STUDENT LOAN REPAYMENT OPTIONS. Kimber Decker. Regional Director, Partner Solutions. Nelnet. Loan Servicing. SPLIT LOAN SERVICING. FFELP loans . owned and serviced by . lenders and servicers. FFELP loans . ID: 450388
DownloadNote - The PPT/PDF document "STUDENT LOAN REPAYMENT OPTIONS" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
STUDENT LOAN REPAYMENT OPTIONSSlide2
STUDENT LOAN REPAYMENT OPTIONS
Regional Director, Partner Solutions
SPLIT LOAN SERVICING
owned and serviced by
lenders and servicers
Department of Education and
serviced by federal servicers
Nelnet, Great Lakes,
Mae, non-profit servicers
Nelnet, Great Lakes,
Servicing, Sallie Mae, ACS, non-profit servicers
Goal is to have one federal loan servicer for all
Continuous initiative to have one servicer per borrower for all
federally owned loans
GRACE PERIOD, DEFERMENTS, FORBEARANCE, AND FORGIVENESS PROGRAMSSlide5
loans have a grace period; repayment begins six months after student graduates, withdraws, or drops below half-time enrollment.
loan repayment begins 60 days after full disbursement. Borrower may defer repayment while the student for whom the parent obtained the loan is enrolled at least half time, and for Direct PLUS Loans first disbursed on or after July 1, 2008, for an additional six months after the student graduates or drops below half-time enrollment.
repayment begins at the time the loan is fully disbursed, and the first payment is due within 60 days after the final disbursement. However, you may defer repayment while you are enrolled at least half-time. If your Direct PLUS Loan was first disbursed on or after July 1, 2008, you may also defer repayment for an additional six months after you cease to be enrolled at least half-time.
Direct Loan Servicing Center or lender/servicer will send notification of your first payment due date during your grace/deferment period, if applicable.Slide6
A deferment is a period of time when payment on a loan is
Federal government pays the interest during deferments for subsidized loans and for the underlying subsidized loans that were consolidated.
Borrower is responsible for the interest for unsubsidized Stafford loans, GradPLUS loans, and PLUS loans and for the underlying unsubsidized loans that were consolidatedSlide7
TYPES OF DEFERMENTS
Enrolled at least half-time at an approved postsecondary school
Study in an approved graduate fellowship program or an approved rehabilitation training program for the disabled
Unable to find full-time employment (up to 3 years)
Economic Hardship (up to 3 years)
Engages in service listed under discharge/cancellation conditions (Perkins only)
Active Military Duty, for loans first disbursed on/after July 1, 2001; while borrower is on active duty during a war or other military option, or national emergency (up to 3 years)
Forbearance is a
or reduction of payments for a period of time
Personal problems such as poor health or economic hardship
Affected by circumstances such as a national emergency, military mobilization, or natural disaster
Have exhausted eligibility for an internship deferment
Are serving in a position that may, after a specified period of service, qualify for loan forgiveness, partial repayment of loan, or a national service educational awardSlide9
The borrower is responsible for the interest that accrues during a forbearance
Pay at least the interest, as it accrues during forbearance
Capitalization of interest—interest is added to the principal balance of the loan, which increases debt and results in paying interest on interestSlide10
Medical or dental internship or residency
Have student loan payments that are 20% or more of monthly income
Have payments being made for borrower by the Department of DefenseSlide11
LOAN DISCHARGE PROGRAMS
Total and permanent disability
Borrower’s school fails to pay a refund as required if borrower withdraws
Borrower is unable to complete his/her program of study due to school closure
Borrower’s loan was falsely certified as a result of crime or identity theft
Borrower’s school falsely certified or fraudulently completed a loan application in borrower’s name without his/her approvalSlide12
TEACHER LOAN FORGIVENESS PROGRAM
Teacher Loan Forgiveness Program
All federal loans issued after October 1, 1998
Borrower teaches as a highly qualified teacher in a qualifying low-income school for five consecutive, complete academic years
The loan for which the borrower is seeking forgiveness was made before the end of the fifth year of his/her qualifying teaching serviceSlide13
Public Service Loan Forgiveness Program
Created to encourage individuals to enter and continue to work full-time in public service jobs.
May qualify for forgiveness of the remaining balance due on your eligible federal student loans after you have made 120 payments on loans under certain repayment plans while employed full time by certain public service employers.
