© January 23, 2013
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Financial Empowerment Center Counselor
Training Curriculum
Topic 6: Student Loans
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Questions to Think About
• What are the types or sources of student loans?
• What’s the difference between a subsidized and
unsubsidized student loan? Who is eligible?
• What can be done to manage repayment?
• What happens if student loans are delinquent or in
default?
• What can be done to get back on track if the loan is
delinquent or in default?
• Can all or part of the loans be forgiven or canceled?
How?
• Is there any help for repayment of loans?
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Types of Student Loans
1.
Federal student loans: guaranteed or funded by the federal
government
a. Government guaranteed or insured loans – offered through
financial institutions
i.
Family Federal Education Loans (FFEL) – not given after
June 30, 2010
• Stafford loans, (formerly Guaranteed Student Loans
or GSLs or Federal Insured Student Loans (FISLs) –
fixed rates
 Undergraduate
 Graduate
 Subsidized or unsubsidized, i.e. interest paid by
government while in school
• PLUS loans (loans to parents of undergrads or to
graduate students), SLS loans, or
• Consolidation loans
ii.
Perkins loans (covered later)
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Types of Student Loans
b. Federal Direct Loans
i.
Direct Stafford loan (can be subsidized or unsubsidized)
• Undergraduate - lifetime limit: $31,000 (subsidized
and unsubsidized loans)
• Graduate - lifetime limit: $138,500 (unsubsidized
loans only; graduate students are not eligible for
subsidized loans as of July 1, 2012)
• Subsidized loans – no interest accrues while
undergrad attending school; based on need
• Unsubsidized loans – interest accrues from date of
disbursements; not based on need; can defer
payment for up to 6 mos. after graduation
• 1% loan fee
• Subsidized interest rate for 2012/2013 – 3.4%;
unsubsidized: 6.8%
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Types of Student Loans
ii.
Direct PLUS loan:
• Loan from U.S. Department of Education to graduate or
professional degree students and parents of dependent
undergraduate students
• Borrower may not have “adverse” credit history, if so, will require
“Sponsor”
• Maximum loan amount is student’s cost of attendance
(determined by the school) minus any other financial aid
received.
• Fixed interest rate of 7.9%
• 4% origination fee
• For undergrads – repayment begins when disbursements made
(parents can request deferment while student in school half-time
or 6 months after enrolled at least half-time)
• For grad students – repayment deferred while in school and for
6 months after graduation
iii.
Direct consolidation loan (covered later)
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Types of Student Loans
2. Private student loans: non-federal loans, made by a lender
such as a bank, credit union, state agency, or a school
3. Non - student loans to the student or through parents
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Federal Direct Subsidized Loans
Students with Financial Need
1. Available to undergraduate students only (beginning July 1, 2010) with
financial need.
2. School determines how much can be borrowed - amount may not exceed
financial need.
3. U.S. Department of Education pays interest:
a. While student in school at least half-time, and
b. For the first six months after you leave school (referred to as a grace
period),
i. For Direct Subsidized Loan first disbursed between July 1,
2012, and July 1, 2014, student responsible for paying any
interest accruing in grace period. If student does not pay the
interest that accrues during grace period, added to the principal
balance, and
c. During a period of deferment (a postponement of loan payments).
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Federal Direct Unsubsidized Loans
1. Available to undergraduate and graduate students; there is no
requirement to demonstrate financial need.
2. School determines amount student can borrow by considering
the cost of attendance and other financial aid received
3. Responsible for paying the interest during all periods.
a. If student does not pay interest while in school and during
grace periods, deferment or forbearance periods, interest will
accrue and is added to the principal amount of loan.
