Student Loans: A NYPIRG Student Empowerment Workshop

I. Intro NYPIRG [NYPIRG is an exceptional resource for students]A. A place to learn new skills while working on important issuesB. PC(s) - fulltime staff person(s) trained in student developmentC. Issue experts and staff attorneys working for and with studentsD. Student Board of Directors to choose issues and identify programming needsE. Workshops addressing issues, organizing, communications, leadership, civic action,

financial literacy, student housing/tenants rights and now student loans

II. Intro Workshop: College students are borrowing a lot of money, student loan debt has passed credit card debt, topping $1 trillion. Students are finding it difficult to pay loans back, recent headlines may have left students unsure, and direct marketing companies, working for lenders, use many advertising tactics- some even illegal- to promote their loans to students, regardless of the best interest of the student. The AG found that companies were using deceptive offers, fraudulent solicitations or illegal incentives.

Objective: NYPIRG prepared this workshop to help students sort through the marketing and to give them the information they need to manage and payoff their debt. It will help students who will soon graduate with student loan debt to understand the choices they will soon face regarding payment plans, deferments and forbearances, and loan consolidation. This workshop is not a one-on-one financial planning session, so if you have specific questions on the right plan for you, reach out to the campus’s financial aid office [or insert other campus department, or community group]. In this workshop we will…

1. Review student loan debt history2. Review the various types of student loans3. Talk about managing your debt - including choosing a payment plan and deciding

whether to consolidate4. Discuss what to do if you have trouble making payments5. Identify various loan forgiveness programs available to you6. Discuss recent federal student loan legislation7. End with a list of great online and real world resources you can use

A. Student Loans Brief History1. College students are borrowing a lot of money:

Student loan debt has passed credit card debt, topping $1 trillion. 37 million Americans hold outstanding student loan debt, and 2.7 million of those

debt holders are New Yorkers. New York graduates carrying student loan debt had an average debt of $27,310. On this campus the average student graduating with debt owes [see

economicdiversity.org for amount].1

2. Among all bachelor's degree recipients, median debt was: $7,960 at public four-year institutions $17,040 at private not-for-profit four-year institutions 31,190 at for-profit institutions.

3. Pell Grant recipients, who generally have family income under $50,000, are much more likely to borrow and to borrow higher sums

4. Students are finding it difficult to pay loans back

1 See www.economicdiversity.org for a campus-by-campus list of average student debt load.

24,800 NYS borrowers defaulted on their student loans or were more than nine months delinquent on their payments between 2009 and 2012.

In 2012, 48% of 25-34 year-olds say they are unemployed or under-employed. 5. Recent headlines may have left students unsure:

In 2007, Congress passed the College Cost Reduction and Access Act. When it expired, Congress made the bi-partisan decision to extend the 3.4% rate on the subsidized Stafford loan for one year, until July 1st, 2013. Unfortunately, Congress failed to meet this year’s deadline of July 1st and the rates instantly doubled to 6.8%. And a less-student friendly bi-partisan solution passed that set interest rates to that of 10-year Treasury yields plus a Congressional add-on percentage.

B. How the Credit Crisis is affecting student loans

C. How the Credit Crisis is not affecting student loans

III. Types of Student Loans - you may already have: Perkins, Stafford, Plus are federally issued loans. There are also private loans. According to the CFPB, roughly $864 billion is outstanding federal student loan debt while the remaining $150 billion is in private student loans

A. Perkins Loans: The Federal Perkins Loan Program provides low interest loans for graduate and undergraduate students with exceptional financial need. the best student loan terms.

1. For undergrad and grad students with most financial need. The college acts as the lender (they determine the amount) using funds provided by the federal government. You make payments to back to the college or its agent. Not all schools participate in the program.

2. The amount you can borrow depends on your financial need, the amount of other aid you receive, and the availability of funds at your college or career school.

3. Students must file a Free Application for Federal Student Aid (FAFSA) and Perkins promissory note as part of the application process for a Perkins Loan.

4. Subsidized loan5. Loan program with the most opportunities for loan forgiveness: loan cancellation for

teacher service at low-income schools and under certain other circumstances specified in the law (HEA). Students may defer repayment of the loan while enrolled (at least half-time) at a postsecondary school.

