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

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. 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. 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. 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. 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. 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. 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. 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. Sources of Aid
• Federal
• State
• Institutional
• Private
www.nacacnet.org 9

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. 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. Federal Non-Need-Based Loans
• Unsubsidized Stafford
• Parent PLUS
• Grad PLUS
www.nacacnet.org 12

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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