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Public Loan Forgiveness Program
for Federal Direct Loans (a/k/a William Ford Direct Loans)
1. Applies only to federal direct loans
a. Does not apply to government guaranteed loan or Perkins loans
2. Qualified Employees
a. Federal, State or local full-time jobs or
b. Non-profit full-time jobs – 501 (c)(3) or
c. Certain full-time jobs at non-profits other than 501(c)(3)
i. EMTs
ii. Military
iii. Public service
iv. Public library
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Public Loan Forgiveness Program
for Federal Direct Loans (a/k/a William Ford Direct Loans)
v. School libraries
vi. Public service to elderly
vii. Public service to disabled
viii.Public interest law
3. Full-time jobs at unions, partisan political groups and religious
groups do not qualify
4. Must work ten years AND
5. Make payments on time for ten years
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Federal Direct Consolidation Loans
1. Most federal student loans, including the following, are eligible for
consolidation:*
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
Direct Subsidized Loans
Direct Unsubsidized Loans
Subsidized Federal Stafford Loans
Unsubsidized Federal Stafford Loans
Direct PLUS Loans
PLUS loans from the Federal Family Education Loan (FFEL) Program
Supplemental Loans for Students (SLS)
Federal Perkins Loans
Federal Nursing Loans
Health Education Assistance Loans
Some existing consolidation loans
* http://studentaid.ed.gov/repay-loans/consolidation
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Federal Direct Consolidation Loans
2.
Federal loan interest rate will be weighted average of existing loans
3.
Extends period for payment (interest accrues for extended period) for 30
years
4.
Loans consolidated must have the same names, example: Loan # 1 in
student name only, and Loan #2 in name of student and parent cannot be
consolidated
5. If able to consolidate Federal Family Education Loan or Perkins Loans
under a Federal Direct Consolidation Loan then:
a. Payments made under new loan qualify for Public Loan Forgiveness
Program for William Ford Direct Federal Loan
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Perkins Loans
1. Low-interest loan for under-graduate or graduate students with very low
incomes – “exceptional need,” US Citizen; permanent resident, other
eligible status.
2. Formerly: National Direct Student Loans, and before that, National
Defense Student Loans.
3. Federal government guarantees repayment of Perkins loans.
4. Lender is school with a combination of federal and school funds, not a
bank or the government (funds provided by government to school).
a. Loans available contingent on funds available.
5. Interest rate: 5%.
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Perkins Loans
6. Loan amounts:
a. Under grade: $5,500 per year up to a total of $27,500;
b. Graduate or professional school: $8,000 per year up to $60,000
including amounts borrowed as an undergraduate
7.
Repayment: 9 month grace period after graduation
8. Loan cancellation eligibility (may be all or a percentage over period of
time):
a. Full-time teaching at a low-income school, or for teaching in certain
subject areas or deferment for these qualifying teaching services
(elementary or secondary school)
b. Military service
c. Nursing
d. Law enforcement
e. Peace Corps, Vista and other volunteer programs
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Perkins Loans
f. Firefighters
g. Public defender
h. Librarian
i. Tribal College faculty
j. Pre-K service provider (e.g. Head Start)
k. Total/Permanent Disability
l. Death
m. Spouse of 9/11 public servant (fire fighter, police, military or
public safety personnel) who died or became permanently
and totally disabled in 9/11 attacks at : WTC, Pentagon, on
board American Airlines flights 11 and 77 and United
Airlines flights 93 and 175; applies to loans owed on 9/11
and still owed on the day cancellation is requested.
n. May be others
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Perkins Loans
• National Institutes of Health Perkins Forgiveness Program
a. Up to $35,000/year of student loan debt for US citizens who are
conducting clinical medical research.
• Law School Perkins Loan Forgiveness
a. Service in public interest or non-profit positions
(http://www.equaljusticeworks.org)
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Federal Agency Student Loan Repayment
Program
1. Federal agencies make payments of up to $10k per year directly to
employees up to a maximum of $60k
2. Amount included in taxable income
3. Loans covered include:
a. Federal Family Education Loans (FFEL)
b. Subsidized and unsubsidized Federal Stafford Loans
c. Federal Consolidation Loans
d. William D. Ford Direct Loan Program (Direct Loans)
e. Direct PLUS Loans
f. Direct subsidized and unsubsidized Consolidation Loans
g. Federal Perkins Loan Program
h. Others
4. Resource: US Office of Personnel Management
https://www.opm.gov/flsa/oca/pay/StudentLoan/HTML/QandAs.asp#loan-eligible
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Income based repayment plans (IBR)
1. Pay 15% of discretionary income – loan balance is forgiven after 25 years
2. For direct loans disbursed after October 1, 2011 – 10% of discretionary
income and loan balance forgiven after 20 years. This new repayment and
forgiveness program is known as: Pay as You Earn (PAYE)
3. Can apply for both direct loan forgiveness and income based repayment
4. PLUS loans for parents and Consolidation Loans that repaid PLUS loans
for parents—are not eligible for IBR.