6. Can borrow up to $5,550 per year for undergraduates and $27,500 total; up to $8,000 per year for graduate or professional students and $60,000 total. Average New Award as of 2011: $1,968

7. Up to 10 years to pay off. No alternate payment plans unless you consolidate it together with Stafford loans.

8. Interest Rate is set at 5% and there are no fees except for late payment9. 9 month grace period

B. Stafford Loans: the largest source of federal student aid2 1. You borrow from the Federal Government

Stafford Loans carry a fixed interest rate, and are typically the most affordable type of student loans

At this school we [Check with the financial aid office]

2 www.finaid.org

2. Subsidized: for students with demonstrated financial need-- the federal government pays the interest while you're in college and during grace and deferment

3. Unsubsidized: all students are eligible--you pay all the interest on the loan, and it gets added to your total (capitalized) while you're in college

4. Interest Rates & Fees Federal law sets the maximum interest rates and fees charged Stafford loans borrowed after July 1, 2006 have a fixed interest rate of 6.8% In 2007, a Federal law passed that cut interest rates in half by 2011. First

reduction (from 6.8% to 6%) Loans in 2008 have 6% interest rate, 2009 saw decrease to 5.6%, 2010 saw decrease to 4.5%, and 2011 saw decrease t0 3.4% which was extended in 2012.

When this law (and the one year extension) expired in July 2013, unfortunately, Congress let rates doubled to 6.8%. And a less-student friendly bi-partisan solution passed that set interest rates to that of 10-year Treasury yields plus a Congressional add-on percentage. The rates will vary year-to-year with the market but will stay fixed throughout the repayment life of the loan and will be capped at 8.25% for all undergraduate loans. Students taking out loans for this year should expect to pay 3.86% (rates are higher for parent and graduate loans).

You pay a 1% origination fee Stafford Loan Interest Rates

Academic Year Subsidized Rates Unsubsidized Rates Graduate Rates

2011-12 3.40% 6.80% 6.80%

2012-13 3.40% 6.80% 6.80%

2013-14* 3.86% 3.86% 5.41%

Current Stafford Loan interest rates in effect from 07/01/2013 to 06/30/2014 *These rates have been updated to reflect the new student loan interest rate legislation that went into effect on August 9, 2013.

5. Choice of payment plans: standard (10 years), extended, graduated and income based

6. Grace Period and Maximum Amounts 6 Month grace period - time between graduation / leaving school and when you

have to start paying Loan limits vary by year, type of degree, and type of loan (subsidized or

unsubsidized).

Stafford Loan Limits

Dependent Students Annual Loan Limits

First Year $5,500 ($3,500 subsidized/$2,000 unsubsidized)

Second Year $6,500 ($4,500 subsidized/$2,000 unsubsidized)

Third Year and Beyond $7,500 ($5,500 subsidized/$2,000 unsubsidized)

Independent Students Annual Loan Limits

First Year $9,500 ($3,500 subsidized/$6,000 unsubsidized)

Second Year $10,500 ($4,500 subsidized/$6,000 unsubsidized)

Third Year and Beyond $12,500 ($5,500 subsidized/$7,000 unsubsidized)

Graduate or Professional $20,500 ($8,500 subsidized/$12,000 unsubsidized)

Lifetime Limits

Undergraduate Dependent $31,000 (Up to $23,000 may be subsidized)

Undergraduate Independent $57,500

Graduate or Professional$138,500 (Up to $65,000 may be subsidized) or $224,000 (for Health Professionals)

For loans first disbursed on or after July 1, 2008.

C. Plus Loans1. Federal loans that graduate or professional degree students or parents of dependent

undergrads can borrow to help you pay for college. 2. U.S. Dept of Education makes the loan through Direct Loan Program3. Subject to credit approval4. Unsubsidized loan5. Interest Rates and Fees

Federal law sets the maximum interest rates and fees PLUS loans have a fixed 6.41% interest rate Pay a 4.204% origination fee, deducted from each disbursement

6. Grace Period, Maximum Amount, Other Details There is no grace period. Repayments begin 60 days after disbursement while

you're in school. Must sign a Master Promissory Note (MPN) and graduate or professional

students need to complete entrance counseling before receiving a PLUS loan Max loan amount is cost of attendance minus other financial aid.

