Entrance Counseling for Direct Loan Borrowers Presented by Elena Sanderson.

Entrance Counselingfor Direct Loan Borrowers

Presented byElena Sanderson

Disclaimer

The material presented in this slide presentation was prepared by TG and the Council for the Management of Educational Finance.

This presentation is intended to help schools conduct entrance counseling for Federal Direct Loan borrowers. Depending on the types of loans that the borrowers attending the entrance session have, the information in some slides may not apply to all students.

To ensure compliance with federal regulations, we request that the remaining slides not be deleted under any circumstances. Also, slides may be rearranged in a sequence that is most appropriate for the presenter.

Why do I have to attend?

• Federal regulations require that all first-time Direct Stafford loan borrowers receive entrance loan counseling

• School is unable to release your loan funds until you complete this session

• Current loan default rate is 14.8%

Direct Stafford Loan-Specific Information

Direct Stafford Loan Eligibility

• Although there are maximum annual loan limits, how much Stafford loan a student can borrow each year depends on the following calculation:

Cost of Attendance – EFC = Need

• School will determine eligibility for subsidized before determining eligibility for unsubsidized

Impact on Other Financial Aid

Accepting a loan may impact eligibility for other types of financial aid, and may affect the amounts of other financial aid.

Direct Stafford Annual Loan Limits – Dependent undergraduate

Grade level Annual limit Sub may not exceed

1st year $5,500 $3,500

2nd year $6,500 $4,500

3rd year & beyond

$7,500 $5,500

Direct Stafford Annual Loan Limits – Independent undergraduate

Grade level Annual limit Sub may not exceed

1st year $9,500 $3,500

2nd year $10,500 $4,500

3rd year & beyond

$12,500 $5,500

Direct Stafford Career Maximum Limits

Dependency Status

Subsidized Limit

UnSubLimit

Maximum Sub and UnSub

Dependent $23,000 $8,000 $31,000

Independent $23,000 $34,500 $57,500

Direct Stafford Loan Interest Rates

Undergraduate students:• 6.8% fixed interest rate for Subsidized Stafford• 6.8% fixed interest rate for Unsubsidized Stafford

Direct Stafford Loan Fee

• Origination fee: 1.0% • Amounts automatically deducted from

each disbursement

Subsidized versus Unsubsidized

• Subsidized and unsubsidized Direct Stafford Loans−Direct Subsidized Loan– need-based loan;

government pays interest while student is enrolled, during grace period, and during periods of deferment

−Direct Unsubsidized Loan– non-need-based loan; student responsible for all interest

Interest Capitalization

• Unpaid interest that is added to the original loan balance

• Option to repay interest while in school• Interest capitalized

−When the loan enters repayment−When deferment ends−When forbearance ends

Interest Capitalization

• Interest accrues during in-school & six-month grace periods

• New principal balance upon entering repayment increases by amount of interest accrued

Interest Capitalization Example

• Example: Student borrows $2,000 unsubsidized Stafford and takes 5 years to graduate

Original Loan Amount

Interest Rate

Accrued Interest after5 years

Principal Balance after 5 yrs

$2000 6.8% $748 $2748

Direct Stafford Master Promissory Note (MPN)

• Agreement to pay back the loan(s)• Borrower rights and responsibilities

detailed on MPN• Multi-year feature vs. new promissory note

per year• You can e-sign your MPN at

www.studentloans.gov

Use of Loan Money

• Authorized educational expenses (cost of attendance)−Tuition, room, and board−Institutional fees−Books, supplies, and equipment−Dependent child care−Transportation and commuting expenses−Rental or purchase of personal computer−Miscellaneous personal expenses

Loan Disbursements

• Loan amount disbursed in at least two installments− 1st installment - beginning of enrollment period − 2nd installment - midpoint of enrollment period

• Example: First Year Dependent Student 2011/2012 Subsidized Stafford $5,500− Fall semester: $2,750 (minus loan fee)−Spring semester: $2,750 (minus loan fee)2011/2012 Unsubsidized Stafford $2000− Fall semester: $1,000 (minus loan fee)−Spring semester: $1,000 (minus loan fee)

Loan Cancellation

Before Disbursement • Before the Department of Education sends

the money to the school, student may cancel all or part of a loan by notifying school

or

After Disbursement • After school credits student's account,

student may still cancel all or part of a loan within 2 weeks

Repayment Responsibilities

• Borrowing money is a serious matter and all loans must be paid back

• Not receiving billing statement is not an excuse for not making payments

• Student responsible for repaying loan even if student:−Does not find a job, −Is dissatisfied with the school or its services,−Does not graduate or does not complete

program of study within the regular time for program completion

When Repayment Begins

• Direct Stafford loans have a grace period: first payment due six months after student graduates, withdraws, or drops below half-time enrollment, but will start gaining interest after graduation or drops below half time status

