Welcome to
       The Basics of
        Borrowing
             Presented by the
National Association for College Admission...
Agenda
• Introduction
  – Applying for aid
  – Overview of student loans
     • Types of loans
     • Loan availability
• ...
Agenda, cont.
• How much can students/families afford
  to borrow?
• How do you determine what type of loan
  is best in a...
Agenda, cont.
• How will a student repay the loan?
• What happens if a borrower can’t repay
  a student loan?
• Q&A



   ...
Today’s Presenters
• Natala (Tally) Hart, Senior Advisor for
  Economic Access, The Ohio State
  University
• Edie Irons, ...
Today’s Presenters, cont.
• Karen E. Lanning, Vice President of
  Communications and Research,
  National Council of Highe...
Applying for Aid
• Families need a foundation in basic
  financial literacy
  – May be unfamiliar with budgeting
  – May n...
Types of Aid
• Grants and scholarships (gift aid)
  – Do not have to be repaid
  – May be renewable or non-renewable
• Loa...
Sources of Aid
•   Federal
•   State
•   Institutional
•   Private



             www.nacacnet.org 9
Loans Are Also Financial Aid
• Federal
  – As available as ever, even in this credit market
• Features
  – Fixed interest ...
Federal Need-Based Loans
• Perkins
• Subsidized Stafford
• Features of federal need-based loans
  – Low interest rates
  –...
Federal Non-Need-Based Loans
• Unsubsidized Stafford
• Parent PLUS
• Grad PLUS




         www.nacacnet.org 12
Federal Non-Need-Based Loans,
             cont.
• Higher interest rates
   – 6.8 percent fixed rate for unsubsidized
    ...
Federal Loan Resources
• Take-away: The financial aid chapter in
  NACAC’s Guide to the College Admission
  Process at
  h...
Private Loans
• Not really financial aid but a financing
  tool like a home equity loan or credit
  card
• Less available ...
Financial Aid Availability
• Federal loans available to all eligible students
• Recent federal government action to ensure...
Applying for Financial Aid
• Complete and submit the Free Application for
  Federal Student Aid (FAFSA) at
  http://www.fa...
Applying for Financial Aid, cont.
• Getting help completing the FAFSA
  – Federal Student Aid Information Center (1-800-4-...
Applying for Financial Aid, cont.
• Apply for as many scholarships as
  possible
• Keep careful records of all activities
...
Applying for Financial Aid, cont.
• Take-away: NACAC’s “Applying for Financial Aid in 7
  Easy Steps at
  http://www.nacac...
Applying for Financial Aid, cont.
• Take-away: ED FAFSA Demonstration site,
  accessible from
  http://studentaid.ed.gov/P...
Applying for Financial Aid, cont.

• Take-away: Tips on How to Get Scholarships at
  http://www.nasfaa.org/publications/20...
Warning Signs of Scholarship
             Scams
• “The scholarship is guaranteed or your money back."
• "You can't get thi...
Warning Signs of Scholarship
            Scams
• Take-away: “Scholarship Scams” at
  http://www.ftc.gov/bcp/conline/edcams...
Spotting Deceptive Private Loan
            Practices
• Names, seals, logos, etc., that imitate the U.S.
  government’s lo...
Spotting Deceptive Private Loan
        Practices, cont.
• Take-away: “Student Loans: Avoiding
  Deceptive Offers” at
  ht...
Should Students Take Out Loans
      to Pay for College?
• In many cases grant aid alone will not meet
  demonstrated need...
Minimizing Loan Burden
• Never borrow more than needed
• Budget carefully: the cost of
  attendance can be reduced
• Consi...
Minimizing Loan Burden, cont.
• Work vs. loans
  – How much work is too much? How much loan is
    too much? Moving studen...
How Much Can Students/Families
        Afford to Borrow?
• Know in advance who will be responsible for
  repayment
• Consi...
How Much Can Students/Families
     Afford to Borrow? (cont.)

