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Slide 1
MBA LOANS Loan Workshop for Columbia Business School
Slide 2
Timeline In School Graduation Notify lender/servicer of address
or phone number changes Grace period 6 months Repayment begins
Deferment options available for internship/ residency Contact your
lender/ servicer to discuss deferment and repayment options
Deferment ends and active repayment begins Always keep the
lender/servicer advised of any changes to your circumstances
Slide 3
How much do you owe? Note: Assumes recent/current interest
rates for in-school and grace periods (6 months grace for Stafford
loans and BEL)
Slide 4
How big will your payments be? * 10 years for Stafford loans,
15 years for BEL **30 years for Federal Consolidation Loan, 25
years for BEL Note: Assumes repayment interest rates of 8.25% for
unconsolidated Stafford loans (repayment length or final payment
amounts are adjusted when interest rates are lower, as they are
now), 4.125% for Federal Consolidation loan (4.06 is the current
rate until 7/1/03), 5% for MBA LOANS; payments may not add to
totals due to rounding
Slide 5
Post-MBA Money & Debt Management Strategies
Slide 6
Managing Student Loan Repayment Help your loan servicer keep
track of you. Your loan promissory note - a promise to repay on
time and in full. Failing to repay will put you in financial
default. If youre having problems repaying, call your servicer -
right away. Alternate repayment plans can significantly reduce the
amount of your monthly payment.
Slide 7
Paying more than the required payment will save money. For a
$15,000 student loan: an extra $25/month will save $1331 (over life
of loan) an extra $50/month will save $2231 an extra $100/month
will save $3375 a double payment/month will save $4415 Real
Life-Paying Ahead
Slide 8
What Are Your Options? Standard Repayment Graduated Repayment
Extended Repayment Income Sensitive Consolidation
Slide 9
Which Option Is Best For You? Do your education loan payments
exceed 8-10 percent of your gross monthly income (and youre having
trouble making payments)? 8-10 percent rule should allow borrowers
to have enough income to cover rent/mortgage payment, pay for basic
living expenses, and meet other debt service needs Annual Monthly
Maximum Student Loan Payment at Income Income 8%10% 15% $ 50,000
$4,167 $333 $417 $ 625 $ 75,000 $6,250 $500 $625 $ 938 $100,000
$8,333 $667 $833 $1,250
Slide 10
How Do You Decide? Is your current income likely to increase
soon? If answer is Yes, consider: Option 1: Tighten your
budget--always try this first Option 2: Explore whether the
graduated or income sensitive repayment options offered by your
lender will provide sufficient temporary relief
Slide 11
How Do You Decide? Is your current income likely to increase
soon? If answer is Yes, consider: Option 3: See if you qualify for
a deferment or forbearance A temporary deferment or forbearance may
be a cheaper option for those who need short-term relief
Slide 12
How To Decide If You Need Consolidation? Is your current income
likely to increase significantly within the next few years? If
answer is No, see if you qualify for extended repayment Extended
repayment allows eligible borrowers who owe more than $30,000 to
repay their loans over 25 years without consolidating If extended
repayment isnt an option, then explore your consolidation
options
Slide 13
Standard Repayment Lowest total loan cost Maximum 10 year
repayment period Level monthly payments of principal and interest
Variable interest rate
Slide 14
Graduated Repayment Slightly higher cost than standard plan Can
be up to 15 year repayment period Variable interest rate Initial
interest only payments followed by standard principal and
interest
Slide 15
Extended Repayment Higher cost due to smaller initial monthly
payment option and extended term Long term repayment relief for
borrowers who received first Stafford or Consolidation loan after
10-7-98 Up to 25 year repayment period Variable interest rate
Initial interest only payment option or standard principal and
interest
Slide 16
Income Sensitive Repayment Higher total cost due to smaller
initial monthly payments and extended term Up to 15 year repayment
period Interest rate is variable Payments are a percentage of gross
monthly income and must cover accrued interest
Slide 17
Consolidate? Three key reasons: Reduce your monthly payment
Consolidation can reduce your monthly payment by 40 percent or
more- You can drop the initial payment on a $38,577 loan from $ 473
to $187-- or to as low as $133 by choosing graduated repayment (at
2002-2003 rates) Simplify student loan repayment Replace all of
your federal education loans with a single loan with a single
monthly payment When interest rates are lower (i.e., NOW)
Consolidation interest rate is fixed for the life of loan
Slide 18
Who Should Consider Consolidation? Borrowers who-- Are having
trouble making payments Have irregular monthly incomes Need to
allocate money to another worthy expenditure Starting a business
Need to pay off more expensive loans Especially credit card
balances
Slide 19
Reasons NOT To Consolidate To minimize interest expense Longer
payback periods and lower monthly payments mean higher total
interest expense The rate on your consolidation loan will be
slightly higher (because of rounding) If you consolidate while in
grace, youll give up your remaining grace period To keep valuable
borrower benefits Many lenders offer 2% reduction in rate after 48
on- time payments (But, generally, only for unconsolidated loans)
Note: The Columbia Cash Back 5% credit on Stafford loans is only
given to loans serviced by Sallie Mae (consolidating with another
lender loses this)
Slide 20
Who Can Consolidate? Borrowers who: Have federal education
loans AKA Stafford & Perkins loans Are not in default Are in
default but have met specific requirements for repaying their
loans
Slide 21
Who Can Consolidate? Married couples may apply for a joint,
spousal consolidation loan Borrowers must agree to a
joint-and-several liability clause If either spouse dies or becomes
permanently disabled, the other spouse is still responsible for
repaying the entire amount If one of the borrowers goes bankrupt,
the other borrower is still responsible for repaying the loan These
rules still apply after a divorce!