Only non-defaulted loans made under the William D. Ford Direct Loan Program are eligible for loan forgiveness. The Direct Loan Program includes the following types of loans:
Federal Direct Stafford Loans (Direct Subsidized Loans)
Federal Direct Unsubsidized Stafford Loans (Direct Unsubsidized Loans)
Federal Direct PLUS Loans (Direct PLUS Loans)- for parents and graduate or professional students
Federal Direct Consolidation Loans (Direct Consolidation Loans)
Note: Only payments made on the Direct Consolidation Loan will count toward the required 120 monthly payments. Payments made prior to consolidation are not eligible.Slide14
Public Service Loan Forgiveness Program
The 120 required payments must be made under one or more of the following Direct Loan Program repayment plans:
Income Based Repayment (IBR) Plan
Income Contingent Repayment Plan
Standard Repayment Plan
with a 10-year repayment period
Any other Direct Loan Program repayment plan, but only payments that are at least equal to the monthly payment amount that would have been required under the Standard Repayment Plan with a 10-year repayment period may be counted toward the required 120 payments.Slide15
Offered under both Direct Loans & FFELP (Federal Family Education Loan Program)
Specific to loan program
Income-contingent (Direct Loans)
For all repayment plans, student can:
Pay on a shorter schedule
Change repayment plans once per yearSlide18
STANDARD REPAYMENT PLAN
Lowest total loan cost
Regular payments of both principal and interest are due monthly, excluding periods of deferment and forbearance
Minimum monthly payment is $50
10-year repayment termSlide19
GRADUATED REPAYMENT PLAN
Monthly payments are smaller at the start of the repayment period and gradually increase every two years
10-year repayment term
Total amount paid in interest will be greater than under the standard repayment planSlide20
EXTENDED REPAYMENT PLAN
Lengthens repayment term up to 25 years
Available to borrowers with more than $30,000 in federal student loans (per program)
Total interest costs may be higher over life of the loan, although monthly payment amount may be lowerSlide21
Payments may be significantly lower under IBR, but would also take longer than standard 10 years to repay, resulting in paying more over life of loan Must have a “partial financial hardship” (PFH) to qualify for IBR Provides interest subsidy on subsidized loans for up to 3 years if IBR payment is less than accrued interest on those loans* Provides forgiveness of remaining balance after 25 years (300 eligible payments)* IBR Subsidy is for the amount of interest that the scheduled payment amount does not cover. This differs from interest subsidy for deferments and other periods where all in the interest is covered. All interest would be covered if payment amount is $0.
IBR: WHAT IS INCOME BASED REPAYMENT?Slide22
IBR: LOANS ELIGIBLE FOR IBR
Eligible:FFELP / Direct StaffordFFELP / Direct Grad PLUS Supplemental Loans (SLS)FISLFFELP / Direct Consolidation
Consolidations w/ Parent PLUS
Non-FFELP or Non-RDL
IBR: PARTIAL FINANCIAL HARDSHIP (PFH)
Based on income and family size
Final rules effective 07/01/2010 allow for the PFH to be determined based on the greater of either: the amount due at the time the loans entered repayment or at the time the borrower or spouse requests the IBR plan.
Borrower’s annual loan payment using the Standard 10-year Repayment Plan
15% of (borrower’s adjusted gross income – 150% of poverty line amount)Slide24
ExamplesSingle borrowerwith no dependentsMarried borrower with two children(and no spousal income or spousal student loan debt)Married borrowerwith no other dependents (spousal income and loan debt)Eligible student loan debt$40,000$80,000$40,000Interest rate6.8%6.8%6.8%Adjusted Gross Income$30,000$60,000$25,00010-year Standard plan monthly payment$460$920$460Estimated monthly PFH payment under IBR plan$170$340$40Reduction in monthly payment amount$290$580$420
ExamplesSingle borrowerwith no dependentsMarried borrower with two children(and no spousal income or spousal student loan debt)Married borrowerwith no other dependents (spousal income and loan debt)Eligible student loan debt$40,000$80,000$40,000Interest rate6.8%6.8%6.8%Adjusted Gross Income$15,000$33,400$22,50010-year Standard plan monthly payment$460$920$460Estimated monthly PFH payment under IBR plan$0$0(PFH result was $4)$10(PFH result was $8) Reduction in monthly payment amount$460$920$450
IBR: IBR AND MARRIED BORROWERS (FILING A JOINT TAX RETURN)
Adjusted Gross Income (AGI) is used to determine qualification
Prior to 7/1/10, for married borrowers filing a joint tax return, we considered both spouses AGI, but only the borrower’s debt in determining Partial Financial Hardship (PFH).