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Loans eligible for IBR
1. Direct Subsidized Loans
2. Direct Unsubsidized
3. PLUS Loans made to graduate or professional students
4. Direct Consolidation Loans without underlying PLUS loans
made to parents
5. Subsidized Federal Stafford Loans
6. Unsubsidized Federal Stafford Loans
7. FFEL PLUS Loans made to graduate or professional students
8. FFEL Consolidation Loans without underlying PLUS loans
made to parents
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Eligibility for IBR
1. Partial financial hardship - monthly amount you would be
required to pay on federal student loans under a 10-year
Standard Repayment is higher than the monthly amount you
would be required to repay under IBR.
2. Your payment amount may increase or decrease each year
based on your income and family size
3. Once eligible, can continue even if financial circumstances
disqualify later
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Determining discretionary income for
IBR
Based on:
1. Income and family size; adjusted each year, based on
changes to your annual income and family size
2. Usually lower payment than plans
3. Never more than the 10-year standard repayment amount; and
4. Made over a period of 25 years.
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Direct Loan Income Contingent
Repayment (ICRP)
1. Only for Direct Loan Program (includes Direct Loan
consolidation program)
2. Payment can be no higher than 20% of earnings above
poverty level - if married, joint income counted calculating
repayment amount even if file taxes separately
3. Parent PLUS loans not eligible for repayment under ICR (or
IBR or PAYE)
a. Parent PLUS borrowers can consolidate the PLUS
loans and then choose ICR for the new Direct
Consolidation loan.
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Direct Loan Income Contingent
Repayment (ICRP)
4. Loan balance forgiven after 25 years
5. Amount forgiven is taxable income
6. Loans disbursed after October 1, 2011 are PAYE Loans
forgiven after 20 years (if meet other eligibility requirements)
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Action Steps for Debtors in Danger on
Federal Student Loans
1.
Delinquency: begins on the first day after missing
a. In first 15 days, lender must send at least one written
notice or collection letter.
b. Notify about Student Loan
2. Default: delinquency continues for nine months-loan holder
declares borrower in default.
a. Special “default aversion” programs through guaranty
agencies to help
3. Work with loan holder to postpone payments
a. Make sure who the loan servicer is: www.nslds.ed.gov
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Action Steps for Debtors in Danger
on Federal Student Loans
4. Best to communicate in writing
a. Keep copies of records
b. Reference specific loan and loan number
c. State reasons clearly and concisely
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Action Steps for Debtors in Default on
Federal Student Loans
1.
Consolidation or
2.
Rehabilitation
a. FFEL or Direct Loan rehabilitation - must make nine monthly
payments within 20 days of the due date during a period of 10
consecutive months
1. allows one month missed period
2. Perkins loan: must make nine payments in a nine month
period
3.
Once out of default, can qualify for deferrals, forbearance, income
based payments, etc.
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Action Steps for Debtors in Default
on Federal Student Loans
4.
Once rehabilitated or consolidated – no longer shown as in
default on credit report, and no government actions, become
eligible again for other loans and consolidation
5.
Compromise and Settlement with guaranty agency
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Private Student Loans
1. No forgiveness program
2. Only options:
a. Bankruptcy discharge – extremely difficult
b. Renegotiate loans
c. Payoff loan (cash on hand or through a nonstudent loan if credit and income allow)
3. Cannot consolidate with federal loans
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Topic 6 Exercise #1
Directions: Review the following scenario and tell us how you would
counsel May.
Case Study
May completed her four year undergraduate degree from college two
years ago. Since then, she has only been able to find part-time work.
She is having trouble paying her bills, even though she is living at
home.
She has two federal direct loans with monthly payments of $150 and
$187. May also has a private student loan with a monthly payment of
$203. One of her part-time jobs will be ending in a week, and she
knows she cannot make the payments on the student loans due in
three weeks.
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Topic 6 Exercise #2
Case Study
Assume that May from Exercise # 1 is a junior in high
school. Her parents and she are considering colleges, and
thinking about how to finance May’s college education.
Her parents have no savings for her education. What
advice would you give them to prepare them for what lies
ahead?
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