ABC COMPANY - Federal Student Aid



PSC-ED-FSA-TISD

Moderator: Christal Simms

June 25, 2015

4:00 pm CT

Coordinator: Welcome and thank you for standing by. At this time all participants will be on listen-only mode for the duration of today’s conference. This call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. (Ian Foss). Sir, you may begin.

(Ian Foss): Thank you so much and thank you everyone for attending our repayment webinar this afternoon - this evening. This webinar is really designed to balance sort of basics of federal student loan repayment with just enough detail for you to - on your own time - go investigate a little bit further what might be a good repayment strategy for you.

One housekeeping item - you’re in a listen-only mode. There’s no way for you to talk to us but you do have the ability to ask us questions. On your screen there’s a Q&A module. (Claire) and I who are presenting this webinar will be monitoring that module throughout the session and when we are done presenting, we’ll go through and answer some of the questions that we received.

So that being said, let’s go ahead and get started. The first section that we’re going to talk about is really just basics. We’re going to talk about the various types of loans. What a loan servicer is because not everybody knows. I know I didn’t know what a loan servicer was when I started to repay my student loans.

We’re going to talk about interest a lot. That’s going to be a theme that you’re going to hear us talk about considerably throughout the - throughout this webinar. Interest is really important when it comes to loan repayment.

So first let’s talk about the two types of student loans. Broadly speaking there are two main classes of student loans. There’s federal student loans which is basically going to be all we’re going to talk about today and there are private student loans which when you hear the Department of Education talk about student loans, it’s everything but the loans that we have. So we’ll talk a little bit more about how we define federal student loans in a moment but know that you can identify your federal student loans all the time by going to the national student loan data system.

This is a website that we maintain and is available to you at nflds.. Note on the slide it says that you can login using your federal student aid pin. We have recently moved to a new authentication mechanism that basically modernizes the way that you log into all of our websites - the username and password. If you already have a federal student aid pin, you’ll be asked to convert from a pin to a username and password when you first try to login. It’s pretty simple and hopefully pretty painless.

So federal student loans are in the national student loan data system. Private student loans - there is no centralized data system like there is for federal student loans. So it’s incredibly important for you to - if you have a private student loan - first of all keep personal records of the debt for yourself. All of these loans - federal and private - are your responsibility to repay but because there’s no centralized data system for private student loans, it’s doubly importantly for you to keep all of your paperwork.

Other places where you can find out what you owe and to whom is your credit report. All student loans - federal and private - are reported to the three credit reporting bureaus and they’ll all have records of what you owe and to whom. And also even for private student loans, the financial aid office at your school likely has records of what you borrow and because the private student loan lender in almost all cases would have worked with the financial aid office at your school to be sure that this was the loan that was for an educational purpose.

Now when we’re talking about the types of federal student loans, they’re going to have a variety of names and they may be defined differently depending on who you talk to. So the names that you see on this slide are what you will most commonly see. You have almost certainly heard of Stafford loans. These are subsidized Stafford loans or unsubsidized Stafford loans. They may also be called direct subsidized or direct unsubsidized loans depending on who you’re talking to but they’re most commonly known as Stafford loans and they are the most common federal student loan that students receive.

There are also two types of what we call plus loans. One type is made to parents of dependent undergraduate students. This is where your parents may have borrowed to help you finance your own education. For this type of loan your parent is the borrower. You do not have a responsibility to repay us - the Department of Education - or in some cases your lender.

Graduate plus loans are another type of plus loan that are made to - as the name would suggest - graduate or professional students. So if you’re an undergraduate student, you cannot receive this type of loan but if you’re a graduate student, you can and may have.

Another type of loan is a Perkins loan. These loans are fundamentally different than the other types of federal student loans because of how they’re administered. They’re a very small loan type. Not many students receive them and I bring it up only to let you know that it is not a loan type that we’re going to spend really any time at all talking about except to let you know that first of all it exists and second of all that it is a federal student loan.

And the last type of loan that’s a federal loan is a consolidation loan. Now a consolidation loan is also something that exists in the private student loan arena. There is a loan type that we offer that is a federal student loan that is also called a consolidation loan. So if you have a consolidation loan or are reading about consolidation loans, note that it could be federal or private information that you’re reading about.

Now all of these types of federal student loans are or were made under three different student loan programs. The first loan program is the direct loan program and this is far and away the biggest federal student loan program that exists today. Under this loan program loans are made by us directly - the Department of Education. We will contract with an organization called the loan servicer that will oversee the administration of the repayment of your loan. They’ll answer questions. They’ll collect payments. They’ll process paperwork, etcetera but the Department of Education is your lender.

The other type of loan program that was formerly quite large is the federal family education loan or FFEL or FFEL program. Under this program loans were made by banks and other financial institutions but were guaranteed by the Department of Education. Now while no new loans have been made under this program since 2010, I want to take a moment to emphasize that just because the loan was made by a private organization does not mean that it is not a federal student loan.

Even though these loans were made by banks, there are guaranteed terms and conditions that are part of the loan that are provided for in law. And so even though your lender a bank, you have very favorable terms and conditions and we’ll talk about what all of those are throughout the remainder of this presentation.