Under the rules effected on 7/1/10, we use the AGI on the joint tax return and are able to use both of the borrower’s eligible loan balances to determine PFH.
NOTE: This change is allowed even if only one spouse applies for IBR.Slide27
IBR: CHANGES UNDER STUDENT AID AND FISCAL RESPONSIBILITY ACT (SAFRA)
Under SAFRA, new borrower’s payment will not exceed 10% of the discretionary income (currently 15%)
Outstanding balance will be discharged after 20 years (currently at 25 years)
NOTE: These changes are only applicable to NEW borrowers that receive their loan on or after 7/1/2014Slide28
IBR: LOAN FORGIVENESS
The earliest a borrower may qualify for loan forgiveness under IBR is 2034 (July, 1, 2009 + 25 years)
Servicer Perspective: Specific claim filing instructions have not yet been determined, but it is assumed the servicer files a discharge request with the guarantor and payment for remaining balance of principal & interest is paid.
For ED servicers, there will be no claim filing process
Borrower Perspective: If they make it to 2034 with a balance, the loan is to be forgiven
Portion left over after the forgiveness years is taxable incomeSlide29
IBR: LOAN CAPITALIZATION
Interest accrues while a borrower is in a period of Partial Financial Hardship (PFH). Capitalization occurs if/when PFH status ends.
if they no longer qualify for PFH
if they go back to a regular repayment schedule (Permanent Standard)
at end of deferment or forbearance
if they were to go to another repayment plan
Since interest does not capitalize until you end a PFH status, there is a benefit to staying in a PFH payment as long as possible.Slide30
INCOME-SENSITIVE REPAYMENT PLAN
Offered only to borrowers under the FFELP
Monthly payment varies according to gross monthly income
Monthly payment covers at least monthly accruing interest
Must reapply annually
Total interest costs will be higher over the life of your loan than with standard repayment
Maximum repayment period is 10 yearsSlide31
INCOME-CONTINGENT REPAYMENT PLAN
Offered only to borrowers under the Direct Loan Program
Monthly payment based on adjusted gross income, family size, and total Direct Loan debt
If payment does not cover interest accrued, unpaid amount is capitalized annually.
Maximum repayment period is 25 years, and any balance after 25 years (time spent in deferment or forbearance does not count) is forgiven.Slide32
REPAYMENT CHART (STD 10 YEAR)
Monthly Payment at 4%
Monthly Payment at 5%
Monthly Payment at 6%
Monthly Payment at 7%
Monthly Payment at 8%
Monthly Payment at 9%
Overview of loan repayment, deferment, forbearance, and forgiveness programs
Overview of all federal loans, including amounts, interest rates, lender, servicer, statusSlide35
Should A Student Consolidate?
Are monthly payments manageable?
If students are having trouble meeting monthly payments, have exhausted deferment and forbearance options, and want to avoid default, a Direct Consolidation Loan may help.
Too many monthly payments?
If students are sending payments to more than one lender every month and want the convenience of a single monthly payment, consolidation is an option.
What are the interest rates?
If students have variable interest rates on federal education loans, they may want to consolidate. The interest rate for a Direct Consolidation Loan is fixed for the life of the Direct Consolidation Loan. The rate is based on the weighted average interest rate of the loans being consolidated, rounded to the next nearest higher one-eighth of one percent and can not exceed 8.25 percent.
How much is the student willing to pay over the long term?
Like a home mortgage or a car loan, extending the years of repayment increases the total amount to repay.
How many payments are left on the loans?
If a student is close to paying off their student loans, it may not be worth the effort to consolidate or extend payments.Slide37
Benefits of Federal Direct Loan Consolidation
One Lender and One Monthly Payment
Borrowers have only one lender, the U.S. Department of Education, and one monthly payment due for all loans included in a Direct Consolidation Loan.
Flexible Repayment Options
Borrowers can choose from multiple repayment plans with various terms to repay their consolidation loan(s), including an Income Contingent Repayment and an Income-Based Repayment Plan. These plans are designed to meet the different and changing needs of borrowers. Borrowers can switch repayment plans at anytime. If borrowers select the IBR Plan and want to change at a later date, their only option will be the Standard Plan.
