demand Indicators

Financial Management
Indicators

Operational Management
Indicators

Success Factors

Efficient Institutional
Management

Appropriate Financial
Management

Transparent Eligibility Criteria
and Processes

Efficient Loan Recovery
Good Information and
Marketing System

Guarantees

Guarantors)

Moral Guarantor

State

University (SOFES)

Targeting modalities

Self-declaration with audit

Income tax information

Proxy (secondary education,
housing)

Targeting

Leakage due to ineffective
screening of applicants

Elimination of targeted students
because of excessive guarantees

Collection

a reliable, preferably
universal, system of unique
identifiers

accurate record-keeping of
the accruing liabilities of
students (while studying)

efficient way of determining
with accuracy, over time, the
actual incomes of former
students

collection mechanism with a
sound, computerized record-
keeping system

Exemptions

Advanced or on-time payments

Work with priority public
institutions

Outstanding academic results

Insufficient funding

Overall funding

Stability over time

Demand problems

Awareness

Attractiveness

Interest rate

Priority disciplines

Guarantees

Repayment period

Implementation difficulties

Demand

Funding

Financial Viability

Targeting

Repayment modes

Fixed payments

Graduated payments

Proportion of income

Tuition Postponement Experience (Yale U)

Risk pooling

Moral hazard

Collection for individual university

Income-contingent loans

Graduates repay fixed proportion
of income

Need for solid recovery channel

Tax System (Sweden / Australia)

Social Security (Ghana)

Guaranteed / Shared risk loans

Government contract with
commercial banks

Shared default risk

Mortgage type

Interest subsidy

Direct loans

Public resources

Mortgage type

Subsidies

Interest rate

Default

Repayment not linked to income

Types of Financial Schemes

Direct loans


Guaranteed / shared risk loans


Income-Contingent Loans

Why government intervention?

Capital market imperfections

Collateral

Information about completion

Information about future income

Equity considerations

Quality assurance

Linking eligibility of institutions
to quality assurance criteria

Accreditation

Labor market outcomes

Student motivation

Better individual academic
results

Higher internal efficiency in
institutions

Equity

Opportunities for low-income
and minority students

Solidarity: helping tomorrow’s
students

Financial viability

Possibility to introduce /
increase tuition fees in public
universities

Possibility to expand private
tertiary education institutions

Self-financing mechanism

Why Student Loans?

Financial viability

Equity

Student motivation

Quality assurance

To request a 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.

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

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

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.

Solution 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.

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,
we’ve 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:

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.

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.

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.

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.

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.

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

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:

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.

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.

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. 

Grad Plus Loans

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.

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.

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.

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).

It is important that you stay in touch with your money 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).

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.

What To Know 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.