Student Loans

CBD College Financial Literacy

We will explore…

• Why do student’s borrow?
• How is loan eligibility determined?
• What types of student loans are available?
• How can students minimize student loan debt?
• How much student loan debt is too much?

Reasons to utilize student loans:

• To cover out-of-pocket expenses not covered by other types of financial aid (grant, scholarships…etc.)
• To cover the cost of living expenses while in college when needed

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Always be conservative! Never borrow more than you need to obtain your education.

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Things to consider

• What career will I pursue and how much will that career pay?
• Will I be able to make payments toward loans while in school or will I need to wait until after graduation?
• How much will I need to borrow after considering all other sources of funding (grants, scholarships, employment, family…etc.) This is your financial need!
• Am I responsible enough to manage student loan repayment down the road?

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How much student loan debt is too much?

• Take into account the following:

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• Debt to income ratio
• How many years will you need to borrow student loans

Debt to Income Ratio

• To calculate your projected debt to income ratio use the following formula:

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Total Estimate Monthly Total Estimated Debt to Income

Loan Payment Monthly Income Ratio

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When calculated you will get a decimal number.

Example: .15 = 15%

Debt to Income Ratio Cont.

• Under 15% = Very manageable debt to income ratio
• 15-25% = Be Cautious. You may want to consider eliminating some debt.
• Over 25% = Danger! This is a very high ratio and means you will be spending 25% of your monthly income on loan repayment.

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Example: RN�

• The starting salary for RN is $60,000/Year.
• A 15% of this starting salary would be $9,000.
• For a healthy debt to income ratio a student would not want to exceed $9,000 in student loans.

Example: Police Officer

• The average starting salary for a Police Officer is $35,000/Year.
• 15% of $35,000 is $5,250.
• For a healthy debt to income ratio a student pursuing a career as a police officer would not want to exceed $5,250 in loans.

However…

• It is up to you to decide how much student loan debt you can manage.
• Your goals might dictate that you need to borrow more than the suggested debt to income ratio amount.
• Know yourself, your spending/saving habits and plan accordingly.

All About Interest

• Interest is the money you will pay your lender for letting you borrow.
• This is how the lender makes money.
• The amount they earn is dependent on the interest rate represented by a percentage of what you borrow.

Types of Student Loans

• Private Student Loans
• These loans come from banks, credit unions or other financial institutions.
• Apply for on your chosen lender’s website
• Credit score will be a determining factor in your eligibility and interest rate
• In some cases you may need a co-signer
• Typically have higher interest rates than Federal Student Loans
• Repayment options are not as flexible and there will be no options for loan forgiveness

Types of Student Loans

• Federal Student Loans
• Government funded
• Applied for when you complete your FAFSA
• Eligibility is determined by financial need
• Continued eligibility determine by your academic performance
• Repayment grace period: Not required to begin repaying until 6 months after graduation.
• Perks include lower interest rate, increased repayment flexibility, and in some cases full or partial loan forgiveness.

Types of Federal Student Loans

Federal Student Loan Life Cycle

• The loan process has several phases from the application process to repayment…
1. Application process: Completing FAFSA, Master Promissory Note and Entrance Counseling.
2. Disbursement of funds
3. Saving (if possible)
4. Grace Period
5. Repayment
6. Payment of Debt in Full

What is the Master Promissory Note?

• A Master Promissory Note (MPN) is a legal document in which the student promises to repay a loan and any accrued interest/fees.
• Also explains in great detail the terms and conditions of the loan.
• Can be completed online via the Federal Student Aid Website

What is Loan Entrance Counseling?

• Entrance Counseling for Loans is an online, self-paced course that teaches students about Federal Student Loans.
• Topics covered include Estimating the Cost of your Education, How Much You can Expect to Borrow, Preparing for Repayment…etc.
• Can be completed online via the Federal Student Aid website.

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Federal Subsidized vs. Unsubsidized Loans

• Depending on a student’s eligibility as calculated by the FAFSA, the student may be offered one or both of these types of federal student loans. What’s the difference?

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• Subsidized loans begin to accrue interest AFTER your graduate.
• Unsubsidized loans begin to accrue interest right away.

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Subsidized loans are less expensive for students in the long run, but both options offer a 6 month grace period before repayment begins and the same low interest rate.

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Federal Student Loan Repayment

• Many types of repayment plans are offered in an effort to financially assist students after graduation.
• A full list complete with descriptions can be found on the Federal Student Aid website here: https://studentaid.gov/manage-loans/repayment/plans

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Estimate your Student Loan Payments

• Federal Student Aid offers a Loan Simulator tool which allows you to estimate what your monthly loan payments would look like using the different repayment plans.
• To get started with forecasting your loan payments, click here.

Deferment and Forbearance Explained

• Postpone making payments due to extenuating circumstances
• All deferments have eligibility criteria
• Some forbearances have eligibility criteria; others are at the lender’s discretion
• Most have time limits
• Unpaid interest capitalizes at end
• Interest does not accrue on subsidized loans during deferments
• Time does not count against repayment period

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Deferment/Forbearance Qualifiers

Delinquency and Default

• Delinquency begins on the day after due date when full payment not made
• Loan servicers will begin activities to try to prevent default, including contacting references and sending notices
• Loan servicers always try to keep the borrower making payments because it will save the borrower time and interest payments in the long run
• Servicers will provide deferment and forbearance options if needed
• Default occurs after 270 days of delinquency

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Consequences of Default

Getting out of Default

Questions? Contact us!

CBD College Financial Aid Office

Email: fa@cbd.edu

Phone:213-427-2200

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