1 of 27

1

Student Loans Overview

2 of 27

2

Borrow Smart – Guidelines for Managing Debt

Postpone purchases if necessary

Use loans only for items that are needed

Consider the cost of the loan

Ensure that the monthly payment fits within your budget

At some point you may need to borrow money (take out a loan). It is imperative that you borrow smart if you want to maintain your financial stability.

Loans are most commonly used for the following:

Homes
Automobiles
Education

When considering the purchase of any item, please consider these questions: “Do I really need this item?” “Would I be better off to save for this item in the future and pay cash?”

With any loan, you should consider several factors contributing to the cost of the loan, such as interest rate, additional fees, and down payment.

The interest rate is the amount you are charged to borrow money. When money is borrowed, you must repay the principal, (the dollar amount you borrow), and the interest that accrues or is charged during the life of the loan. The higher the interest rate, the more you are required to pay. Interest rates may be fixed or variable. Fixed interest rates will remain the same throughout the term of the loan. Variable interest rates will periodically adjust a result of current market conditions.
For some loans, additional fees may be charged. For example, some loans have closing costs. Auto loans may include additional insurance or warranty costs. Student loans may have origination and/or default fees that you must pay. Prior to accepting a loan, make certain you understand the payment requirements and all of the fees that are associated with the loan. It is very important to know exactly how much you will be expected to pay.
Down payments are large payment amounts paid toward your purchase. Down payments minimize the amount you have to borrow. The more money that is paid up front toward the purchase, the more money you will save over the life of the loan. For most large purchases, it is suggested that you pay at least 20 percent toward a down payment.

Your monthly payment must fit into your budget. The new monthly payment must not cause your expenses to exceed your income.

When determining whether or not to borrow, here are some additional guidelines:

Housing expenses should not exceed 33 percent of your gross income. Many lending institutions will look at this factor in determining your loan eligibility. Percentages may vary slightly between lenders.
Loan installment payments which include auto and student loans, credit cards, etc. should not exceed a combined total of 20 percent of your gross income.
Remember to set aside 10 percent to put toward your savings.

When making a decision to make a purchase, add the expenses you already have to the new payment amount. Consider the guidelines above when inserting the figure for the new purchase. If the amount of the payment for the purchase exceeds the recommendations, you may want to postpone your purchase until you have more money saved or find a more affordable and comparable item.

3 of 27

3

MappingYourFuture.org/paying/debtwizard

Debt/Salary Wizard

4 of 27

4

Student Loan Repayment Calculator

MappingYourFuture.org/paying/standardcalculator.cfm

5 of 27

5

Borrow Smart – all Student Loans

Understand the obligation:

You must repay loans
You can prepay the loans
You will begin repayment after grace period
You must notify loan servicer of any changes
You must communicate with servicer when payment problems arise

When borrowing student loans, it’s important that you understand the financial obligation in involved.

Loans must be repaid – Loans must be repaid even if you: do not complete your education, are dissatisfied with your education, cannot find employment or do not receive notice that your repayment has begun
Loans can be prepaid – Loans may be prepaid without penalty
Repayment begins after grace period – Borrowers will begin repaying their loans after a 6-month Stafford loan grace period
Borrowers must notify loan holder of any changes – Borrowers must contact their loan holder if they: drop below half-time enrollment (including graduation or withdrawal), transfer to another school, change their name or contact information, have trouble repaying their loans
Borrowers must communicate with servicer when payment problems arise – Borrowers must contact their loan servicer whenever they have trouble repaying their loans.