Slide 22
What Loans Can You Consolidate? Virtually all of your Federal
education loans Federal Stafford Loans Direct Stafford Loans
Federal Supplemental Loans for Students (SLS loans) Perkins Loans
Most federal health education loans Federal loans you received at
anytime during your academic career Undergraduate loans Graduate
school loans
Slide 23
What Loans Can You Consolidate? Existing Federal Consolidation
Loans Although FFELP eligibility rules generally require you to
have at least one other FFELP loan to consolidate as well The
additional FFELP loan does not have to be a new loan Existing
Direct Consolidation Loans
Slide 24
What Loans Cant Be Consolidated? Your parents PLUS loans Even
if youre making the payments Private education loans (with Sallie
Mae - other lenders may offer this) Any other type of private loan
Defaulted federal education loans Unless you meet specific rules
designed to help defaulted borrowers
Slide 25
When Can You Consolidate? All borrowers may consolidate:
Anytime during the post-school, six-month grace period But youll
give up any remaining grace period You can ask your lender to hold
your application until just before grace period ends Anytime during
repayment Borrowers* with at least one direct loan or who are
attending a DL school may obtain a Direct Consolidation Loan while
still in school *Special rules apply to borrowers who are
delinquent or in default
Slide 26
How Does Consolidation Work? Lender issues new loan and pays
off all of the loans put into the consolidation The individual,
consolidated loans no longer exist New loan has different interest
rate and payback terms Federal Consolidation Loans still provide
deferment and forbearance benefits
Slide 27
Whats The Minimum Balance? Federal rules do not set a minimum
balance Lenders are allowed to impose minimum balances Average
consolidation balance is over $20,000
Slide 28
How Long Is The Payback Period? 10 to 30 years to repay,
depending on how much you owe* Total Education DebtMaximum Payback
Period** Less than $7,50010 Years $7,500 to $9,999.9912 Years
$10,000 to $19,999.9915 Years $20,000 to $39,999.9920 Years $40,000
to $59,999.9925 Years $60,000 or more30 Years * Including federal
and private education loans not included in consolidation loan
**Slightly different payback schedule applies to Direct
Consolidation Loans
Slide 29
Can You Have a Shorter Payback Period? Yes -- you can ask for a
repayment period that is shorter than the maximum allowed Make sure
to ask your lender about this option when you apply You can prepay
your loan in part or in full at any time You wont be charged any
prepayment penalties or fees
Slide 30
How Is The Interest Rate Determined? Consolidation rate is
weighted average of the current rates on the loans being
consolidated rounded up to the nearest 1/8th of a percent
LoanBalance Rate Subsidized Stafford $20,0004.06%* Unsubsidized
Stafford$30,0004.06%* Perkins Loan$ 4,0005.00% Weighted-Average
Rate4.43% Consolidation Rate 4.50% * Rate is for the 02-03 year and
will be set again for 2002-2003 on July 1, 2003 This borrower would
receive a fixed rate of 4.5% for a 25-year consolidation loan with
an initial balance of $54,000
Slide 31
How Is Monthly Payment Determined? Monthly payment amounts are
based on-- Length of payback period Interest rate Repayment plan
selected by borrower $50 minimum for level repayment plan Three
basic types of repayment plans Level repayment Graduated repayment
Income sensitive repayment
Slide 32
How Long Does Consolidation Take? Typically, 4-6 weeks In the
meantime, keep making the payments on the loans you want to
consolidate
Slide 33
When Is First Consolidation Payment Due? The repayment period
typically begins 30 days after the loan is disbursed That means
your first payment is due within 60 days after disbursement If you
consolidate in grace, your grace period ends the day the loan is
disbursed
Slide 34
Where Can You Consolidate? For borrowers with loans issued by
banks and other private lenders-- If all your Stafford loans are
held by the same lender, you should contact that lender If your
loans are held by more than one lender, contact one of your current
lenders If your current lender doesnt make consolidation loans, you
may choose another lender
Slide 35
Where Can You Consolidate? For borrowers with loans issued by