• Repayment generally scheduled for 10 years

Choosing a Repayment Plan

• The borrower has the right to choose his or her repayment plan

• The borrower may change to different repayment plan

Available Repayment Plans

• Standard plan• Graduated plan• Extended plan • Income-contingent plan• Income-based repayment plan

Sample Monthly Repayment Amounts

Loan Amount

4% 5% 6% 7% 8% 9%

$1,000 $10.12 $10.61 $11.10 $11.61 $12.13 $12.67

$5,000 $50.62 $53.03 $55.51 $58.05 $60.66 $63.34

$10,000 $101.25 $106.07 $111.02 $116.11 $121.33 $126.68

$15,000 $151.87 $159.10 $166.53 $174.16 $181.99 $190.01

$20,000 $202.49 $212.13 $222.04 $232.22 $242.66 $253.35

$25,000 $253.11 $265.16 $277.55 $290.27 $303.32 $316.69

$30,000 $303.74 $318.20 $333.06 $348.33 $363.98 $380.03

Interest Rates

Circumstances for Loan Discharge and/or Forgiveness

• Teacher Service – teach at low-income school• Public Service – applies to specific jobs• Death of borrower • Total and permanent disability of borrower• School fails to pay refund if you withdraw• School closes and unable to complete

program• False certification of loan (e.g. identity theft)

Deferments & Forbearances

• Deferment−Allows student to postpone payment under certain

circumstances (e.g., attending graduate school, economic hardship)

• Forbearance− Temporarily reduces or stops payments. However,

interest continues to accrue during this period. −Most expensive option and should be used as last resort

Consolidation Loans

• Allows borrowers with loans in grace period or repayment to combine one or more federal education loans

• Original loans are paid-in-full−New loan for the combined balances is

issued with new terms, including a new interest rate that is fixed for the life of the loan

• www.loanconsolidation.ed.gov

Consequences of Default

• Loss of federal financial aid eligibility• Withholding of federal income tax refunds• Inability to renew professional license

(e.g. lawyer, doctor)• Negative credit history (will affect credit

purchase of house, car, etc.)

Consequences of Default

• Wage withholding• May be sued• Collection fees and attorney’s fees assessed• Enforcement of delinquent debt

collection procedures

Change of Status

• Dropping below half-time enrollment can have serious consequences on your loans:• Subsidized and Unsubsidized Stafford: Grace period

begins• Grad Plus Loans: Deferment period begins• Payment will become due at the end of 6 months • Half time enrollment = _ hrs fall/spring and _ hrs summer

• Withdrawing from school • Student must follow formal withdrawal procedures• Notify the appropriate offices (e.g. financial aid office,

registrar, etc.)

Change of Status

• Student is responsible for notifying the school and Direct Loan Servicing Center about certain changes:−Withdrawal from school−Transfer to another school−Change in graduation date−Address change−Name change −SSN change

School Policies

• Refund policy • Satisfactory academic progress

−Appeals process • Withdrawal procedures

Accessing Loan Information

• National Student Loan Data System−U.S. Department of Education's (ED's) central

database for student aid −NSLDS receives data from schools, guaranty

agencies, the Direct Loan program, and other Department of ED programs

−To access loan records visit www.nslds.ed.gov

−Students will need their PIN for access

Managing your money

Make a Budget

• Take sum of all sources of income−Grants and scholarships−College work-study or part-time job−Student loans

• Subtract all expenses−Tuition and fees−Books and supplies−Utilities−Credit card payments−Rent or dorm−Groceries or meal plan

Money Management Tips

• Keep in mind when you’ll get your loan funds−30-day delay for some first-time Stafford loan

borrowers• Keep track of how much you borrow• Consider making interest and/or principal

payments while in school• Remember that credit cards are loans!

Money Management Tips

• Be realistic about earnings after college−Use them wisely−Average salary for teacher vs. engineer

• Keep all your loan records• Do not spend beyond your means – keep a

simple lifestyle • Consult with your financial aid counselor

before dropping a class. It may affect your financial aid eligibility.

• Ask questions

Last Reminder!!

• Complete an exit counseling session before you graduate or drop below half time

• For questions contact: −Elena Sanderson−(361) 572-6485−[email protected]