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New Aid Officer Workshop 2013. Loan Basics. Loan basics. Angelika Williams Assistant Director of Financial Aid and Scholarships Texas State University- San Marcos. Loan Basics. Loan Requirements. Loan Requirements. Entrance Counseling Promissory Note Exit Counseling. - PowerPoint PPT Presentation
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New Aid Officer Workshop 2013
LOAN BASICS
LOAN BASICS
Angelika WilliamsAssistant Director of Financial Aid and Scholarships
Texas State University- San Marcos
LOAN BASICS
Loan Requirements
LOAN REQUIREMENTS
• Entrance Counseling• Promissory Note• Exit Counseling
ENTRANCE COUNSELING
• First-time borrowers• www.studentloans.gov• Inform them of their rights and responsibilities in taking
out this loan• Contains information on managing educational expenses
and financial resources to consider that may help pay for the borrower’s education
• Must be completed prior to the first disbursement
PROMISSORY NOTE
• Document signed by borrower, which includes terms and conditions of the loan disbursements, use, and repayment• Master Promissory Note• Good for ten years• Covers multiple loan periods and varying loan amounts of
the same type of loan
EXIT COUNSELING
• All borrowers that leave an institution must complete exit counseling• www.nslds.ed.gov• Is required before a student graduates, withdraws, or
drop below half-time attendance (even if the student plans to transfer to another school)
• Helps student understand rights and responsibilities as a student loan borrower
• Provides useful tips and information to help student’s manage their loans
LOAN NOTIFICATION
• The institution is required to notify the borrower, within 14 or 30 days, that a loan disbursement has been made and that the borrower may reduce or cancel the disbursement
LOAN BASICS
Types of Loans
FEDERAL LOANS
• Federal Direct Subsidized Loan• Federal Direct Unsubsidized Loan• Perkins• PLUS• Grad PLUS
FEDERAL DIRECT SUBSIDIZED LOAN
• Need-based Loan• Interest rate: 3.4%*• Origination Fee: 1.051%**• Grace Period: 6 months• Department of Education pays interest• In-School• Deferment
• Interest begins to accrue at grace period***• Only undergraduate students are eligible• Student must be enrolled at least half time• Student must be meeting SAP
FEDERAL DIRECT UNSUBSIDIZED LOAN
• Non-Need based Loan• Interest rate: 6.8%• Origination Fee: 1.051%*• Grace period: 6 months• Student pays interest • Interest is capitalized• Student can choose to pay interest while enrolled
• Undergraduates and Graduates are eligible• Student must be enrolled at least half time• Student must be meeting SAP
FEDERAL LOAN LIMITSDependent Undergraduate Student
Base Eligibility (Sub or Unsub)
Additional Unsubsidized Loan
Freshman $3,500 $2,000Sophomore $4,000 $2,000Junior/Senior $5,500 $2000Maximum Total (Aggregate) Limit:
$31,000 ($23,000 can be subsidized)Independent
Undergraduate Student
Base Eligibility (Sub or Unsub)
Additional Unsubsidized Loan
Freshman $3,500 $6,000Sophomore $4,000 $6,000Junior/Senior $5,500 $7,000Maximum Total (Aggregate) Limit:
$57,500 ($23,000 can be subsidized)
SUBSIDIZED LOAN LIMITATION
• Public Law 112-141 states an undergraduate student may receive subsidized loans for a limited number of years. • Applies to “new borrowers” on or after July 1, 2013• “New borrowers” – Borrowers with no balance on a FFEL or
Direct Loan on July 1, 2013• When a student has received subsidized loans for 150%
of the published length of the academic program-• Student may not receive additional subsidized loans for
enrollment in that program.
Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt
SUBSIDIZED LOAN LIMITATIONProgram Length Limitation on Subsidized Loan
Eligibility4- Year Bachelor’s Degree 6 Years of subsidized loan
eligibility2- Year Associates Degree 3 Years of subsidized loan
eligibility1- Year Certificate Program 1 ½ Years of subsidized loan
eligibility10 Week Certificate Program 15 Weeks of subsidized loan
eligibility
SUBSIDIZED LOAN LIMITATION
• Transfer Students – • Student maximum time to receive subsidized loans is
established based on the length of the program the student is currently enrolled in
• Remaining subsidized eligibility is determined by subtracting from the maximum eligibility for the program, the time the student has already received subsidized loans while enrolled in any program
Resource: ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt
SUBSIDIZED LOAN LIMITATION
• Examples – • Student receives two years of subsidized loans while
enrolled in a two-year program• Student transfers to a four-year BA program
• Student has four years of remaining subsidized loan eligibility
• Student receives three years of subsidized loans while enrolled in a four-year BA program• Student transfers to a two-year AA program
• Student has no remaining subsidized loan eligibility
Examples provided by Information for Financial Aid Professionals (IFAP) ifap.ed.gov/presentations/attachments/2012FSAConfGenSession1FederalUpdate.ppt
FEDERAL LOAN LIMITGraduate/Professional StudentUnsubsidized Loan $20,500/academic yearMaximum Total (Aggregate) Limit:
$138,500 ($65,500 may be subsidized)
PERKINS
• Need-based loan• Federal Loan, Institution acts as Lender and
Servicer• Interest Rate: 5%• Grace period: 9 months• Maximum repayment term: 10 years• Undergraduate and Graduate students are
eligible• Student must be enrolled at least half time• Student must be meeting SAP
PERKINS LOAN LIMITS
Undergraduate annual limit $5,500
Undergraduate Aggregate limit$27,500
Graduate annual limit $8,000
Graduate Aggregate limit$60,000
PLUS LOAN
• Parent Loan for Undergraduate Students (PLUS)• Must be the parent (biological, adoptive, or in some
cases, stepparent) of a dependent undergraduate student enrolled at least half-time and meeting SAP
• Non-need based loan• Can borrow up to COA
• Borrower must not have an adverse credit history • Interest Rate: 7.9%• Origination fee: 4.204%*• If the parent is denied, the student may receive a
Federal Direct Unsubsidized loan at Independent Undergraduate loan limit
GRAD PLUS
• Loan for Graduate Students (meeting SAP)• Non-need based loan• Borrower must not have an adverse credit history• Borrower must be a graduate or professional
degree student enrolled at least half-time• Interest Rate: 7.9%• Origination Fee: 4.204%*• Can borrow up to COA• No aggregate limit
ALTERNATIVE LOANS
• Interest rates are usually variable• Origination and repayment fees vary• Co-signer typically required• Most require school-certification
ALTERNATIVE LOANS
• Possible solution for• International Students• SAP Ineligible students• Non-degree seeking students• Students who have reached federal aggregate loan limits
LOAN BASICS
Loan Processes
DIRECT LOAN PRORATION
• Must prorate a Stafford Loan limit for an undergraduate program:• A student’s academic program is less than a year in
length• A student is remaining period of study is shorter than an
academic year
• Standard proration formula:• Amount of direct loan student could have for grade level
÷ 24 x enrolled hours
DIRECT LOAN PRORATION
• Example:• A dependent undergraduate student that is classified as
a senior for the Fall 2013 term with 6 hours remaining to graduate• $5500 ÷ 24 = 229.166667 x 6 hours = $1375 Subsidized
Loan• $2000 ÷ 24 = 83.33333 x 6 hours = $500 Unsubsidized Loan• If student has no need:
• $7500 ÷ 24 = 312.5 x 6 = $1875 Unsubsidized Loan
LOAN PROCESSES
• A school may not originate a Direct Loan for a loan period in which the student is not enrolled at least half-time • A school must determine an undergraduates
student’s Pell Grant eligibility before originating a subsidized or unsubsidized Stafford Loan • A school may not originate an unsubsidized
Stafford loan without first determining the student’s need for the subsidized Stafford loan
LOAN BASICS
Loan Repayment
LOAN REPAYMENT
• Single source for all federal loan info including• Borrower info• Loan amounts• Interest accrued• Servicer info
•www.nslds.ed.gov
WAYS TO REPAY
• Standard – Monthly payment remains consistent for up to10 years• Graduated – Monthly payments are lower at first
but then increase every 2 years up to 10 years. • Income-sensitive – Monthly payments are
based on your annual income and payments change as your income changes. • Extended – Payments may be fixed or graduated
for up to 25 years.
WAYS TO REPAY, CONT’D
• Income Contingent – payments based on annual calculations and adjusted so as not to cause “undue hardship”; (25 year forgiveness)• Income Based- Monthly payments will not
exceed 15% of the amount by which your adjusted gross income exceeds 150% of the poverty guideline for your family size. (25 year forgiveness)• Pay As You Earn – Monthly payments will not
exceed 10% of the amount by which your adjusted gross income exceeds 150% of the poverty guideline for your family size. (20 year forgiveness)
OTHER LOAN TERMS
• Deferments• Forbearance• Default• Cohort Default Rate
DEFERMENT
• Period of postponing payments• Federal government will pay interest for the
borrower with a Subsidized DL• Deferment request should be submitted to loan
servicer • Some possible deferment situations:• Education• Peace Corps/ Military• Unemployment or Inability to find full-time employment
FORBEARANCE
• Temporary cessation, reduction, or extension of payments• Student is responsible for interest that accrues• Borrower is willing but temporarily unable to pay• Forbearance request should be submitted to loan
servicer (in most cases, borrower must provide documentation to support the request)
DEFAULT
• Failure to meet the terms of the promissory note• Failure to repay• Borrower is considered to be in default after being
delinquent for 270 days• Borrower is subject to wage garnishment, seizure
of income tax refunds, lottery winnings, license non-renewal, sued by DOE• Student not eligible for federal financial aid• Damage to the borrower’s consumer credit score
DEFAULT
• Satisfactory Repayment Arrangements• Six on-time voluntary payments
• Rehabilitation• Nine on-time voluntary payments
• Consolidation can “fix” a defaulted loan
COHORT DEFAULT RATE
• Includes DL loans, and loans underlying DL consolidation loans
• CDR = % of borrowers who enter repayment in a given federal fiscal year who then default within the next 3 fiscals years
• High rate has consequences for schools• >15% = loss of 1 installment/semester• >15% = 30 day hold on 1st time, 1st year borrowers• > 40% = loss of participation in Title IV funding
QUESTIONS?
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