• Know about reducing or eliminating monthly
  repayment am...
What Type of Loan Is Best in a
        Given Situation?
• Perkins Loans have the most favorable
  interest rate (5%):
  – ...
What Type of Loan Is Best in a
   Given Situation? (cont.)
• Unsubsidized Stafford and PLUS loans
  for parents should be ...
Considering Private Loans
• Evaluate the interest rate, repayment, and
  other terms very carefully
  – Higher interest ra...
Considering Private Loans (cont.)
• Re-evaluate choice of college
  – If the only way to attend is with
    considerable p...
Considering Private Loans (cont.)
• Take-away: “Student Loan Options in a Tight
  Credit Market” at
  http://projectonstud...
Considering Private Loans (cont.)
• Take-away: “Private Student Loans: A Guide
  to Responsible Borrowing” at
  http://www...
How Will a Student Repay the Loan?
• Standard repayment plan
  – Lowest total interest costs over life of the loan
  – Ten...
How Will a Student Repay the Loan?
              (cont.)
• Extended repayment plan
   – Lengthens repayment term up to 25 ...
How Will a Student Repay the Loan?
              (cont.)
• Consolidation
  – Combine multiple loans into one convenient
  ...
How Will a Student Repay the Loan?
              (cont.)
• Deferment
  – Examples include graduate school,
    Peace Corps...
How Will a Student Repay the Loan?
              (cont.)
• Forbearance
   – If borrower does not qualify for deferment but...
How Will a Student Repay the Loan?
              (cont.)
• Loan forgiveness and benefits
  – Teacher and nurse forgiveness...
New Option: Income Based
         Repayment
• Effective July 2009
• Keeps monthly payments affordable
  with caps based on...
Income Based Repayment, cont.
• Monthly payments for earnings below 150
  percent of poverty level for family’s size are
 ...
New Option: Public Service Loan
         Forgiveness
• Forgives remaining federal student loan
  debt after 10 years of qu...
Public Service Loan Forgiveness, cont.

• Eligible employers/organizations include
  – Non-profit, tax-exempt 501(c)(3)’s
...
How Will a Student Repay the Loan?
              (cont.)
• Take-away: Income-based repayment and public
  service loan for...
How Will a Student Repay the
         Loan? (cont.)
• Take-away: Nursing Education Loan
  Repayment Program at
  http://bh...
What Happens If a Borrower
  Can’t Repay a Student Loan?
• Student loans must be repaid whether
  or not the student finis...
What Happens If a Borrower Can’t
  Repay a Student Loan? (cont.)
• Default happens after nine months of non-
  payment
  –...
What Happens If a Borrower Can’t
  Repay a Student Loan? (cont.)
• Take-away: NCHELP’s “Student Loan
  Guaranty Agencies” ...
Q&A
• Continue to submit questions via e-mail
• We will select those questions with the
  broadest applicability
• An arch...
Upcoming SlideShare
Loading in …5
×

The Basics of Borrowing for College

858 views

Published on

A primer for guidance counselors and other college access providers on borrowing to help finance a college education.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
858
On SlideShare
0
From Embeds
0
Number of Embeds
9
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