D. Private Education Loans (Alternative Loans): Was the fastest growing segment of loan Industry3

3 Project On Student Debt, Private Student Loan Policy Agenda, see at http://projectonstudentdebt.org/initiative_view.php?initiative_idx=7

1. Loans that are not secured by the federal government. Offered by banks, credit unions and other lenders.

2. Becoming increasingly prevalent as cost of higher education rises4

3. Marketed aggressively - lots of commercials, direct mail etc4. Subject to credit approval and better interest rates for better scores5. Terms of private/alternative loans are typically worse than federally backed loans

Higher interest rateso Not capped by the federal lawoOften variable rates (prime interest rate plus some percentage), while federally

backed loans have fixed ratesoSketchy marketing: may advertise the lowest interest rate they offer (to the most

credit worthy borrowers) rather than the entire range of rates they offer. No real loan forgiveness options

oNo death/permanent disability forgiveness - heirs would have to pay debt out of your estate

oNo forgiveness for going into high-needs fields Less flexible payments

oDon't have to offer the four (Standard, Extended, Graduated, and Income Based) payment plans

oMy offer some flexibility - like interest only payments for a time Fewer/less flexible deferment options

o Most offer deferment for student enrollment (though interest is capitalized)o May not offer or may limit hardship forbearances

6. Should only be used as a last resort Make doubly sure you've exhausted every federally backed option (Stafford,

Unsubsidized Stafford, PLUS loans etc.) before turning to private loans Read and reread the fine print in the offer AND on the promissory note before

signing Students typically have lower credit scores (they have short credit histories) so if

you have to take out a private loan, getting a parent to cosign will save you money (assuming they have better credit than you)

Never borrow more than you need to pay your cost of attendance - extra has to be counted as an asset in the federal financial aid formulas

Shop around, but be careful because terms/rates may be described differently from lender to lender.

E. Unsure about which loan you have & which terms?1. Dig up the papers and keep them all in one file2. Visit National Student Loan Data System (www.nslds.ed.gov)

Have to enter some personal information and apply for a PIN number 3. Ask the financial aid office

They have it all on file Federal regulations require you to have an exit interview with them before

graduation

IV. Managing Student Loan Debt

4 Ten years ago, only five percent of total education loan volume was in private loans. Today they represent an estimated 20 percent of what all undergraduate, graduate, and professional students and their families borrow to pay for school.

A. Consider Consolidation1. Refinancing two or more student loans into one larger loan. You can consolidate

federal student loans. Federal law sets the length of these loans and caps the interest rates.

2. Different types of Federal loans can be consolidated together (e.g. Subsidized with unsubsidized or Stafford with Perkins).5

3. Can only consolidate during the grace period or repayment.6 4. You can't consolidate private loans together with federal loans. But you can

consolidate private loans with other private loans.5. Interest Rates and Fees

Interest Rate = the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent and capped at 8.25% -- doesn't really change the cost of the loan7

There are no fees to consolidate federal loans Private consolidation loans have interest rate informed by your credit score and

will likely have fees6. Benefits

Single monthly payment Often reduces size of monthly payments For older loans (before July 2006), trade variable interest for a fixed rate Access to alternate repayment plans for PLUS and Perkins borrowers Resets the 3-year clock to apply for deferments/forbearances (if you've used up

your allowed deferments/forbearances) PLUS borrowers (from private lenders) can reduce interest from 8.5% to 8.25% Private lenders may offer timely payment discounts and other incentives For private loans, if your credit score has improved you may get lower interest

7. Drawbacks You pay more over the life of the loan Can cut short you grace period Lose benefits of the Perkins loan (expanded forgiveness options, no default fees) May lose (or have to repay) discounts related to current FFEL loans

B. Payment plans There are 4 types of repayment plans that Stafford loan borrowers and consolidation loan borrowers can choose from or switch between: standard, extended, graduated and income based. Plus loan borrowers can use all but the income based plans. This flexibility helps, but remember that changes that decrease your monthly payment increase your time to pay off the loan and the total amount you pay.

1. Standard You to pay a fixed amount, at least $50, each month Up to 10 years to pay off the loan Higher payments but fastest way out of debt and least interest paid

2. Graduated Start with small payments, which go up every two years

5 Parents and students can not consolidate their loans together.6 Loans that are in default but with satisfactory repayment arrangements may also be consolidated. For example to consolidate a defaulted loan with the Direct Loan program the borrower must agree to use the Income Contingent payment plan.7 Formula: debt 1 * interest rate 1 + debt 2 * interest rate 2 + debt 3 * interest rate 3 … = interest rate

debt 1 + debt 2 + debt 3 …

1st payments are interest only or half the standard plan payment, whichever is greater

Last payments are much larger--up to 1.5 times the standard plan payment Have 10 years to pay off the loan, depending on amount

