Managing Student Loan Repayment For Graduating Seniors

1Managing Student LoanRepayment for Graduating Seniors

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About MEFANot-for-profit state authority created in 1982helping families plan, save, and pay for college3

Agenda First StepsFederal Loan RepaymentPrivate Loan RepaymentLoan Repayment TipsForgiveness OptionsAvoiding and Recovering from Delinquency and DefaultLoan Consolidation and RefinancingResources4

5First Steps

Create Your Post-Graduation Budget Use a simple spreadsheet and/or onlinebudgeting tool Identify all sources of income Identify all bills/expenses Distinguish between needs and wants Revise as needed6

7Get Your Federal Student Loan Information Visit the Federal Student Aid site and log in: studentaid.ed.govView information about your federal loans (no private loan info)Find out your federal loan servicer (the company you will repay)Your loan servicer can provide your payment amount and first payment due dateLog in andview yourfederal loandetails

Get Your Private Student Loan Information8 Check with your financial aid office for a list of your private loans Check each lender’s website to find out your loan servicer (the company you will repay) Your loan servicer can provide your payment amount and first payment due date

Next Steps Create an online account for each loan servicer (you may have multiple servicers)Download each loan servicer’s mobile app if applicableAdd your loan payments to your monthly budgetMake a note in your calendar when repayment begins for each loan You may have a grace period: time between graduation and start of repayment9

10Federal Loan Repayment

You Have Federal Loan Repayment Options Standard repayment is 10 years Extending repayment to a longer term results in:― a lower monthly payment― a potentially higher overall cost Get help determining a repayment plan using the Loan Simulator― studentaid.gov/loan-simulator11

Federal Loan Repayment OptionsStandardFixed payments over 10 yearsGraduatedLower payments eventually increase; 10 yearsUseful if you expect a rise in incomeExtendedFixed or graduated payments; 25 yearsREPAYEPayments are 10% of discretionary incomeLoan debt forgiven after 20 or 25 yearsPAYEPayments are 10% of discretionary incomeLoan debt forgiven after 20 12Payments are 10 or 15% of discretionary incomeLoan debt forgiven after 20 or 25 yearsPayments are lesser of 20% of discretionary income or 12-year fixed paymentLoan debt forgiven after 25 yearsPayments based on annual income; 15 years*Per the American Rescue Plan signed into law on 3/11/21, all student loan forgiveness is exempt from taxation

13Repayment Plan SummaryVictoria has 40,000 in Direct Loan debt ( 20,000 unsubsidized; 20,000 subsidized) at an interest rate of 5.5%. Her income is 45,000, she is single, and she lives in Massachusetts. Her income increases at a rate of 5% per year.Repayment PlanInitialPaymentFinalPaymentTotal PaidTotal Paid inInterestTotal Time inRepayment10-Year Standard 434 434 52,093 12,093120 monthsGraduated 247 741 55,270 15,270120 monthsExtended Fixed 246 246 73,690 33,690300 monthsExtendedGraduated 183 384 80,351 40,351300 monthsRevised Pay AsYou Earn(REPAYE) 223 531 61,724 21,724175 monthsPay As You Earn(PAYE) 223 434 61,881 21,881180 monthsIncome BasedRepayment (IBR) 223 434 61,881 21,881180 monthsIncomeContingentRepayment (ICR) 336 380 56,602 16,602157 monthsNotes

More on the Income Driven Repayment (IDR) Plans14Most IDR plans have two formulas–for those that do, borrowers always pay the lesser ofthe two:More Information: ncome-drivenSource: adopted from 2018 FSA Presentation “Income-Driven Repayment Plans”

15Private Loan Repayment

Private Loan Guidance Review the lender and loan servicer websites and your billing statementPrivate loans have limited repayment and deferment optionsContact your loan servicer with any questions about repayment16

17Loan Repayment Tips

Gathering Information Understand Your options for repayment Determine Your interest rate on each loan Each loan’s total amount18

19Repaying Pay on time!Always make at least the minimum paymentUse automatic debit to simplify repaymentConsider using 529 account (if available) topay off up to 10k in loans (in total) If you have extra funds: Pay off your loan with the highestinterest rate first Tell your loan servicer to put extrapayments toward your principal

Important of Good Credit Paying back your loans on time helps your creditYour credit can determine your interest rate when you borrow for future purchasesLandlords and rental companies may check your creditA bad credit decision stays with you for a long timeHow To Maintain Good CreditPay your bills on timeAvoid default (non-payment) on your loansReview your credit report annually for accuracy atAnnualCreditReport.com20

Follow-Up Contact your loan servicer If you have questions If you cannot pay on time Deduct your student loan interest on your federal taxes21

22Forgiveness Options

What is Student Loan Forgiveness?A situation where some (or all) of your student loans are forgiven.Student loan forgiveness typically occurs for two reasons:― Reward for doing something good― Relief if something bad happens to youOn the reward side, some common federal student loan forgiveness programs include:―――――Public Service Loan Forgiveness (PSLF)Teacher Loan ForgivenessDepartment of Defense Loan RepaymentAmeriCorps and Peace Corps Loan RepaymentPerkins Loan Forgiveness23