No Minimum or Maximum Loan Amounts or Fees
There is no minimum amount required to qualify for a Direct Consolidation Loan. In addition, consolidation is
Varied Deferment Options
Borrowers with consolidation loans may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current federal education loans, a consolidation loan may renew those deferment options. In addition, borrowers may be eligible for additional deferment options when they obtain their first Direct Loan if they have an outstanding balance on a FFEL Program loan made before July 1, 1993.
Reduced Monthly Payments
A consolidation loan
ease the strain on a borrower's budget by lowering the borrower's overall monthly payment. The minimum monthly payment on a consolidation loan may be lower than the combined payments charged on a borrower's federal education loans.
Retention of Subsidy Benefits
There are two possible portions to a consolidation loan, subsidized and unsubsidized. Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized portion of a consolidation loan.Slide38
Who Is Eligible?
Borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.
Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.
Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan
intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.
Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.
The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.Slide39
The following federal education loans are eligible for consolidation into a Direct Consolidation Loan:
Subsidized Federal Stafford Loans
Direct Subsidized Loans
Subsidized Federal Consolidation Loans
Direct Subsidized Consolidation Loans
Federal Insured Student Loans (FISL)
Guaranteed Student Loans (GSL)
Unsubsidized and Nonsubsidized Federal Stafford Loans
Direct Unsubsidized Loans, including Direct Unsubsidized Loans (TEACH) (converted from TEACH Grants)
Unsubsidized Federal Consolidation Loans
Direct Unsubsidized Consolidation Loans
Federal PLUS Loans (for parents or for graduate and professional students)
Direct PLUS Loans (for parents or for graduate and professional students)
Direct PLUS Consolidation Loans
Federal Perkins Loans
National Direct Student Loans (NDSL)
National Defense Student Loans (NDSL)
Federal Supplemental Loans for Students (SLS)
Parent Loans for Undergraduate Students (PLUS)
Auxiliary Loans to Assist Students (ALAS)
Health Professions Student Loans (HPSL)
Health Education Assistance Loans (HEAL)
Nursing Student Loans (NSL)
Loans for Disadvantaged Students (LDS)Slide40
Some loans are always ineligible for consolidation. While these loans may not be included in a Direct Consolidation Loan, they may be considered in the calculation of the maximum repayment period under the Graduated or Extended Repayment Plan.
These include but are not limited to the following:
Loans made by a state or private lender and not guaranteed by the federal government
Primary Care Loans
Law Access Loans
Medical Assist Loans
How Do Students Apply?
Online Web Application: Apply online. Visit the Application and Promissory Note Home Page,
1.800.557.7392. Apply over the phone if you have all Direct Loans.
Download a paper copy
of the application and promissory note: including the complete contents of the application package.
Request an application package be mailed:
Phone at 1.800.557.7392, 8AM to 8PM (EST)
(TDD 1.800.557.7395) or 334.206.7400 outside USA
E-mail at firstname.lastname@example.orgSlide42
Common Student FAQs
Can I consolidate a Perkins Loan?
Yes, it is possible to consolidate Perkins Loans into a Direct Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Direct Loan Program will be included in the unsubsidized portion of the Direct Consolidation Loan.
Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan.
It is recommend that students consider the following points prior to making a decision:
Perkins Loans are eligible for additional cancellation benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.
Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.
Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Direct Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.
Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.Slide43
Common Student FAQs Continued…
Can I Consolidate a Defaulted Loan?
Generally, federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:
Agree to repay the loan(s) under the Income Contingent Repayment Plan.
Make satisfactory repayment arrangements with the current loan holder(s).
*If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, may want to consider another option: loan rehabilitation. Borrowers should contact their loan holders to obtain more information about this option.
Borrowers cannot consolidate defaulted loans under these conditions:
If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).
If they are trying to consolidate defaulted Direct Consolidation Loans.
If they are trying to consolidate defaulted FFEL Consolidation Loans unless they have made satisfactory repayment arrangements with their current loan holder OR the borrowers agree to repay under the Income Contingent Repayment Plan.
If they are trying to consolidate defaulted Perkins or health professions loans unless they have made satisfactory repayment arrangements with their current loan holders.Slide44
What is the Income-Based Repayment Plan (IBR)?
