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An Exit Program
a
Repayment Plan
CreateManageable
Office of Student Financial AidInformation based on federal regulations in effect through June 30, 2006
Steps To Manageable Repayment
• Gather information and prepare for repayment• Understand repayment plans• Learn options for postponing repayment• Identify opportunities to manage your debt
School’s Average Profile
Student Debt Profile
Note: 3.50% interest rate assumed Values shown are estimates and intended for use as a guideline
Repayment Ability
8.00% 16.00% 24.00% 32.00% 40.00% 48.00% 56.00% 64.00% 72.00% 80.00% 88.00%
6.00% 12.00% 18.00% 24.00% 30.00% 36.00% 42.00% 48.00% 54.00% 60.00% 66.00%
4.80% 9.60% 14.40% 19.20% 24.00% 28.80% 33.60% 38.40% 43.20% 48.00% 52.80%
2.40% 4.80% 7.20% 9.60% 12.00% 14.40% 16.80% 19.20% 21.60% 24.00% 26.40%
1.92% 3.84% 5.76% 7.68% 9.60% 11.52% 13.44% 15.36% 17.28% 19.20% 21.12%
1.60% 3.20% 4.80% 6.40% 8.00% 9.60% 11.20% 12.80% 14.40% 16.00% 17.60%
1.37% 2.74% 4.11% 5.49% 6.86% 8.23% 9.60% 10.97% 12.34% 13.71% 15.09%
1.20% 2.40% 3.60% 4.80% 6.00% 7.20% 8.40% 9.60% 10.80% 12.00% 13.20%
1.07% 2.13% 3.20% 4.27% 5.33% 6.40% 7.47% 8.53% 9.60% 10.67% 11.73%
.96% 1.92% 2.88% 3.84% 4.80% 5.76% 6.72% 7.68% 8.64% 9.60% 10.56%
$200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200
$30,000
$40,000
$50,000
$100,000
$125,000
$150,000
$175,000
$200,000
$225,000
$250,000
Manageable(8% or less)
Challenging(between 8% and 18%)
Complex(18% or greater)
Est
ima
ted
Sa
lary
Educational Payment as a Percent of Gross
Monthly Income
Monthly Student Loan Payment
Gather information and prepare for repayment
Master Promissory Note (MPN) and Promissory Note
• States your promise to repay the loan
• Defines loan terms and your rights and responsibilities
Signed an MPN for Stafford Loan funds
Signed promissory note for other loans
It’s an Obligation
• Do not complete your academic program• Are not satisfied with your education from
the school• Do not find employment after leaving school• Do not receive a payment notice from your lender
You must repay your student loans even if you:
Rights & Responsibilities
For Stafford Loans, you have a right to:• Request a written statement of your loan• Prepay your loan without penalty• Request a deferment or forbearance
You also have a responsibility to:• Participate in an entrance and exit session
• Notify your lender/servicer of changes to your name, address and enrollment status
• Repay the loan and notify the lender/servicer when your ability to repay changes
Review your Exit Handbook for a complete list.
Sorting Through the Information
• Identify your lender(s) and servicer(s)
• A lender or servicer will:– Send interest statements
– Calculate and monitor grace period
– Set your first payment due date
– Process payments
– Write or call if you are late with a payment
• Request an account statement fromeach lender
Keep a File of Information
• Account statements• Lender and servicer contact
information• Promissory notes• Financial aid office correspondence• Lender and servicer correspondence
Phases of Your Federal Loans
Private loan borrowers should contact their lender for details.
They Differ from Federal Loans
• Is there a grace period, and what is the length?• When does repayment begin, and how long does it last?• Can I postpone repayment?• What are my deferment and forbearance options and
requirements?• How and when is interest calculated?• What are your interest capitalization policies?• Is there a repayment incentive?
Private or Institutional Loans: Ask Questions
Understand repayment plans
Thinking Beyond Today
Repayment Plans
Repayment Term
Mo
nth
ly P
aym
en
t A
mo
un
t
Standard
Graduated
Income-Sensitive
Higher monthly payment; lower interest costHelpful option if you initially require smaller paymentsHelpful option if you initially require smaller payments; adjusted regularly
Remember Prepayment
• Make extra payments or pay entire balance at any time without penalty
• It’s an option for every repayment plan• Pay less in interest expense because your principal
balance is decreasing faster
Interest Capitalization
• Lender adds accrued interest to the outstanding principal balance of the loan
• Accruing interest on interest• Frequency of capitalization
varies by lender– Less frequent capitalization
is better
T.H.E. has a borrower-friendly
interest capitalization policy
T.H.E. has a borrower-friendly
interest capitalization policy
Private loan borrowers should contact their lender for details.
Repayment Strategies Calculator
www.theloanprogram.org/tlc/Calculators/RepayStrategyCalc.aspx
Learn options for postponing repayment
Reduce total repayment: pay accrued interest during grace and deferment.