Public Service Loan Forgiveness (PSLF) Forgives loan balance after 120 qualifying monthly payments― Payments do not have to be consecutiveMust be working full time for qualifying employer during repayment― Government organization― 501(c)(3) not-for-profit organization― Other not-for-profit organization providing qualifying publicservicesOnly Direct Loans qualifyOnly payments made after 10/1/07 qualifyMust be on an income-driven or standard repayment planMust submit the PSLF application after making all 120 paymentsPSLF Help Tool: studentaid.gov/pslf24

25Other ForgivenessTeacher Loan Forgiveness Must teach full time for 5 completeand consecutive yearsMust teach in a school or agencythat serves low-income familiesOnly Direct Loans and StaffordLoans qualifyUp to 17,500 can be forgivenComplete the Teacher LoanForgiveness Application onstudentaid.ed.govPerkins Loan Cancellation and Discharge For individuals in certain types of publicservice positionsPercentage of loan is canceled for eachcomplete year of serviceQualifying positions: Peace Corps,teacher, U.S. armed forces, nurse, lawenforcement officer, Head Start worker,family servicers and early interventionworkersContact the school that awarded theloan for forgiveness

26Loan DischargeTotal and permanentdisability of studentDeath of thestudent orborrowerReasons forLoan DischargeSchool violated a lawSchool closed whilestudent wasenrolledMust complete the application and provide documentationResource: The (Almost) Complete Guide To Student Loan Forgiveness Options (freestudentloanadvice.org/forgiveness-programs/)

27Avoiding and Recovering FromDelinquency and Default

28Deferment and ForbearanceDeferment Loan payments are postponedMust meet eligibility requirementsSubmit request to loan servicerInterest does not accrue on subsidizedloansForbearance Loan payments are suspended or reducedMust meet eligibility requirementSubmit request to loan servicerInterest accrues on all loans

Deferment and Forbearance ReasonsDeferment UnemploymentEconomic hardshipGraduate fellowshipRehabilitation trainingprogram Military In schoolForbearance Medical/dental internship orresidency Student loan debt burden AmeriCorps Teacher Loan Forgiveness DOD Student LoanRepayment Program National Guard Medical/other acceptablereasons29

Delinquency and Default30 Delinquency begins the day after the due date when the full payment is not made Default occurs after 270 days of delinquency Loan servicers try to prevent default, contacting references and sending notices Loan servicers want borrowers to keep making payments to help borrowers save oninterest payments in the long run Loan servicers will provide deferment and forbearance options if needed

Consequences of DefaultReported to credit bureausNo more eligibility for federal student aidLoan immediately due and payable in fullLose eligibility for repayment plans and deferment or forbearance optionsCollection agencies will contact borrowerAdministrative wage garnishmentGarnishment of tax refunds31

Getting Out of Default: OptionsRepay loan in fullConsolidate andagree to repay underincome-driven planConsolidate aftermaking 3consecutivepaymentsRehabilitate the loan(make 9 on-timepayments in 10consecutive months)32

33Loan Consolidation andRefinancing

Federal Loan Consolidation Combine multiple federal loans into one DirectConsolidation Loan Fixed interest rate: weighted average of rateson all loans being consolidated Loans must be in repayment or grace period Several repayment plan options Repayment term: 10 to 30 years based on debtamount and repayment plan A student cannot consolidate a PLUS Loanborrowed by the parent Cannot consolidate private loans Apply on studentaid.gov No application fee34

Factors to Consider With Consolidation One bill per monthPotential lower monthly paymentsAccess to alternative repayment plansAbility to switch from variable to fixed interest rateLoss of borrower benefits with original loansIncreasing length of repayment results in larger total loan cost35

Education Loan Refinancing Similar to consolidation, but with a private lender May refinance both federal and private loans, but youwill lose repayment benefits associated with federalloans Many lender options Interest rate could be fixed or variable Receive a new interest rate, based on your currentfinancial picture Good credit and strong financial picture lowerinterest rate and substantial savings Will not be the best option for everyone36

37Consolidation vs. RefinancingDirect Student LoanConsolidationStudent Loan RefinancingAre federal loans eligible?YesYesAre private loans eligible?NoYesIs a credit check required?NoYesCan I lower my interestrates?NoMaybeWill I save money?Maybe (but generally no)MaybeWill I get one bill?YesYes

Factors to Consider With Refinancing One bill per monthPotential lower interest ratePotential lower monthly paymentsAbility to switch from variable to fixed interest rate or vice versaLoss of borrower benefits with original loansIncreasing length of repayment results in larger total loan cost38

39Resources

Helpful Websitesmefa.org: Info on repayment and MEFA’s Education Refinancing Loanstudentaid.ed.gov: Full details on federal loan repaymentfreestudentloanadvice.org: Fair, free student loan adviceirs.gov: Info on the student loan interest deductionbankrate.com: Calculators, rate comparison, and financial advicecredible.com: Compare loan and refinancing optionsannualcreditreport.com: Free credit reportscreditkarma.com: Free credit score and credit reports, tips, and toolsmint.com: Free financial management tool40

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Student loan debt burden AmeriCorps Teacher Loan Forgiveness DOD Student Loan . No more eligibility for federal student aid. Loan immediately due and payable in full. Lose eligibility for repayment plans and deferment or forbearance