I talked briefly about the Perkins loan program and I’m going to touch on it again. Perkins loans are made under the Perkins loan program. This is one of those duh moments where sometimes federal government programs can make sense. But under this program loans are made by schools. That’s why these loans are so different in terms of how they’re administered.

The federal government gives loans - money to schools - so that they can make loans to you so in this loan program usually the school is your lender and that’s basically the last time you’re going to hear any of us talk about Perkins loans.

Now your loan servicer - I’ve already let the cat out of the bag - is an organization that basically oversees almost everything related to the repayment of your loan. They’re going to collect payments. They’re going to respond to questions that you may have and they’re basically going to do everything that’s related to the repayment of your loan, processing paperwork, etcetera.

This is another time when I’m going to talk about the national student loan data system. If you don’t know who your loan servicer is and I know many people don’t. I know that I didn’t know first of all what a loan servicer was or second of all who mine was when I entered repayment. You can find this information at the national student loan data system. Again that’s nflds..

You will log into that website and you can click through and learn all about the various types of loans you have, the amounts and also your loan servicer, what the name of the organization is and how to get in touch with them. It’s very important to maintain communication with your loan servicer throughout the repayment cycle.

(Claire): Yes (Ian). Hi everyone. This is (Claire). I would also like to mention about the loan servicer - they’re really, really great people to talk to. Not only are they well informed but a lot of times they just want to make this whole repayment process as easy as possible. So if you do have questions, of course today we’re going to go over all of the repayment options but also calling and talking to your loan servicer - they can also give you plenty of information about how to make the payments work best for you.

(Ian Foss): Right. They can really give you individualized information in a way that people like (Claire) and I are just not equipped to because we don’t actually know about what you owe, who you owe it to, what your financial situation is, etcetera but your loan servicer can provide you that type of individualized device.

On this slide there are lists of loan servicers that we the Department of Education contract with in terms of the loans that we own. Now of course we’ve talked about the direct loan program and loans being made directly by the Department of Education through your school to you so we own and hold all of the direct loans but we also own a significant number of loans that may have initially been made to you under the federal family education loan program - the bank backed loan program. We now own a lot of those.

And we contract with the organizations that you see here on this slide to oversee the repayment of your federal student loans that we own. Now just because you don’t see an organization listed here doesn’t mean that they’re not also a loan servicer because there are a large number of loan servicers out there that are primarily responsible for some of the older federal family education loans.

So know that just because you don’t see an organization here doesn’t mean they’re not a service or that you shouldn’t talk to them but that’s also not to say that just because they’re not here on this slide doesn’t mean that you should talk to them. You should be very careful about who you discuss your federal student loan payments - your repayment situation with - than for no other reason than there are a lot of organizations that have popped up over the last few years that are happy to help you manage your repayment for a fee.

Know that if you’re ever contacted by somebody who’s offering you help but wants a large upfront payment, they’re probably not working with your best interest at heart and you probably should not work with those types of companies. You should probably instead call your loan servicer who can help you for free. Your loan servicer will never charge you a fee for help.

Now that we talked a little bit about the administration of repayment, I want to talk about some of the basics of just what a loan is, how it works, etcetera. Interest is basically what makes a loan a loan. It’s the cost to borrow money. Federal student loans are simple daily interest loans and I’m going to breakdown what that means.

Simple is that it’s non-compounding so in the credit card environment interest is charged to you and immediately becomes part of your balance and interest accrues on interest. That’s how interest compounding works.

Federal student loans don’t have compounding rules like credit cards do. That’s not to say that interest never compounds. In our terminology we call that capitalization but it doesn’t happen except in specific circumstances. Daily interest means exactly what you would think that it means.

(Claire): Every day.

(Ian Foss): Interest accrues every day that your loan is outstanding. It’s not like a mortgage where interest accrues monthly or credit cards where interest accrues monthly. It’s every day. And if you think that that’s not a good thing, I’ll hopefully explain to you in a few slides how it is actually a very good thing. It may help you save money.

But first of all I want to just give you a very brief example of how interest accrues. So you have a $10,000 loan that has an interest rate of 6.8%. To figure out how much interest accrues every day on that loan - that $10,000 loan - you’re going to take your interest rate as a decimal so 0.068, not 6.8 divided by the number of days in a year and then multiply it by your principal balance on the loan.

So in this example a $1.86 of interest is going to accrue every day while your loan has an outstanding principal balance of $10,000. Interest accrues on the outstanding principal balance. So every time you reduce your loan principal, you reduce the amount of interest that will accrue going forward and that works very neatly in terms of how payments are applied.

Payments are always applied first to fees then to interest then to principal. I’m going to go out of my way here and make sure that you all know that on loans that we own - the Department of Education owns - you never are charged a fee - a late fee in particular here. But in the commercial environment where loans that are owned by banks - they have the authority to assess you fees for making late payments and they may do so. Not all do but some do. We never do.

In any case payments are always applied to at least interest before principal. So if again taking the example of a $10,000 loan with an interest rate of 6.8%. Let’s say that the monthly payment is $115.08. When you make that first payment on that $10,000 loan, $55.80 of interest will have accrued from when your loan is in repayment to when you make that first payment a month later.