The Basics of Borrowing for College

  1. 1. Welcome to The Basics of Borrowing Presented by the National Association for College Admission Counseling Tuesday, December 9, 2008 www.nacacnet.org 1
  2. 2. Agenda • Introduction – Applying for aid – Overview of student loans • Types of loans • Loan availability • Should students take out loans to pay for college? www.nacacnet.org 2
  3. 3. Agenda, cont. • How much can students/families afford to borrow? • How do you determine what type of loan is best in a given situation? www.nacacnet.org 3
  4. 4. Agenda, cont. • How will a student repay the loan? • What happens if a borrower can’t repay a student loan? • Q&A www.nacacnet.org 4
  5. 5. Today’s Presenters • Natala (Tally) Hart, Senior Advisor for Economic Access, The Ohio State University • Edie Irons, Communications Director, The Institute for College Access & Success (TICAS) www.nacacnet.org 5
  6. 6. Today’s Presenters, cont. • Karen E. Lanning, Vice President of Communications and Research, National Council of Higher Education Loan Programs (NCHELP) • Tim Christensen, Consultant on College Access and Success (moderator) www.nacacnet.org 6
  7. 7. Applying for Aid • Families need a foundation in basic financial literacy – May be unfamiliar with budgeting – May never have used credit • Take-away: Financial literacy site for middle and high school students at http://www.gearup-moneyskills.org/ www.nacacnet.org 7
  8. 8. Types of Aid • Grants and scholarships (gift aid) – Do not have to be repaid – May be renewable or non-renewable • Loans – Must be repaid • Work-study – Subsidized wages in return for work during semester www.nacacnet.org 8
  9. 9. Sources of Aid • Federal • State • Institutional • Private www.nacacnet.org 9
  10. 10. Loans Are Also Financial Aid • Federal – As available as ever, even in this credit market • Features – Fixed interest rates – Flexible repayment options – Opportunities for deferment, forbearance, forgiveness, and cancellation (discussed later) www.nacacnet.org 10
  11. 11. Federal Need-Based Loans • Perkins • Subsidized Stafford • Features of federal need-based loans – Low interest rates – Delayed repayment – In-school interest subsidy www.nacacnet.org 11
  12. 12. Federal Non-Need-Based Loans • Unsubsidized Stafford • Parent PLUS • Grad PLUS www.nacacnet.org 12
  13. 13. Federal Non-Need-Based Loans, cont. • Higher interest rates – 6.8 percent fixed rate for unsubsidized Stafford • Interest accrues during school and deferments • Payments on PLUS loans are due while the student is in school www.nacacnet.org 13
  14. 14. Federal Loan Resources • Take-away: The financial aid chapter in NACAC’s Guide to the College Admission Process at http://www.nacacnet.org/PublicationsResourc es/Marketplace/Pages/AdmissionGuide.aspx • Take-away: The National Association of Student Financial Aid Administrators’ “Student Aid Program Summary” accessible from http://www.nasfaa.org/redesign/fanight.asp www.nacacnet.org 14
  15. 15. Private Loans • Not really financial aid but a financing tool like a home equity loan or credit card • Less available due to credit crunch • Only used as a last resort after other financial aid options www.nacacnet.org 15
  16. 16. Financial Aid Availability • Federal loans available to all eligible students • Recent federal government action to ensure loan availability • Private loans and PLUS require a credit check • Take-away: The Federal Trade Commission’s site on free annual credit reports at http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/ alt156.shtm) www.nacacnet.org 16
  17. 17. Applying for Financial Aid • Complete and submit the Free Application for Federal Student Aid (FAFSA) at http://www.fafsa.ed.gov/ (avoid .coms!) • Early estimates of aid eligibility – FAFSA4caster • Read, understand, and follow instructions from each institution under consideration – When is a College Board Profile form needed? www.nacacnet.org 17
  18. 18. Applying for Financial Aid, cont. • Getting help completing the FAFSA – Federal Student Aid Information Center (1-800-4- FED-AID) – College Goal Sunday • Understand changes in the 2009-10 FAFSA – Independent student definition • Emancipated, foster, and homeless youth • Using FAFSA on the Web – Obtaining a PIN in advance of deadlines www.nacacnet.org 18
  19. 19. Applying for Financial Aid, cont. • Apply for as many scholarships as possible • Keep careful records of all activities • Read and respond to all follow-up correspondence www.nacacnet.org 19
  20. 20. Applying for Financial Aid, cont. • Take-away: NACAC’s “Applying for Financial Aid in 7 Easy Steps at http://www.nacacnet.org/PublicationsResources/Mark etplace/Pages/FA7EasySteps.aspx • Take-away: NACAC’s Steps to College newsletter at http://www.nacacnet.org/PublicationsResources/step s/Pages/FinancialAid.aspx • Take-away: U.S Department of Education’s (ED) FASFA4caster at http://www.fafsa4caster.ed.gov/index.htm www.nacacnet.org 20