Deferment Basics
• Postponement of repayment for a specific time period
• Apply and meet criteria• Borrower responsible for interest on unsubsidized
loans– Accrues or can be paid
• Interest rate lower than in repayment (Stafford only)
Common Deferments
In-School Deferment
Economic Hardship Deferment
Graduate Fellowship Deferment
Unemployment Deferment
Forbearance Basics
• Use only if you are not eligible for deferment or have exhausted deferment benefits
• Temporary postponement or reduction of payment• Apply and meet criteria
In-School Deferment
• Enrolled at least half-time at an eligible school
• No limit, as long as you continue to be enrolled
Economic Hardship Deferment
• Qualification based on a ratio of income to monthly student loan payments
• Ideal for early years of medical residency• Must apply and qualify each year• Available for up to 3 years
Find out if you may qualify by using our online calculator: www.theloanprogram.org/tlc/Calculators/HardshipCalc.aspx
Find out if you may qualify by using our online calculator: www.theloanprogram.org/tlc/Calculators/HardshipCalc.aspx
Unemployment Deferment
• Apply with documentation of employment status• Granted in six-month intervals• Up to 24 or 36 months of deferment
– Depending on date received Federal Stafford Loans
Forbearance Basics
• Use only if you are not eligible for deferment or have exhausted deferment benefits
• Temporary postponement or reduction of payment
• Apply and meet criteria
• Interest accrues on both subsidized and unsubsidized loans
• Interest rate equals current repayment rate
• Interest capitalization occurs at the end of each forbearance period with some lenders
T.H.E. has a borrower-friendly
interest capitalization policy
T.H.E. has a borrower-friendly
interest capitalization policy
Repayment Timeline
Federal Stafford LoansSubsidized & Unsubsidized
Federal Perkins Loanson or after July 1, 1993
6-month Grace Period
9-month Grace Period
Economic HardshipApply each year, up to three years
Economic HardshipApply each year, up to three years
Repayment or Forbearance
Repayment or Forbearance
Private & Institutional Loans
Contact your lender (private) or school (institutional) for details
App
ly
App
ly
App
ly
Gra
duat
ion
App
ly
App
ly
App
ly
Gra
duat
ion
6-mo. Post-
Deferment Grace Period
Loan Discharge
• Release of a borrower’s obligation to repay his or her federal loan, either in whole or in part– Death
– Disability
• Application process differs according to discharge situation
Private/Alternative Loan discharge terms vary by lender.
Identify opportunities to manage your debt
Budgeting for Success
• Prevent financial trouble• Learn how to be a smart consumer• Prepare a secure future by setting
and achieving goals
Wise borrowing and smart financial habits can help lower your debt.
Smart Financial Habits
• Get organized• Determine your income• Identify your expenses• Balance your budget
Get Organized
• Collect information– Bills
– Account statements
– Receipts
• Know your income• Track expenses with a
spending journal
Determine Your Income
Total the Sources:
• Employment• Personal Savings• Family Contribution
Identify Your Expenses
Fixed Expenses
• Rent/Mortgage/Association Dues• Car payments• Insurance premiums• Child care • Taxes• Student loan payments
Identify Your Expenses
Variable Expenses• Utilities
• Food
• Clothing
• Medical/Dental
• Household
• Transportation
• Credit card
Using credit cards is not a good option for covering expenses you cannot handle.
You have the power to control your expenses.
Is Your Budget Balanced?
Expenses Exceeding Funds?
Eliminate or modify budget items that you control:• Necessity vs. need• Share — split the cost• Get a roommate• Planned buying• Loan consolidation• Refinance your mortgage• Consider automobile options
Managing Credit
• Understand what is included in your credit report
• Maintain a high FICO® score
• Pay all bills on time
• Open new accounts over time, not all at once
• Pay off debt, rather than moving it around to other credit cards
Federal Consolidation Loan
• Simplify multiple student loans with one point of contact
• Reduce your monthly payment amount
• Lock in a fixed interest rate for up to 30 years
A Federal Consolidation
Loan can make things easier!
Federal Loan
Consolidation
Will Be
Changing
Information based on federal regulations in effect through June 30, 2006
• Must be in grace period or have entered repayment on loans selected for consolidation– Includes loans in deferment or forbearance
– In-school loans are eligible after student requests early repay
• Eligible loans include:– Federal Stafford
– Perkins
– Others in handbook
Consolidation Requirements
Private loans are not eligible for Federal Consolidation.
Repayment Term
• Extending the term lowers monthly payments
• Length is limited based on your total outstanding student loan debt
Amount Owed Loan Term (Years)
Less than $7,500 10
$7,500 - $9,999 12
$10,000 - $19,999 15
$20,000 - $39,999 20
$40,000 - $59,999 25
$60,000 or more 30
Interest Rate
• Interest rate is the weighted average of consolidated loans’ rates – rounded up to the nearest 1/8%
• Grace period and deferment ideal times to apply• Direction of rates around July 1 can
influence timing
Eligible Deferments
Economic Hardship
Pursuing a Graduate Fellowship
Enrolled at Least Half Time
Unemployment
Gain peace of mind and simplify your student loan debt today.