So when you make that payment on your due date, $55.80 of it has to go to interest. All interest has to be satisfied before any principal will be satisfied with any loan payment you make. So the remaining $59.28 of your $115 payment will go toward loan principal. Now your loan principal will be $59.28 less for the next month. Less interest will accrue going forward and that’s how you pay your loan off over a period of time. Reducing your principal will reduce the amount of interest and eventually more of your monthly payment will go to principal than interest.

I’m going to talk in detail about repayment plans in a moment but I’m going to turn it over (Claire) to give you a little bit of an introduction.

(Claire): Thanks (Ian). So as he explained about interest and the principal balance and all of that and the example of the $10,000 loan - how much you pay - now you’re thinking okay, what does this mean for me. What are my options in my payment? What if that $100 isn’t what I want to pay? What if I want to pay more or what if I want to pay less? What’s so awesome about our loans is that we have many repayment options so you can really pay what works for you.

We’re going to talk about the different resources and different options that you have with repaying that balance. So first of all I want to talk about the two different main types of repayment plans that we have. We have plans based on income and we also have plans based on the amount of your loan debt.

So the plans based on income are exactly like they sound. We calculate your payment based on your AVI - based on the income that you have for that year. So those income based payments - as you’ll see when we talk about the specific plan - because they’re based on your income, you have to recertify every year to qualify for those plans.

Now the interest - I mean the repayment plans based on your loan debt are all about the amount that you have in loans and we’re going to go through and talk about all the programs that we have there as well.

(Ian Foss): So I know that when I first started learning about repayment plans, the examples were basically the only way that they really started to make sense to me.

(Claire): Me too.

(Ian Foss): So instead of walking through each plan line by line and throwing a lot of text at you, let’s walk through an example borrower - Billy borrower who has about $40,000 in direct loan debt and he has an interest rate of 6.8%. He has an income that starts out at $35,000. He’s single and lives in Virginia and believe it or not, all of these factors are relevant to figuring out what you would pay under each repayment plan.

We’ll also assume that his income is going to increase 5% every year. So before I even talk about this, know that this is an example. It’ll help you compare and contrast the various repayment plans but it may not reflect first of all what you owe, the interest rate on what you owe, your income, whether you’re single or married, where you live, what happens with your income in the future. All of these things are going to affect your own repayment situation.

(Claire): Exactly.

(Ian Foss): So understand that this is an example that will help you compare and contrast the plans but - as they say - your mileage may vary. So that being said, we’ll start with the traditional or traditional repayment plans are the repayment plans that are based on your loan debt. That’s the standard plan, the graduated plan and the two variants of the extended repayment plan.

Now these repayment plans broadly speaking work very similar to how all other forms of consumer financial debt operates. They have a period of time that you have to repay the loan - the repayment period - and they take your loan debt and your interest rate and figure out how much you have to pay every month based on your interest rate to pay the loan off in full at the end of the repayment period.

The repayment plans that are based on income take that traditional debt repayment framework and throw it completely out the window. They say we don’t care what your interest rate is. We don’t care how long it would take you to repay your loan. We’re going to instead look at what you can afford to repay and set your repayment amounts accordingly which isn’t to say that you’ll be in repayment for 30 years or 40 years or 50 years or something longer if your income is low.

These repayment plans do have a repayment period but instead of it being a benchmark at which point your loan must be paid in full, it’s a counter towards loan forgiveness which is to say if your loan is not repaid at the end of the repayment period on the repayment plans based on income, the remaining balance is forgiven.

So those are the two broad differences between the plans. Let’s walk through and get a little bit more detailed about how each of the repayment plans operates. First you have the standard repayment plan. It is standard. It is the payment plan that you will be placed on if you do not make another election with your loan servicer which isn’t to say that if you start out on standard you can’t later change to something else. You can change to another repayment plan at any time.

(Claire): Yes.

(Ian Foss): But if you make no other election before you enter repayment, you’ll be on the standard plan.

(Claire): Basically the default plan.

(Ian Foss): Exactly. This is also the plan that you’ll see has the highest monthly payment amount but as you’ll also see, a higher monthly payment amount means you pay the least interest over time because you’re paying them more loan principal with that loan repayment.

So for Billy with a $40,000 debt and a 6.8% interest rate, his payments are $460. He makes them reliably for ten years. He pays about $15,000 in interest for a total amount of $55,000 paid back in full.

The graduated repayment plan you’ll notice has different initial and final payments. It starts lower than standard but progressively becomes higher than what would have been paid under standard. This is a plan where payments start low and gradually - emphasis on gradually - increase every two years over the course of the ten year repayment period. If you are trying to picture what this repayment plan would look like on a graph, picture a staircase that has payments that start low and gradually increase.

Because payments start lower, interest accrues on a higher principal balance for longer than would have been the case under standard. And so instead of only paying $15,000 in interest as would have been the case under standard, Billy would pay about $19,000 of interest which increases the total cost.

The extended rating of plans pick the ten year repayment plans associated with the standard and graduated plans and if you haven’t figured this out yet...

(Claire): Extends them...

(Ian Foss): Extends them out to 25 years instead of ten. Now not all borrowers qualify for the extended repayment plans unlike the standard and graduated plans. The rule of thumb is that you need to owe more than $30,000 of debt to qualify for these extended repayment plans.

Now there’s an extended plan that looks a lot like the standard plan that has six payments and then there’s an extended plan that has graduated payments so it looks just like the graduated plan except for 25 years instead of ten. You’ll notice that the payments under the extended plan are lower than they would have been under the standard and graduated plan. That's because as a traditional repayment plan, it takes your repayment period into account when setting your monthly payment.