  21. 21. Applying for Financial Aid, cont. • Take-away: ED FAFSA Demonstration site, accessible from http://studentaid.ed.gov/PORTALSWebApp/students/ english/fafsademo.jsp?tab=preparing • Take-away: FAFSA completion assistance from College Goal Sunday at http://www.collegegoalsundayusa.org/ • Take-away: Changes in the independent student definition for 2009-10 at http://www.nasfaa.org/publications/2007/lndependenc y110807.html www.nacacnet.org 21
  22. 22. Applying for Financial Aid, cont. • Take-away: Tips on How to Get Scholarships at http://www.nasfaa.org/publications/2008/anscholarshi ps070208.html www.nacacnet.org 22
  23. 23. Warning Signs of Scholarship Scams • “The scholarship is guaranteed or your money back." • "You can't get this information anywhere else." • "I just need your credit card or bank account number to hold this scholarship." • "We'll do all the work." • "The scholarship will cost some money." • "You've been selected" by a "national foundation" to receive a scholarship - or "You're a finalist" in a contest you never entered. www.nacacnet.org 23
  24. 24. Warning Signs of Scholarship Scams • Take-away: “Scholarship Scams” at http://www.ftc.gov/bcp/conline/edcams/s cholarship/index.shtml www.nacacnet.org 24
  25. 25. Spotting Deceptive Private Loan Practices • Names, seals, logos, etc., that imitate the U.S. government’s look and feel • Promotions and incentives (e.g., gift cards) meant to divert from assessment of loan terms and conditions • Requests for personal information over the phone or Internet • Check on suspicious lenders with state attorney general, local consumer protection agency, or Better Business Bureau www.nacacnet.org 25
  26. 26. Spotting Deceptive Private Loan Practices, cont. • Take-away: “Student Loans: Avoiding Deceptive Offers” at http://www.ftc.gov/bcp/edu/pubs/consu mer/credit/cre43.shtm www.nacacnet.org 26
  27. 27. Should Students Take Out Loans to Pay for College? • In many cases grant aid alone will not meet demonstrated need • Federal student loans provide lower interest rates and more favorable terms than private loans • Loan burden should be minimized – Average for an undergraduate is $20,000 – More than that is a red flag www.nacacnet.org 27
  28. 28. Minimizing Loan Burden • Never borrow more than needed • Budget carefully: the cost of attendance can be reduced • Consider working more during summer months or school year, but do not over-commit www.nacacnet.org 28
  29. 29. Minimizing Loan Burden, cont. • Work vs. loans – How much work is too much? How much loan is too much? Moving students and families to a balanced approach – More than 15 hours during the academic year is not recommended for full-time students • Private loans and credit card debt are the most expensive, risky ways to borrow for college www.nacacnet.org 29
  30. 30. How Much Can Students/Families Afford to Borrow? • Know in advance who will be responsible for repayment • Consider likely future career, income, and monthly repayment amount • Consider impact on post-college finances, including purchasing a car or a home, starting a family, career choice, and saving for retirement www.nacacnet.org 30
  31. 31. How Much Can Students/Families Afford to Borrow? (cont.) • Know about reducing or eliminating monthly repayment amounts – Income-based repayment available for federal loans – Forgiveness for public service and other careers • Take-away: The student loan repayment calculator at http://www.mappingyourfuture.biz/paying/stan dardcalculator.htm www.nacacnet.org 31
  32. 32. What Type of Loan Is Best in a Given Situation? • Perkins Loans have the most favorable interest rate (5%): – Availability varies by school – Perkins Loans are need-based • Subsidized federal Stafford loans should be considered next, after Perkins – 6% interest rate for 2008-09; declines in the next few years – Also need based www.nacacnet.org 32
  33. 33. What Type of Loan Is Best in a Given Situation? (cont.) • Unsubsidized Stafford and PLUS loans for parents should be considered next • Only consider private loans as a last resort after all other options have been exhausted www.nacacnet.org 33
  34. 34. Considering Private Loans • Evaluate the interest rate, repayment, and other terms very carefully – Higher interest rates – In-school repayment – Few options for borrowers having trouble making payments • Be aware that having a co-signer with an excellent credit score can result in more favorable terms www.nacacnet.org 34
  35. 35. Considering Private Loans (cont.) • Re-evaluate choice of college – If the only way to attend is with considerable private loans on top of maximum federal limits, consider whether choice of college is really worth the risk, debt and expense – There may be more affordable colleges that are comparable www.nacacnet.org 35
  36. 36. Considering Private Loans (cont.) • Take-away: “Student Loan Options in a Tight Credit Market” at http://projectonstudentdebt.org/files/pub/mark et_options.pdf • Take-away: “Questions to ask about private loans” at http://projectonstudentdebt.org/private_loan_ questions.vp.html www.nacacnet.org 36
  37. 37. Considering Private Loans (cont.) • Take-away: “Private Student Loans: A Guide to Responsible Borrowing” at http://www.nchelp.org/elibrary/ReferenceMate rials/PrivateLoanMaterials/PrivateLoansAwar enessBrochure.pdf • Take-away: “Private Student Loans: Understanding the Cost of Borrowing” at http://www.nchelp.org/elibrary/ReferenceMate rials/PrivateLoanMaterials/CostofStudentLoa nBrochure.pdf www.nacacnet.org 37