Your monthly payments will be based on annual income and family size, and spread over a term of up to 25 years. You must be experiencing a partial financial hardship to initially select this plan. Once you select this plan, you cannot change to any other plan except the Standard Plan.
If you consolidate more than one loan type (subsidized, unsubsidized and PLUS) ,you will have one Direct Consolidation Loan with up to two parts: Direct Subsidized and Direct Unsubsidized (which includes PLUS) Consolidation Loans. Even with up to two parts of each Direct Consolidation Loan, you make only one payment each month.
How long does it take to consolidate my loans once I submit my application?
The consolidation process generally takes 60-90 days. Using our online Web application can reduce the amount of time it takes to consolidate a borrower's loan.Slide45
Special Direct Consolidation Loans
Special Direct Consolidation Loans to eligible borrowers, beginning in January 2012. This is a short-term consolidation opportunity, ending June 30, 2012, for borrowers with
at least one student loan held by the Department (a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers);
at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).
Special Direct Consolidation Loans
Who is eligible for a Special Direct Consolidation Loan?
You must have at least one loan owned by the Department of Education and at least one commercially-held FFEL loan to qualify for a Special Direct Consolidation Loan.
What federal student loans are eligible for the Special Direct Consolidation Loan program?
While you must have both a Department-owned loan and a commercially-held FFEL loan to be eligible, ONLY your commercially-held FFEL loans are eligible for consolidation under this initiative. These include:
FFEL Subsidized and Unsubsidized Stafford Loans;
FFEL PLUS Loans (both those taken out by graduate/professional students and those taken out by a parent to pay for the costs of an undergraduate student); and
FFEL Consolidation Loans
In order to be eligible for consolidation under this initiative, these loans
in grace, repayment, deferment, or forbearance.Slide47
Special Direct Consolidation Loans
The following loans are ineligible for this program:
FFEL loans in default or subject to a bankruptcy proceeding;
Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS); and
Private student loansSlide48
What are the benefits of Special Direct Consolidation Loans?
Interest rate reduction:
You will receive a 0.25% interest rate reduction from the current interest rate on your commercially-held FFEL loan(s) as of the date of consolidation. The interest rate will be fixed for the life of the loan and cannot exceed 8.25%.
Repayment term will not be changed:
The repayment term on your Special Direct Consolidation Loan (the length of time you have to repay the loan) will remain the same as your current repayment terms and will not be reset. As a result, you will pay less interest over the life of the loan than you would with a traditional Direct Consolidation Loan.
Credit for Previous Income-Based Repayment (IBR) Payments:
If you made any IBR loan payments on your commercially-held FFEL loans prior to consolidation, those payments will count toward the required repayment time for cancellation if you remain in IBR. Under IBR, any remaining loan balance is forgiven after 25 years of repayment.
Eligibility for loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program:
Loans are eligible for the PSLF Program if you meet the additional program requirements. Under this program, you may qualify for forgiveness of the remaining balance due on your eligible Direct Loans after you have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers.Slide49
How are Special Direct Consolidation Loans different than traditional Direct Consolidation Loans?
Traditional Direct Consolidation Loan
Special Direct Consolidation Loan
The repayment term for the loan starts over, giving students longer to repay their loan. A longer repayment term may result in lower monthly payments but will ultimately increase the amount the borrower will pay over the life of the loan since more interest will accrue during a longer repayment period.
Each loan that is consolidated retains its original repayment term. As a result, borrowers will pay less interest over the life of the loan than they would under the traditional consolidation program.
A fixed rate based on the weighted average of the interest rates of those loans being consolidated rounded up to the nearest one-eighth of 1%, not to exceed 8.25%.
A fixed rate (not to exceed 8.25%) after applying the 0.25% interest rate reduction to the FFEL loans being consolidated.
Electronic Debit Benefit
Eligible for a 0.25% interest rate reduction if the loan is repaid through the Department’s automatic debit system.
Eligible for an additional 0.25% interest rate reduction if the loan is repaid through the Department’s automatic debit system.Slide50
Special Direct Consolidation Loans
Where can I get more information about Special Direct Consolidation Loans?
If you have further questions about Special Consolidation Loans, you can call 1-800-4-FED-AID (1-800-433-3243) for more information.
Information presented on Special Loan Consolidation came from:
QUESTIONS OR DISCUSSION?
Today's Top Docs