So extending your payment period decreases your monthly payment amount relative to the standard and graduated plan but at a cost - an interest cost. Again interest accrues on your principal balance. A lower payment means a higher principal balance for longer and that means more interest.

The other class of repayment plans are the income driven repayment plans. These have - these are called income based, pay as you earn or income contingent repayment plans. The amount that you will pay each month is going to depend on the plan that you choose and when you borrowed but it’ll be something like 10% of your discretionary income, 15% of your discretionary income or generally speaking 20% of your discretionary income.

Pay as you earn is 10%. IBR or income based repayment is usually 15% and the income contingent repayment plan is usually 20%. That’s why you see pay as you earn having a lower initial payment amount than IBR and ICR having a higher initial payment amount than the other two income driven repayment plans.

So while the payments start out at a much lower rate, as income rises every year - and (Claire) mentioned the requirement to annually recertify or provide documentation of income with these plans. The payment amounts will slowly or quickly - depending on how quickly your income rises - increase. If your income falls then your payment will also fall.

So if you’re uncertain about what your income is going to be, the income driven repayment plan’s going to be a very powerful tool to help you basically approach student loan repayment with certainty that you should always be able to afford your student loan payments.

(Claire): Exactly (Ian). The one thing I do want to mention about that - (Ian) in the beginning mentioned all of Billy’s factors - Billy (unintelligible) - that he’s single, that he lives in Virginia, what his current income is. Imagine that he’s single now but my next year he gets married and has triplets. Of course that family size will make a big difference on what his ultimate income is and of course what one of his income driven payment plans might be.

(Ian Foss): Exactly. The family size is relevant here because it’s not 15% or 10% or 20% of Billy’s or your total income. It’s discretionary income.

(Claire): Exactly.

(Ian Foss): And we take your family size into consideration when determining what amount of your income is discretionary or not. So again the income driven repayment plans in particular - there are a lot of additional factors that make it difficult to estimate what any individual is going to actually repay but I will say that the repayment periods for the income driven rate payment plans are usually ten - or I’m sorry - 20 or 25 years.

Now that isn’t to say that everyone is going to receive forgiveness under these plans. You can see that Billy under the income based or income contingent repayment plan would repay his loans in full before the end of 20 or 25 years. And so there’s no actual loan forgiveness that Billy would receive under those plans but pay as you were because it keeps payments lower. If he actually is in repayment for the full 20 years then may have a balance left to be forgiven.

Now again even though the payments are lower, it doesn’t affect the amount of interest that is accruing on those loans. For income driven repayment something called negative amortization can happen. That’s a big word and really all it means is that there’s more interest accruing in a month than you’re required to pay. So your total loan balance sort of grows instead of goes down and that can really seem like a negative thing or a scary thing.

(Claire): It does sound scary.

(Ian Foss): My loan’s negatively amortized right now. I repay under IBR but it’s really the best option for me for repaying my loans and even though it doesn’t make me feel great to see my loan balance go up every month, I can sleep easier at night knowing that next month I can afford to make my student loan payment because none of the other repayment plans that I know would work for me.

(Claire): Exactly.

(Ian Foss): Now we’ve given you a lot of caution here about the repayment estimates that you saw on the last slide. You can get a better idea of what you might pay under not only the income driven repayment plans but also the traditional repayment plans like the standard or extended repayment plan by going to the repayment estimator. The repayment estimator - the link is here on this slide - repayment-estimator or you can just go to as well and login.

We’ll pull your own loan information in, ask you a few questions about your income and will then tell you not only which plans are going - may offer you loan forgiveness which are the repayment plans based on income - income based income contingent pay as you earn - but also how much you will pay under the traditional repayment plans. It’s an individualized estimate but it is still an estimate.

If you want more information, your best point of contact is your loan servicer. Now there’s a whole piece of student loan repayment that we haven’t even talked about yet and it’s loan consolidation. Loan consolidation is kind of like refinancing your debt but what it does is it takes all of the various loans that you may have received when you were in school - I know I had a lot of them by the time I was done with grad school - and just combines them into one new loan - one lender, one servicer, one loan, one repayment plan, one payment every month. It’s a really great way to simplify repayment.

(Claire): Yes, it works for me. I actually consolidated my loans and it’s super simple to have everything in one place, one interest rate and not have to worry about looking at them as separate loans but just one big loan.

(Ian Foss): Right. Now the standard and the graduated repayment plans work a little bit differently when you consolidate than if you didn’t. So if you consolidate the repayment period, the amount of time you have to pay your loan in full is based on the amount of your student loan debt which can also take into consideration your private student loans.

So instead of it just being a fixed ten year or a fixed 25 year repayment period, you can actually have a repayment period that extends out to 30 years which will also further lower your student loan payment relative to sometimes the extended repayment plan.

So if you owe a lot of debt or if you have private student loans and want to have your federal student loan payments lowered to take into account the fact that you do owe some other debt someplace else, consolidation can also be another way to help you manage repayment but it’s not right for everybody. You can lose certain benefits you have on your loans by consolidating including forgiveness options that you might have through your lender or other repayment incentives that you might have through your lender. So it’s really important to weigh the pros and cons for you.