banks and other private lenders (contd) Special rules restrict the
ability of FFELP-only borrowers to consolidate under the Direct
Loan Consolidation program Borrowers with one or more Direct Loans
can consolidate with either a FFELP consolidation lender or the
Direct Loan Program
Slide 36
Trouble Making Payments? Call your loan servicer or lender
right away Explore your options Lower your monthly payment
Graduated repayment Income-sensitive repayment Temporarily postpone
your payments Deferment Forbearance
Slide 37
If You Want To Postpone Your Payments Deferment options
include: Unlimited deferment for borrowers who return to school at
least half-time Up to 3 years of unemployment deferment Up to 3
years of economic hardship deferment Borrowers must meet income
test You keep valuable interest subsidy benefits on any subsidized
FFELP loan you consolidate Better yet, deferment interest rate may
be lower than repayment interest rate Borrowers may pay interest as
it accrues or allow it to be capitalized in lump sum at end of
deferment
Slide 38
If You Want To Postpone Your Payments If deferment isnt an
option, consider forbearance Lenders may grant forbearance for a
variety of reasons, including economic hardship There is no
specific income test Can be granted for up to 1 year at a time
Government does not provide interest rate subsidy for any loan
during forbearance Interest accrues at repayment rate Borrowers may
pay interest as it accrues or allow interest to be capitalized in
lump sum at end of forbearance
Slide 39
If You Want To Postpone Your Payments? Deferments are granted
automatically to borrowers who qualify But you must submit a
deferment application Forbearances also require paperwork Deferment
and forbearance forms are readily available via the Internet Visit
www.salliemae.com
Slide 40
What If You Become Delinquent? Call your lender or loan
servicer immediately and ask for help! n Your servicer will contact
you. n Your late payments will be reported to a credit bureau. n
Delinquency will become part of your financial history.
Slide 41
What If You Become Disabled Or Die? Your federal loans will be
discharged if: You become completely and permanently disabled
Unless you have a spousal consolidation loan You die Unless you
have a spousal consolidation loan Private loans seek settlement
from the borrowers estate or co-borrower (technical default)
Slide 42
What If You Default? You could incur collection costs and legal
expenses Your credit history will be tarnished for a long time Your
wages may be garnished Your federal tax refund can be withheld You
may be subject to state-imposed penalties or restrictions
(licensing clauses)
Slide 43
What About Bankruptcy? Federal bankruptcy laws now make it very
difficult for borrowers to discharge student loans n Youll have
difficulty obtaining credit in the future. n Youll be unable to
meet financial obligations. n Your financial affairs are turned
over to a trustee for administration and distribution of your
assets to creditors. n Its the most serious negative for credit
reporting. n It will remain on your credit record for 10
years.
Slide 44
Avoid Delinquency, Default & Bankruptcy n Stay in control
of your credit from the start. n When trouble arises, take action -
immediately! n Seek professional assistance from your local
Consumer Credit Counseling Service (CCCS) - 1-800-388-2227 - Its a
free service! n A financial planner can help develop a money
management strategy for a fee.
Slide 45
What About Deducting The Interest? Tax rules are a bit complex,
but in general you can: Deduct interest paid during first 5 years
of repayment Up to limit of $2,500 per year Provided you meet
income test $40,000-$55,000 for single taxpayers $60,000-$75,000
for married taxpayers Visit IRS Web site at www.irs.gov and seek
out Publication 970: Tax Benefits for Higher Education
http://ftp.fedworld.gov/pub/irs-pdf/p970.pdf Another possible
resource: www.MBAtaxbook.com
Slide 46
Where Can You Go For Help? Sallie Mae Please visit our Web site
at www.salliemae.com (Manage Your Loans enrollment necessary for
the Columbia Cash Back 5% credit) For consolidation information -
please call our consolidation specialists toll free at
1-800-448-3533 or apply online Best wishes for your future
success!