6 of 27

6

Borrow Smart – all Student Loans

Understand the consequences of delinquency and default:

Impact to credit, wages and tax refunds
Wage garnishment in case of default
Increased cost of loan
Ineligibility for additional financial aid
Legal action

Delinquency occurs when you are late in paying your students loans (even just one day late!). And if you remain delinquent for 270 days, you may default on your student loans. Defaulting on your student loan is very serious:

Repayment of a defaulted loan is due immediately and your loan balance can increase significantly at that point because collection costs will be added to the outstanding balance.
Your defaulted loan(s) will appear on your credit report for at least seven years, making it difficult to secure a car loan, mortgage or credit cards
You may no longer be eligible for federal financial aid
Your federal tax refunds or other federal payments may be taken to repay your loans
A portion of your wages could be withheld
Your professional license (if applicable) may be denied or revoked
Legal action may be taken

If you default on your student loan(s), you have a few options:

You can pay the loan in full – by paying off your federal student loan(s) in full, the loan will no longer be in default and you would be eligible to receive additional federal financial aid
You can enter into a rehabilitation program – this option helps you bring your federal student loan(s) out of default and clears up any negative credit reporting regarding your loans
You can apply for a federal consolidation loan – this option gives you the ability to bring your federal student loan(s) out of default and combine all of your federal loans into a single loan

If you have trouble repaying your student loans, call your lender or your servicer immediately so that they can help you.

7 of 27

7

Different Types of Student Loans

Federal Direct Student Loans (Student is only person on loan)
New Jersey College Loan to Assist State Students (NJCLASS)
Federal Parent PLUS loan (FPLUS)
Private For-profit lenders

Note: Students will most likely need a co-signer or co-borrower for NJCLASS & other private loans and the parent must be the borrower on the parent plus loan. Federal Parent PLUS – parents may need an endorser (co-signer)

Delinquency occurs when you are late in paying your students loans (even just one day late!). And if you remain delinquent for 270 days, you may default on your student loans. Defaulting on your student loan is very serious:

Repayment of a defaulted loan is due immediately and your loan balance can increase significantly at that point because collection costs will be added to the outstanding balance.
Your defaulted loan(s) will appear on your credit report for at least seven years, making it difficult to secure a car loan, mortgage or credit cards
You may no longer be eligible for federal financial aid
Your federal tax refunds or other federal payments may be taken to repay your loans
A portion of your wages could be withheld
Your professional license (if applicable) may be denied or revoked
Legal action may be taken

If you default on your student loan(s), you have a few options:

You can pay the loan in full – by paying off your federal student loan(s) in full, the loan will no longer be in default and you would be eligible to receive additional federal financial aid
You can enter into a rehabilitation program – this option helps you bring your federal student loan(s) out of default and clears up any negative credit reporting regarding your loans
You can apply for a federal consolidation loan – this option gives you the ability to bring your federal student loan(s) out of default and combine all of your federal loans into a single loan

If you have trouble repaying your student loans, call your lender or your servicer immediately so that they can help you.

8 of 27

8

Department of Education (ED)

School

Servicer

Borrow Smart – Federal Student Loans

Know the players (Direct Loan Program)

9 of 27

Federal Student Loan Basics

File your Free Application for Federal Student Aid (FAFSA)
Complete Entrance Counseling online at www.studentaid.gov
Complete the students Master Promissory Note (MPN) online at www.studentaid.gov

9

10 of 27

10

Borrow Smart - Federal Student Loans

Keep track of your Federal loans:

Federal Student Aid Information Center

https://studentaid.gov/help-center/contact

(800) 4FED – AID (800-433-3243)

Live Chat / Email available online

Requires FSA ID

11 of 27

11

Borrow Smart - Federal Student loans

Federal Direct Student loan Calculator:

https://studentaid.gov/manage-loans/repayment/plans

Know your repayment Options & the effect of your overall cost of borrowing:

Standard
Graduated
Income-contingent for Direct Loans
Pay as You Earn (PAYE) for Direct Loans
(REPAYE) for Direct Loans
Income-sensitive for Federal Stafford Loans
Income-based
Extended

Below are brief explanations of the variety of repayment plans available to Direct Loan and Federal Stafford Loan borrowers.

Standard:

Minimum monthly payment is $50, but may be higher depending on balance.

Maximum repayment period of 10 years

Graduated:

Begins with lower payments that increase over time

Maximum repayment period of 10 years

More interest accrues over the life of the loan because the principal balance decreases at a slower rate.