At our website - there’s a link here on this slide - but you can navigate to this page by just going to as well. It will help you self-assess whether consolidation may be right for you but it really helped me. It really helped (Claire) just simplify repayment and there’s a lot of power and simplicity.

(Claire): Definitely.

(Ian Foss): So I’m now going to turn it over to (Claire) who’s going to talk about discharge forgiveness and cancellation.

(Claire): Yes so of course one of the biggest things that a lot of people want to know about is okay, I have all this student loan debt. Okay so how do I get rid of it and what are my options? And I’m all about options so let’s talk about yours today.

So in terms of getting your loans discharged there are a couple of options. One of the most morbid ones to talk about is death. For the federal loans if you do die, your loans do die with you. You don’t have to worry about your spouse or anyone else having to take the burdens of those loans so that is one option that I hope nobody has to worry about any time soon but it is something that we do want to tell you all about.

Disability - if by chance you are unable to have gainful employment and pay your loans due to a disability, there is an option to have your loans discharged due to that. And also public service loan forgiveness - that’s a really, really popular one that we’re actually going to spend a little bit of time delving into today. The public service loan forgiveness program is another way for you to have your loans forgiven after ten years or 120 on time payments of your federal student direct loans.

Also teaching - we have forgiveness for students who become teachers and for a couple of our loan programs as you can see there - the Perkins loan and the direct loan programs. So that is also another option that is out there for you as well.

So let’s talk a little bit about public service loan forgiveness because this is a very, very popular one that we get questions about a lot. As I mentioned, after about ten years or 120 qualifying payments you can have your loans forgiven on your direct loans. It’s great. So you get this while you’re working full time at a qualifying employer which is awesome and the other thing about that is in terms of the IRS and your loans being forgiven - the forgiven amount is not treated as taxable income so you don’t have to worry about that being added at that time.

(Ian Foss): And just to draw a distinction here, one thing that I didn’t reference when I was talking about the income driven repayment plans - even though they do provide for forgiveness - under the current tax law any amount that’s forgiven under an income driven repayment plan like the income based repayment plan is treated as taxable income by the IRS.

So just understand that if you sign up for an income driven repayment plan, there’s forgiveness that’s provided for and that’s great but unless the law changes and I know that a lot of people really are trying to have this type of law change. But unless the law changes, any amount forgiven under an income driven repayment plan would be treated as income but - as (Claire) just said - not under public service loan forgiveness. So keep the distinction in mind as you plan repayment for yourself.

(Claire): Yes, thank you (Ian). It’s so important. So let’s talk about the qualifying repayment plans and actually this is one of the questions that we received in our Q&A about which plans are good for a public service loan forgiveness. Because it is kind of designed to be all your loans forgiven after ten years, the income driven plans are the ones that you’d want to get into if you know that you would qualify for public service loan forgiveness because of the fact that it kind of puts you on a plan where you’re not paying them all off by that time.

If you pay off your loans after 120 payments then there’s nothing to forgive so you do want to keep that in mind in terms of the best payment plan for you when qualifying for this program.

So we talked about this qualifying employment and public service but what does that really mean? Any government organization - that’s local, state or federal - would qualify. Any not for profit organization - a 501C3 organization - and they’re also other ones that would count too. All of this information is available on . If you literally go to and search public service loan forgiveness, you can find detailed information about what employers qualify and which don’t.

And if you’re not sure, you can also ask your employer if you’re considered a 501C3. But ultimately I think the best way to really be sure is to go on our website and find out more information about that.

(Ian Foss): And not only can you find out more information on our website but there is a form that all of you who are working in public service can fill out and send in to us - the Department of Education - or actually one of our loan servicers to receive confirmation of whether your employer qualifies. Not only will you get confirmation that your employer qualifies but they will then go through and audit your repayment history to be sure that you’re doing everything that you need to do like paying your loans on the right repayment plan to qualify after ten years for public service loan forgiveness.

So if you go to our website , find information about public service loan forgiveness, that form is there. I encourage you all to fill it out early and fill it out often because if you don’t fill it out early or you don’t fill it out often, you’re going to have to do it for ten years’ worth of employment when you try to qualify for public service loan forgiveness. And I don’t know about you but I know that I’ve worked a lot of places in the last ten years and the prospect of trying to go back ten years later...

(Claire): And get that certification...

(Ian Foss): And get certification from an employer that I haven’t seen in a decade would be tough so fill it out early. Fill it out often.

(Claire): Great advice. So now that you know about that, let’s talk about other ways to postpone your payments and avoid default. So default - every time I hear that word or think of that word, it sounds super scary. It’s something that you definitely want to avoid however we’re also going to talk about if you are in default the things that you can do to get out of it but of course you want to try to be proactive and avoid it as well.

So in talking about postponing payment, there’s deferment and forbearance. So you can see here on this slide kind of the different reasons that there are for deferment and forbearance. I know for me when I first finished graduate school and they told me my loan payment, I was completely overwhelmed. I had just started by job and saw my standard repayment number and was like oh my gosh, I can’t do this.

I called my loan servicer and they said hey, we can defer you for a month until you figure out, you know, the best plan for you and what you want to do and it was as simple as that. I was deferred. The next month I picked it up. I picked the plan that was the best for me and went on. So there are a lot of reasons why. So if you can look under the deferment, the economic hardship - that was mine - and it was as simple as that.