3. Extended You pay a fixed amount each month Have up to 25 years to pay off the loan, depending on amount 8

Lower payments but you pay more in interest

4. Payments based on incomea) Income Contingent (for Direct Loan Borrowers) your monthly payments are adjusted to an affordable level each year, The amount calculated using your tax return, your family size, your interest rate

and the total amount you owe.9 After 25 years any remaining balance is forgivenb) Income Sensitive (For FFEL Borrowers) Payments are a fixed percentage of gross monthly income Have to reapply every year and provide proof of income Length of loan is 10 yearsc) Income Based (New for both FFEL and Direct Loan Borrowers) Part of College Cost Reduction and Access Act of 2007 Uses a more generous formula that assumes less available income to calculate

monthly payments10

After 25 years any remaining balance is forgiven5. Comparing the cost [Write this table on the chalkboard

Payment Options for a $35,000 Loan at 6%11

Comparing Payment Plan Costs for a $35,000 Loan at 6.0%

Plan Term Initial Monthly Payment

Total Cost of Loan (Interest + Payments)

Standard – 10 years $ 388.57 $ 46,628.40 Graduated – 10 years $ 263.25 $ 48,882.37Extended Fixed – 30 yearsGraduated -30 years

$ 225.51$ 175.00

$ 67,653.00$ 73,601.05

Income Contingent(Initial salary of $ 243.33 $ 57,903.45

8 Less than $10,000 12 years, $10,000-$19,999 the term is 15 years, $20,000-$39,999 the term is 20 years, $40,000-$59,999 the term is 25 years, and for debts of $60,000 or more the term is 30 years.9 Caps monthly payments at 20% of the difference between Adjusted Gross Income and 100% of the federal poverty line10 Caps monthly payments at 15%, of the difference between Adjusted Gross Income and 150% of the poverty line11 Chart made using calculators available at finaid.org. Interest paid under the Income Contingent Plan would vary based upon the size and changes in a borrower's income over time.

$25,000) – 18 years*

V. Recent Federal Loans Updates

A. Obama's Student Loan Debt-Relief Plana. A new equation for Income-Based Repayment (IBR). IBR is a repayment plan for

the major types of federal student loans that caps your required monthly payment at an amount intended to be affordable based on your income and family size.

b. Implemented by executive order since taxpayer subsidies to private banks for student loans was outlawed (gov’t backed private loans nixed). Saves gov’t $60 billion over the next 10 years- can now tabbed for direct govt loans and repayment programs. Will not cost taxpayers anything.

c. Who does this affect?i. (from Dept of Ed) 1.6 million students graduating starting in 2012.  And an

additional estimated 5.8 million people who took out different kinds of federal loans no earlier than 2008 and take out an additional loan after 2012 who will be able to consolidate them into one loan.

d. The #s: caps loan payments at 10% of their discretionary income starting in 2012 (as opposed to 15% by 2014)

e. Forgives balances after 20 years (from 25 years)f. The US Department of Education, which now administers all federal education

loans, is giving borrowers the option of consolidating federal and private loans (Federal Family Education Loan (FFEL) Program) at reduced rates.

B. Benefitsa. Pay as you earn: monthly payment amount will be less than the amount you

would be required to pay under a 10-year standard repayment plan, and may be less than under other repayment plans. Although lower monthly payments may be of great benefit to a borrower, these lower payments may result in a longer repayment period and additional accrued interest.

b. Interest payment benefit: if your monthly IBR payment amount does not cover the interest that accrues on your loans each month, the government will pay your unpaid accrued interest on your Subsidized Stafford Loans (either Direct Loan or FFEL) for up to three consecutive years from the date you began repaying your loans under IBR.

c. 20-Year balance forgiveness: if you repay under the IBR plan for 20 years and meet certain other requirements, any remaining balance will be canceled.

d. 10-Year public service forgiveness: if you work in public service, on-time, full monthly payments you make under IBR (or certain other repayment plans) while employed full-time in a public service job will count toward the 120 monthly payments that are required to receive loan forgiveness through the Public Service Loan Forgiveness Program. Through this program, you may be eligible to have the remaining balance of your Direct Loans forgiven after you have made the 120 qualifying monthly payments as described above. The Public Service Loan Forgiveness Program is available only for Direct Loans.