  38. 38. How Will a Student Repay the Loan? • Standard repayment plan – Lowest total interest costs over life of the loan – Ten-year repayment term • Graduated repayment plan – Monthly payments are smaller at the beginning of the repayment period and increase over time – The maximum repayment term is ten years www.nacacnet.org 38
  39. 39. How Will a Student Repay the Loan? (cont.) • Extended repayment plan – Lengthens repayment term up to 25 years – Must have a minimum loan balance of $30,000 to qualify • Income-sensitive repayment plan – Monthly payment varies according to gross monthly income – Payment includes at least monthly accruing interest • Income-contingent repayment plan (in Direct Loan Program) www.nacacnet.org 39
  40. 40. How Will a Student Repay the Loan? (cont.) • Consolidation – Combine multiple loans into one convenient payment – Consolidation done mostly through the U.S. Department of Education recently – Lock in fixed interest rate on loans from before July 2006 • Averages rates of all loans being consolidated www.nacacnet.org 40
  41. 41. How Will a Student Repay the Loan? (cont.) • Deferment – Examples include graduate school, Peace Corps or other public service, active military duty, unemployment, and economic hardship – Period during which payments are not required www.nacacnet.org 41
  42. 42. How Will a Student Repay the Loan? (cont.) • Forbearance – If borrower does not qualify for deferment but still needs relief, can appeal to lender or servicer for forbearance – Can reduce or postpone payments or extend the time for making payments – Forbearance requests typically are granted for periods of up to 12 months. www.nacacnet.org 42
  43. 43. How Will a Student Repay the Loan? (cont.) • Loan forgiveness and benefits – Teacher and nurse forgiveness (cancellation) for working in low-income or shortage areas – Borrower benefits (interest rate reduction) for electronic debit and on-time payments • Borrower benefits and student loan interest deductions on tax returns www.nacacnet.org 43
  44. 44. New Option: Income Based Repayment • Effective July 2009 • Keeps monthly payments affordable with caps based on income and family size • Forgives any debt that remains after 25 years of payments www.nacacnet.org 44
  45. 45. Income Based Repayment, cont. • Monthly payments for earnings below 150 percent of poverty level for family’s size are $0 • Monthly payments for earnings above that are capped at 15 percent of earnings above 150 percent of poverty level • Monthly payments usually amount to less than 10 percent of total income www.nacacnet.org 45
  46. 46. New Option: Public Service Loan Forgiveness • Forgives remaining federal student loan debt after 10 years of qualifying payment and eligible employment • Loans must be through federal Direct Loan program www.nacacnet.org 46
  47. 47. Public Service Loan Forgiveness, cont. • Eligible employers/organizations include – Non-profit, tax-exempt 501(c)(3)’s – Federal, state, local, or tribal governments, including military and public schools and colleges – AmeriCorps (full time) • Employment/payments made after October 1, 2007 count toward 10-year requirement www.nacacnet.org 47
  48. 48. How Will a Student Repay the Loan? (cont.) • Take-away: Income-based repayment and public service loan forgiveness site at www.IBRinfo.org • Take-away: The U.S. Department of Education’s “Repaying Your Loans” at http://studentaid.ed.gov/PORTALSWebApp/students/ english/repaying.jsp www.nacacnet.org 48
  49. 49. How Will a Student Repay the Loan? (cont.) • Take-away: Nursing Education Loan Repayment Program at http://bhpr.hrsa.gov/nursing/loanrepay.h tm • Take-away: IRS Tax Topic 456: “Student Loan Interest Deduction” at http://www.irs.gov/taxtopics/tc456.html www.nacacnet.org 49
  50. 50. What Happens If a Borrower Can’t Repay a Student Loan? • Student loans must be repaid whether or not the student finishes his/her program of study • Student loans are rarely dischargeable in bankruptcy www.nacacnet.org 50
  51. 51. What Happens If a Borrower Can’t Repay a Student Loan? (cont.) • Default happens after nine months of non- payment – Default ruins credit score – Wages and even Social Security may be garnished – Tax refunds may be offset • Communication with loan holder is key and may prevent default through alternative repayment arrangements www.nacacnet.org 51
  52. 52. What Happens If a Borrower Can’t Repay a Student Loan? (cont.) • Take-away: NCHELP’s “Student Loan Guaranty Agencies” at http://www.nchelp.org/Guaranty%20Age ncies%20List%2008.pdf • Take-away: The Federal Student Aid Ombudsman’s Web page at http://ombudsman.ed.gov/start.html www.nacacnet.org 52
  53. 53. Q&A • Continue to submit questions via e-mail • We will select those questions with the broadest applicability • An archive of today’s Webinar will be posted on the NACAC Web site approximately one week from today. • Thank you for participating in “The Basics of Borrowing”! www.nacacnet.org 53

×