(Ian Foss): Right but it’s important to understand that these tools are best used if you have a temporary problem making your payments.

(Claire): Temporary being the key word because isn’t there a limit to the amount of time that you can claim a deferment or forbearance (Ian)?

(Ian Foss): There are some deferments and forbearances that are time limited - for example - the unemployment deferment is only allowed for up to three years. But the biggest way to be sure that you’re going to limit the cost of your loan in terms of interest is to actually repay the loan of course. Paying down the loan principal decreases interest that will accrue in the future.

Deferment and forbearance while they’re great because they don’t allow you to - they allow you to stop making payments - except for subsidized loans interest is always accruing on those loans and it’s ultimately your responsibility. It’s also one of the times that interest will compound on a federal student loan. Interest will capitalize when deferment or forbearance ends and capitalization is where interest becomes part of the principal and because interest accrues on the principal, when your principal goes up, the amount of interest that accrues goes up.

So deferment and forbearance are good. They are helpful but they should be used sparingly and they should be used temporarily. So don’t not use them because I’ve provided this caution. Use them if you need them but if you’re having a longer term problem, you should probably investigate one of the other repayment plans that may be available to you.

(Claire): Definitely. So talking about default - so I mentioned about what is default and if you’re in default what you can do. So basically default means that after 270 days of delinquency you go into default and delinquency means that after 270 days you haven’t paid anything on your loans at all.

So this is kind of a last ditch effort for the loan services to collect. So there are so many options that you could have before you get to this point of getting to default. That’s why I can’t stress enough how important it is to communicate with your servicer if you are having problems. We talked about how forbearance and deferment are used for temporary but let’s say you have something that’s a little more long term. Talk about moving into one of those income driven repayment plans if you’re having issues with your income.

That’ll make a huge difference but you do get to the point where you haven’t made any efforts to change your payment plan and haven’t made any payments, you can go into default and all of these scary things listed can and will happen - specifically hits to your credit, your wages being garnished, issues with your taxes and not getting your refund and it can be really bad. It even - it could hinder your chances of getting certain jobs as well.

(Ian Foss): Absolutely. Just one more point about default. There’s no reason to default. Income driven payment plans can have payments that are as low as zero dollars a month.

(Claire): How many dollars - zero dollars (Ian)?

(Ian Foss): Zero dollars a month. If your income is low or your family size is on the higher side of things then you can very possibly have a payment amount of zero dollars a month. It may not be that forever. We all want your income to go up.

(Claire): Yes.

(Ian Foss): That will mean your student loan payment will go up but these repayment plans are like insurance. They’re insurance in a way that if you’re making money now and you lose your job tomorrow, you can call and your payment amount under this plan could drop to zero dollars a month because you’ve become unemployed for example.

So really just understand that there’s no reason to default. If you ever go delinquent, don’t stress out about it. Talk to your loan servicer. Never be afraid or ashamed of the fact that you’ve gone delinquent.

(Claire): Not at all.

(Ian Foss): Talk to your loan servicer. They’re going to be trying to contact you if you go delinquent but know that you always have options and you should avail yourself of one of those options because the consequences of default are severe.

(Claire): So let’s say that I’m already in default. (Ian) what do you think is the best thing I should do to try to get out of that?

(Ian Foss): Well there are a number of ways that you can go about getting out of default. Some of them are better than others depending on what your desired outcome is. The best two ways to get out of default are to either consolidate your loans. Loan consolidation will allow you to get out of default on the loans that you currently have but as a condition for being allowed to consolidate and get out of default, you’ll be required to repay your loans under one of the income driven rate payment plans that we’ve spent so much time talking about today.

So you can consolidate and get out of default but this will not remove the fact that you defaulted on that loan from your credit report and for a lot of people who are trying to move on with their lives financially after defaulting on their student loans, removing the default record from your credit report is a big motivating factor for trying to get out of default. And the other good way to get out of default is what we call loan rehabilitation.

This is where you work with your lender to establish a payment amount that you can afford but the you reliably repay that for nine or ten months depending on your agreement and your behavior and after that point your loan will no longer be in default just like if you had consolidated but also the default notation will be removed from your credit report and it may allow you more easy access to credit going forward.

So the two options again are loan consolidation and repayment under income driven repayment plan or loan rehabilitation. Specifically about loan rehabilitation - this is such a powerful benefit that it is limited to one time per loan. So if you default on a loan and you are rehabilitated and if you ever default again - I hope no one on this webinar ever defaults the first time or let alone a second - but if you default again, you can’t rehabilitate again.

So again there’s no reason to go into default but you do have options to get out of default if you do happen to do so.

(Claire): Yes, thanks for all those options. That’s really great to know. So I’m sure that - I don’t know about you guys but I know that when I first started with all this, I was super overwhelmed and I had to ask so many questions over and over again to really understand.

So I hope that me and (Ian) were able to give you a lot of great information however has so much information and so much more detail than we were able to give you in this short time today. I encourage you - highly encourage you to check it out - . You can click right at the types of aid, click loans and get all the information you want. You can go in the search box and check for repayment options or a payment plan and they’ll talk about all the ones that we talked about today and even more stuff that you didn’t even know you wanted to know. You can go on and find out.