Selecting the Right Lender
The only differences between consolidation lenders are service and incentives
Selecting the Right Lender
• Knowledge and experience• Accessibility• Credibility• Long-term commitment
Service
Compare Incentives
T.H.E. Repayment Bonus:• Monthly credit• Starts immediately upon
repayment• Will not lose benefit• Deferments/forbearances do
not harm availability• More than 95% of our
borrowers in repayment receive the bonus
Ask the Lender:• What is the incentive?• Is there a waiting period?• What happens if I miss a
payment? • What happens if I request a
deferment?• How many of your borrowers
receive it?
Compare Incentives
From U.S. News & World Report
I consolidated some of my loans while I was enrolled in school this past year.
Now what?
Need to Know
• No grace period on existing consolidation loan• Options
– Deferment
– Forbearance
– Minimum Payment
• Be proactive, contact your lender regarding repayment
Consolidation Options
Second Consolidation Loan• Consolidate outstanding eligible loans separate
from previous consolidation loan
Re-Consolidate• Combining previous consolidation loan with other
outstanding eligible loans
How to DecideKeeping them separate vs. re-consolidation
Separate:
• If you made the right choice on who holds your first consolidation loan, then it makes sense to create a second consolidation loan with that same lender
Why? —
• Maximize your savings– Pay down the higher rate loan faster as finances allow
How to DecideKeeping them separate vs. re-consolidation
Re-consolidation:• If you find that another lender has a better reputation of service and
a deliverable incentive, then bring all your loans together with that new lender (previous consolidated debt with recent consolidated debt)
Why? —• Simplification and savings
– Loans at one place, one point of contact and one payment– Minimize your monthly payment by maxing out your
repayment term
Second Consolidation Loan
Application Process• Submit your Consolidation Application
– List loans to be consolidated (e.g. recent Stafford) on page 2
– List previous consolidated debt on page 3
– To retain grace period, complete question #26
• Separate interest rate• Typically one consolidation account with one payment
Second Consolidation LoanRemember Your Repayment Strategy
Minimize Interest Expense
• Maximize your repayment term • Pre-pay consolidation loan with
higher interest rate as finances allow
Re-Consolidation
Application Process
• Submit your Consolidation Application – List loans to be consolidated, including previous consolidated debt
on page 2
– To retain grace period, complete question #26
– Manage repayment on previous Consolidation Loan during Stafford grace: make payments, request deferment or forbearance
• Interest rate re-calculated• New payment schedule issued
Create Your Repayment Strategy
Consolidation Extend Term Interest Only Deferment/ForbearanceComplexChallengingManageable
8.00% 16.00% 24.00% 32.00% 40.00% 48.00% 56.00% 64.00% 72.00% 80.00% 88.00%
6.00% 12.00% 18.00% 24.00% 30.00% 36.00% 42.00% 48.00% 54.00% 60.00% 66.00%
4.80% 9.60% 14.40% 19.20% 24.00% 28.80% 33.60% 38.40% 43.20% 48.00% 52.80%
2.40% 4.80% 7.20% 9.60% 12.00% 14.40% 16.80% 19.20% 21.60% 24.00% 26.40%
1.92% 3.84% 5.76% 7.68% 9.60% 11.52% 13.44% 15.36% 17.28% 19.20% 21.12%
1.60% 3.20% 4.80% 6.40% 8.00% 9.60% 11.20% 12.80% 14.40% 16.00% 17.60%
1.37% 2.74% 4.11% 5.49% 6.86% 8.23% 9.60% 10.97% 12.34% 13.71% 15.09%
1.20% 2.40% 3.60% 4.80% 6.00% 7.20% 8.40% 9.60% 10.80% 12.00% 13.20%
1.07% 2.13% 3.20% 4.27% 5.33% 6.40% 7.47% 8.53% 9.60% 10.67% 11.73%
.96% 1.92% 2.88% 3.84% 4.80% 5.76% 6.72% 7.68% 8.64% 9.60% 10.56%
$200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200
$30,000
$40,000
$50,000
$100,000
$125,000
$150,000
$175,000
$200,000
$225,000
$250,000
Est
ima
ted
Sa
lary
Monthly Student Loan Payment
Remember:
Consequences of Delinquency/Default
Delinquent: late monthly payment– Collection activity
– Damage to credit rating
Default: failure to pay for 270 days– Collection and legal activity
– Damage to credit rating for seven years or more
– Wages could be garnished
– Professional license could be suspended or revoked
Update your address and phone number with lenders/servicers.
Don’t ignore mail.
Delinquency/Default terms may differ for private and other federal loans.
An Exit Program
Questions & Discussion
Contact Us:
888-843-0004www.northstar.orgOffice of Student Financial Aid