Income-contingent for Direct Loans:

Adjusted payment amount based on gross income and family size

Eligibility and payment amount adjusted annually

More interest accrues over the life of the loan because the principal balance decreases at a slower rate.

If you do not repay your loan after 25 years, the unpaid portion is forgiven. You may have to pay income tax on any amount forgiven.

Pay as You Earn (PAYE) for Direct Loans:

Available to new borrowers if:

You have no outstanding balance on a Direct or FFEL Program loan as of October 1, 2007 or have no outstanding balance on a Direct or FFEL Program loan when you obtain a new loan on or after October 1, 2007, and you receive a disbursement of a Direct Loan or a student Direct PLUS loan on or after October 1, 2011, or you receive a Direct Consolidation Loan based on an application received on or after October 1, 2011 (unless your loans repaid by the Direct Consolidation Loan make you ineligible because of the criteria in the preceding bullet).

You must have partial financial hardship. Your maximum monthly payments will be 10 percent discretionary income, the difference between your adjusted gross income and 150 percent of the poverty line for your family size and state of residence (other conditions may apply).

If your monthly payment amount is not enough to pay accrued interest on a Direct Subsidized Loan, the Department of Education will pay the remaining interest for a period of three years.

Eligibility and payment amount adjusted annually.

More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more money over the life of the loan.

Any outstanding loan balance after 20 years is forgiven. You may have to pay income tax on any amount forgiven.

Revised Pay as You Earn (REPAYE) for Direct Loans:

There is no income requirement to qualify.

Your maximum monthly payments will be 10 percent discretionary income, the difference between your adjusted gross income and 150 percent of the poverty line for your family size and state of residence (other conditions may apply). Your spouse’s income is generally included in the adjusted gross income.

There is no payment cap, so your payment may be larger than in other repayment plans.

If your monthly payment amount is not enough to pay accrued interest:

On a Direct Subsidized Loan, the Department of Education will pay 100% of the remaining interest for a period of three years. After three years, the Department will pay 50% of the remaining interest.

On Direct Unsubsidized Loans, the Department will pay 50% of the difference between the monthly payment and monthly accruing interest.

Eligibility and payment amount adjusted annually. You must recertify your income each year to remain under the REPAYE plan umbrella.

If you are removed from or leave REPAYE, the outstanding accrued interest will be capitalized onto the principal balance.

More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more money over the life of the loan.

If you make 240 qualifying payments over at least 20 years, any outstanding loan balance after 20 years is forgiven. If you had loans for graduate or professional programs, you must make 300 qualifying payments over at least 25 years. You may have to pay income tax on any amount forgiven.

Income-sensitive for Federal Stafford Loans:

Adjusted payment amount based on gross income

Payment is the greater of your monthly interest amount or 4 percent of your gross monthly income

Eligibility and payment amount verified annually

More interest accrues over the life of the loan because the principal balance decreases at a slower rate.

Income-based:

Available for payments made on or after July 1, 2009

You must have partial financial hardship. Your maximum monthly payments will be 15% of discretionary income, the difference between your AGI and 150% of the poverty guideline for your family size and state of resident (other conditions apply).

If your monthly payment amount is not enough to pay accrued interest on a Direct Subsidized Loan / subsidized Federal Stafford Loan, the Department of Education will pay the remaining interest for a period of three years.

Payments re-evaluated annually

More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more over the life of the loan.

Any outstanding loan balance after 25 years is forgiven

Very few borrowers will have a remaining balance after 25 years.

The amount forgiven may be taxable.

Estimate payment under the income-based repayment plan.

Extended:

Available to new borrowers on or after October 7, 1998, who have a minimum balance of $30,000 in loans

Payment amounts can be either fixed annually or graduated.

Maximum repayment term is 25 years

More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more over the life of the loan.

If you ever have difficulty repaying your loan, contact your loan holder immediately, as you have options, including a change to your repayment plan, deferment, and forbearance!

12 of 27

12

Borrow smart - Federal Student Loans