I’m also looking in the Q&A box. Thank you so much for everyone who’s been asking those great questions and if you have any more, keep going. We’re going to continue to look at the questions and answer all of the ones that you’ve asked now. And obviously (Ian) and I can answer things high level from our federal perspective but ultimately - like we’ve stressed during the entire webinar - your loan servicer is really who you want to contact about those specific questions about your specific loan and the amount and all of those things as well.

Not only can you go to nflds. to find out but you can also call FSAIC - our federal student aid information center at 1-800-4FED8. Some of you guys who may have had trouble back in the day completing your FAFSA and doing all of that, you may have called our hotline before if you’re familiar with them. They also do help with borrower tacking. So if you do want to find out your servicer or want some more information about that, you can definitely go ahead and call our hotline as well.

(Ian Foss): Alright, so I think we’re ready to start going through some of the questions and (Claire) do you want to read one of the questions that we received?

(Claire): Sure. So one of the questions that was asked is what’s the difference between a subsidized and an unsubsidized loan and that’s a wonderful question. The difference - the main difference in the direct loans talking about un-sub and subsidized loans is that if you received a subsidized loan, that interest is subsidized by us - by the government.

(Ian) mentioned when talking about the compounding interest and how that could happen after deferment and forbearance how that won’t happen on a subsidized loan since the government is covering it however it does in an unsubsidized loan. So an unsubsidized loan is where you the borrower is responsible for the interest. So that interest is constantly accruing.

However - like I mentioned for the subsidized loan - while you’re in different times like while you’re at school or in your grace period no interest is accruing on that loan.

(Ian Foss): Sure. So another good question that we have more than once is about public service loan forgiveness and the requirement to make 120 payments and if they have to be consecutive - whether they need to be consecutive and whether you can get credit for time spent in deferment and forbearance.

(Claire): Great question.

(Ian Foss): The answer frankly is that payments don’t need to be consecutive. So for whatever reason you miss a payment and you’re eight years in, you don’t start over when you...

(Claire): That would be a nightmare.

(Ian Foss): That would be a nightmare. Ten years is a long time. But know that only periods during which you’re in repayment and required to make a payment count toward public service loan forgiveness. So if you were making payments on say the income based plan for five years and you go into deferment for one year because things were just so difficult for you financially that you couldn’t afford to pay anything and then you start making payments again after your deferment’s over, you’re not going to get any credit for the time spent in deferment but you won’t start over with your pickup starting with your six.

Now again for public service loan forgiveness you have to get on an income driven repayment plan in order to have any remaining balance left to be forgiven after ten years.

(Claire): Right.

(Ian Foss): The ten year standard plan - like (Claire) said - does qualify but if you make payments on that plan for the full ten years...

(Claire): You’re going to pay it off yourself.

(Ian Foss): Right, you’ll qualify for public service loan forgiveness in the amount of zero dollars. So...

(Claire): And that’s not what any of us want.

(Ian Foss): No. If you qualify for public service loan forgiveness, you need to couple that program with an income driven repayment plan.

(Claire): Yes and one other thing I did want to mention I get questions about a lot is we mention okay, within the ten years - let’s say for the first couple of years I was working at a federal agency but then I left and I got an awesome private sector job. What happens? How does that work?

And just like he mentioned, it doesn’t start all over. All of those payments where you were full time and one of the qualifying employers will count but the time you spent at your private sector job - they won’t. So that’s why, you know, you can’t just say ten years or just say 120 payments. It really just depends on how it works for you.

(Ian Foss): We received a request to go back to the slide comparing the various - the various repayment plans and since a lot of the questions I think we’re receiving are about that, I think it’s a good idea to just go back and leave the slide here while we answer the rest of the questions.

(Claire): Yes, definitely. And I did see a question. Somebody asked will this PowerPoint be available. I believe that we are going to be putting it up online on our toolkit website but everyone registered. We have everyone’s email so I’ll make sure that everyone who is registered for this webinar will have access to this presentation.

(Ian Foss): Great. Another question that we’re getting is again about public service loan forgiveness. Like I expected, it’s a hot topic. The question specifically is about consolidation loans and whether payments on consolidation loans can count towards public service loan forgiveness. The answer is yes, they can but they need to be payments that are made on an income based repayment plan.

The other thing to know about public service loan forgiveness and consolidation and this is very technical but if you made payments on for example a direct loan and then you consolidate that loan, you will start over in making qualifying payments.

So it’s important to keep in mind that if you want to consolidate your loans, it’s best to do it when you’re early on in the repayment cycle to avoid - to avoid having to start over if you do consolidate and are seeking public service loan forgiveness.

(Claire): Yes, definitely. We have another great question asking about is there a cap amount a month that you can use on the deferment and forbearance plan. I did mention to use despairingly because there is a limit and I know that they may vary. (Ian) if you can...

(Ian Foss): Right. There are some deferments that have time limits.

(Claire): Right.

(Ian Foss): The ones that do have time limits are generally limited to three years so that’s 36 months.

(Claire): Good mental note.

(Ian Foss): The deferments that are time limited are things like economic hardship deferments, unemployment deferments and those are the big two that are time limited. You can defer your loans to go back to school for the period of time that you’re in school. There are also types of deferments that are - I’m sorry - forbearances that are time limited. Some of them are not. It really depends on the type.