C. Disadvantagesa. Doesn’t cover anyone who took out loans before 2008 (that won’t be taking out

more loans starting now).

b. Doesn’t cover purely private loans: typically taken out, though, when students exhaust their federal loan amounts

c. Doesn’t cover defaulted loansd. You may pay more interest: the faster you repay your loans, the less interest you

pay. e. So IBR isn’t focused on assisting with the overall burden of student loans of the

average student. Instead, it intends to help those with lots of student loans who either have a low income after school during their early years or have a relatively low income throughout their career.

V. When Student Loan Debt Seems Unmanageable

A. Avoid Default1. In default after 9 months of missed payments 2. Collection agencies will hound you3. Late fees and collections costs4. Credit record/score damaged for 7 years5. You might be sued6. Paychecks may be garnished up to 10%7. Income tax refunds seized8. Become ineligible for other state and federal student aid9. These debts never go away, usually not even in bankruptcy

B. Deferment1. A temporary break from loan payments for

Being enrolled at least 1/2 time in college, or in a graduate fellowship, or rehabilitation program for a disability

Unemployment Economic hardship Peace Corps Active Military Duty

2. Lasts up to 3 years3. Have to apply with lender4. For subsidized loans Fed government pays interest, for unsubsidized you have to

pay it during deferment or have it added to your principle (capitalized)C. Forbearance

1. Shorter term break from loan payments 2. For borrowers who don't qualify for a deferment but need a break

AmeriCorps service Internships & residencies Financial hardship

3. Lasts up to 12 months at a time but can be renewed for up to 3 years4. have to apply with lender5. You pay (or capitalize) the interest regardless of sub-or unsubsidized loan

D. Switch to Income Based Repayment Plan1. Monthly payments are adjusted to an affordable level (prior example under Federal

Loans update section)2. How to apply for IBR: For more information about and to apply for IBR, contact the

servicer(s) of your student loans. If you are not sure who your loan servicer is or would like more information about your loans, you can look it up on www.nslds.ed.gov.

VI. Loan Forgiveness Programs

State and federal government offer a number of programs to forgive all or part of your student loan. They're for students who study and work in particular high need or public service fields.

A. For details on high need or public service fields, go-to http://www.finaid.org/loans/publicservice.phtml

1. for example: Law Enforcement or Corrections officer - as an example of the many

opportunities to forgive Perkins loans Public Sector Employees - far reaching example of forgiveness [look to the

footnote for further explanation] Teacher level 1 and 2 - the most commonly known program

VII. Free Money?

Think about Financial Aid, Grants, or Work Study first Federal Student Aid, an office of the U.S. Department of Education, ensures that all

eligible individuals can benefit from federally funded financial assistance for education beyond high school.

Today, Federal Student Aid performs a range of critical functions that include, among others:

o Educating students and families on the process of obtaining aid;o Processing millions of student financial aid applications each year;o Disbursing billions of dollars in aid funds to students through schools; ando Enforcing financial aid rules and regulations

VIII. Resources

A. For Information and Research1. www.studentdebtalert.org -- Student PIRG's Web site about student debt activism.

Includes a Student Debt Yearbook where you can post or view picture and profiles of students struggling with debt.

2. www.projectonstudentdebt.org -- Lots of research and advocacy about student loan debt, including state-by-state data

3. www.economicdiversity.org -- Has average student loan debt for almost every college in the country

B. For Help with Your Loans1. www.collegefinancecenter.org – creates a personalized college finance plan or

repayment plan based on your individual information and situation www.studentaid.ed.gov-- The Depart of Education's Web site has rules and regulations re student loans

2. www.finaid.org -- Offers lots of information, calculators to help you compare loans, estimate payments and more

3. Mapping-your-future.org -- Tons on info on student loans, career planning, financial aid, etc. Some college financial aid offices use it for federally mandated student loan entrance and exit interviews for students

4. www.ombudsman.ed.gov -- The Federal Student Aid Ombudsman of the Department of Education helps resolve disputes and solve other problems with federal student loans. Site offers lots of resources to educate and help yourself and, if that fails, they can help you individually.

5. NYS Attorney General -- For unfair, anti consumer treatment, call the NYS Attorney General's hotline: 1-800-771-7755. Their investigations are ongoing.

6. www.nslds.ed.gov -- National Student Loan Data System Web site allows you to look up your student loan information.

7. The [your school] Financial Aid Office -- Have your information on file8. Are required to give borrowers an exit interview to help them plan to manage their

student loan debt, and learn their rights and responsibilities.