The biggest type of forbearance that’s offered is generally called a general or discretionary forbearance. It’s a forbearance that your lender is not required to grant to you. Some of the lenders and some of the servicers will institute time limits on the amount of time that you can receive these forbearances and it’ll vary lender to lender. So it’s important to keep in mind that not only are deferments time limited but so too are a lot of the forbearances.

We’re receiving a lot of questions about the - whether how frequently we update the repayment estimator when there are changes to the programs. And I’ll go out of my way right now to say that we’re working right now on updating the repayment estimator to account for another repayment option that may become available later in the year.

So we do keep it updated regularly. We always update it to account for new metrics that are used in performing the calculations. So there are annual updates to the repayment estimator and there are as needed updates for the rate payment estimator.

(Claire): That’s helpful. Well ultimately I think just calling your loan servicer and knowing for sure your exact case will always be the best way to determine what you would actually have to pay in the different plans. I know that’s what helped me determine what income driven plan was best for me and actually I switched from last year. I was previously income based but after hearing the new payments after I recertified, I realized hey paying more is sounding a little bit better so I ended up switching.

So yes, talking to your loan servicer is another great way obviously. The estimator is a wonderful resource and option and tool to use but your loan servicer I just feel like can just tell you exactly what you need to know specifically about your loan.

(Ian Foss): Here’s another good question about public service loan forgiveness and the question is about whether payments under the extended or the graduated repayment plans can qualify you for loan forgiveness. The answer is no. Only payments under the ten year standard plan or income driven repayment plan will really ever count toward public service loan forgiveness.

There was a notation on this slide about other repayment plans that are - have payments that are at least equal if not more than the ten year standard repayment plan. But the extended plan and the graduated plan is desired to lower your payment relative to the ten year standard repayment plan so those payments will never really count toward public service loan forgiveness.

So if you’ve been making payments during that time and paying - you start making - you start getting credit for public service loan forgiveness when you make that first payment when you work for a qualifying employer. But if you’re making payments under those repayment plans and want public service loan forgiveness, you do need to change your repayment plan in order to do so.

(Claire): Okay, great. We’re getting a couple of other questions here about interest accruing while you’re in forbearance, deferment or while you’re still in school and we kind of touched on that when talking about kind of the subsidized and unsubsidized loans. We mentioned that if you have a subsidized loan that no, it does not...

(Ian Foss): During a deferment only.

(Claire): Okay, thank you. Yes and while you’re in school.

(Ian Foss): Right. Well if you have a subsidized loan, interest doesn’t accrue while you’re in school. It doesn’t - it almost never accrues while you’re in your grace period which is what you get for about six months after you leave school and any time that you’re in deferment. That’s for a subsidized loan.

However in a forbearance on a subsidized loan interest always accrues and on an unsubsidized loan and on a plus loan no matter what interest accrues from the date your loan is made until the date that it’s paid in full or forgiven or discharged. So unsubsidized loans are less favorable in that way. They’re also made to those - I mean unsubsidized loans are made to all borrowers but subsidized loans are made to those who demonstrate financial need and because they’re made to those who have that lower income, there are additional interest benefits provided for.

(Claire): Yes, great question.

(Ian Foss): Another question we’re receiving is how somebody can find out how many qualifying payments for public service loan forgiveness that they have made. The answer is to submit the form that we referenced earlier. This is the - it’s called the employment certification for public service loan forgiveness form. It’s on the website and that form you will submit with documentation from your employer - a certification. We will then evaluate whether your employer qualifies and if it does then we will then go through the process of auditing all of the payments that you’ve made from 2007 forward.

There is a date - a beginning date for public service loan forgiveness and it’s October of 2007. So only payments made after October 1st 2007 can count toward the ten years of payments for public service loan forgiveness but after you submit that form then you will receive a payment audit from our servicer at loan servicing with a count of how many payments you’ve made and an estimate of when you’ll be eligible to receive public service loan forgiveness.

(Claire): Okay, great. We have about a minute left. We’re looking to see if we have any other final questions to answer and I think we have one more. (Ian) do you want to tackle it?

(Ian Foss): Yes, one more and it hits on a really important topic that really distinguishes public service loan forgiveness from the other types of forgiveness programs like teaching - the teaching loan forgiveness.

Now public service loan forgiveness looks at your employer. If you work for a government organization or certain types of not for profit organizations, the mere fact that you work for that organization means that your employment qualifies. So it doesn’t matter what you do for your employer. It matters where you work, who you work for.

(Claire): Right.

(Ian Foss): So unlike various other forms of forgiveness that are offered like teacher loan forgiveness where you have to actually be a teacher teaching in a low income school sometimes in specific subject matters in order to qualify for loan forgiveness. Public service loan forgiveness only looks at where you work, who you work for, not what you actually do for your job on a daily basis.

(Claire): Right, exactly. Perfect. Well we’re just hitting the six o’clock mark. Thank you all for participating and asking your amazing questions. I’m so sorry there was a couple more we couldn’t get to but I promise all your information can be - we can get all the information you need to answer all of your questions on our website - - from your loan servicer and yes, by also finding out about your loans at nslds. as well.

(Ian Foss): Thanks so much for joining, everyone. Have a good evening.

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