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Category Archives: Default Management

Tips and advice on preventing default on your student loans.

Financial Literacy

What is financial literacy?

Financial literacy is defined as:

  1. The ability to read, analyze, manage and communicate about the personal financial conditions affecting material well being.
  2. The term is used to describe financial education programs on college campuses and within high schools. The objective of financial literacy programs is to help students better manage their finances,budget effectively, and borrow wisely.

Smart financial management includes a few basic good habits. If you are a student, you may already have a checking account, a credit card, or maybe even a car loan. When heading off to college, you may also need to borrow student loans to help finance your education. But have you determined your financial goals and established good financial habits? Here are a few tips to get you started.

Steps you can take now to get on the right financial path

  • Take charge of your spending. Establish a budgetPDF Document; set limits and prioritize; determine the difference between needs and wants; speak with a professional, nonprofit credit counselor if needed.
  • Start saving. The earlier you save, the more you’ll have.
  • Understand the costs of credit. Compare at least three offers before you choose a credit card; look for low interest rates and no annual fees; always pay more than the minimum payment.
  • Understand how credit use affects your future. Know the difference between good and bad debt; check your credit report annually.
  • Protect your credit and your financial future. Beware of identity theft; review statements and notify creditors immediately of errors; know what’s in your wallet/purse.

Planning for Financial Success

Minimize your student loan debt by following these Top 10 ways to graduate debt free.

  1. Complete the FAFSA annually.
  2. Qualify for federal grants.
  3. Research state scholarship and grant programs.
  4. Apply for institutional scholarships.
  5. Explore private scholarships.
  6. Inquire about work programs available on your campus.
  7. Set up a payment plan for your tuition.
  8. Secure summer employment.
  9. Invest in MOST, Missouri’s 529 college savings plan.
  10. Live like a student now, so you don’t have to later.

www.dhe.mo.gov/ppc/studentloans/finacialliteracy.php

 

A Break From Payments

Take a Break from Payments

Both deferments and forbearances give you a break from monthly payments for a set period of time. Many options are available to meet a variety of needs. If you are having difficulty making payments and want to see which options fit your specific situation, log in to your account and click Postpone My Payment to see which deferment or forbearance works best for you. Of course, you can also call us at 888.486.4722 to talk through your options.

  • Log in to your account and click Postpone My Payment to apply for deferment or forbearance. You can also call us at 888.486.4722.
  • Learn more about the difference between deferment and forbearance.
  • Calculate accrued interest while in deferment or forbearance. (To avoid capitalization, you may choose to pay accruing interest or even small payments toward the balance.)

 

Avoid Default With Deferment or Forbearance

About Deferment

If you are experiencing financial hardship, go back to school, are unemployed, or are on active duty military service, postponing payments with deferment may be right for you. Subsidized Stafford loans and subsidized consolidation loans will not accrue additional interest, so your balance after the deferment period will be the same as when it started. However, for unsubsidized Stafford loans, PLUS loans, SLS loans, or unsubsidized consolidation loans, interest will accrue during the deferment period, so it’s wise to pay at least the interest on your loan each month. This will prevent your interest from being capitalized, or added to the principal of your loan, essentially increasing your total balance and requiring you to pay more in the long run.

About Forbearance

If you work an internship, perform certain types of community service, or find yourself experiencing financial hardship, you may be qualified to postpone payments with forbearance. All loans accrue interest during forbearance, so it’s smart to pay at least the monthly interest during this period to avoid interest capitalization. Forbearance resolves any delinquency on the account—log in to your account and click Postpone My Payment to see if you’re eligible. You can also call us at 888.486.4722.

Available Deferments

The federal government has allowed for these deferment options. Read on to see if these situations apply to you. Remember—just because you are eligible for a deferment does not mean you are required to request it; if you feel you can make payments on your loan, you are encouraged to do so.

Armed Forces Deferment

If you serve on active military duty in the Armed Forces or National Guard, you may be eligible for this deferment or other student loan benefits for members of the military.

http://www.nelnet.com/Postpone-Your-Payments/

Default

Understanding Default

NEVER ignore delinquency or default notices from your loan servicer.  If you don’t make your monthly loan payments, you will become delinquent on your student loan and risk going into default. Contact your servicer immediately if you are having trouble making payments or won’t be able to pay on time. Learn about federal student loan default: Find out what may happen if you default, what steps you can take to keep your loan from going into default, and what your options are for getting out of default.

http://studentaid.ed.gov/repay-loans

Default

Default Prevention

The Missouri Department of  Higher Education promotes default prevention and debt management initiatives related to student loan borrowing and repayment. Objectives       include increasing the awareness of financing options for postsecondary education, reducing debt among postsecondary students and parents, increasing enrollment retention, reducing loan defaults, and generally increasing students’ knowledge about     their personal finances.

Implementing default prevention and student success programs on campus are:

  • Smart for schools! Successfully educating student loan   borrowers can help reduce your institution’s default rate and prevent potential   sanctions against your institution, such as losing federal program eligibility   for student loans,  Pell Grants, and other Title IV aid programs.
  • Smart for borrowers! Default prevention activities also   improve the student loan borrowers’ knowledge of their rights and responsibilities. Extending   default prevention to implementing financial   literacy and debt management programs on   your campus also contributes to the overall financial health of Missouri’s   students, parents, borrowers, and citizens.

Top Ten Best Practices in Default Prevention

Brought to you by the MDHE’s Default Prevention Grant program team.

    1. Organize a Default Prevention and/or Student Success Team. Help the team   start strong by requesting default prevention training from the MDHE and reviewing a new printed publication, The Smart Approach to Campuswide   Retention and Default Prevention Efforts. This pamphlet was created   for Missouri’s postsecondary staff and administrators to assist with developing and promoting more cohesive retention, student success and default prevention plans. Additionally, Missouri institutions may  attend the MDHE’s free Default Prevention Day offered in May.
    2. Profile your institution’s defaulted borrowers, and put programs in place to   specifically address at-risk populations at your school.
    3. Make retention part of default prevention efforts. Focus on academics as well   as providing personal or financial counseling for at-risk students.
    4. Emphasize the benefits of paying interest on   loans while still in school. Use the MDHE’s free publication Planning for Financial Success to get freshmen   borrowers off to a good financial start. To order MDHE publications, visit our online   order form.
    5. Develop a “loan reminder” presentation/counseling session for returning loan   borrowers each year. Results of a 2009 MDHE survey of delinquent and defaulted   borrowers indicated that more than 50% of borrowers borrowed more than they   expected. Help future borrowers avoid this mistake!
    6. Conduct budget and financial management workshops in classes or include it in the new student orientation process.   Seek and use outside resources, such as the MDHE, to help make these workshops   as interactive and memorable as possible. Complete our new online   speaking and event request form to arrange for a financial literacy workshop   for your students.
    7. Provide a personalized calendar during exit   counseling (mark dates such as the half-way point of the 6-month grace   period, end of grace period, and first repayment due date). Include   comprehensive student loan debt information (total amount owed, estimated   monthly payment amounts, etc.) as well as loan holder contact   information.
    8. Provide lifetime job placement assistance.
    9. Include financial aid and retention staff in student withdrawal process.
    10.   Use creative techniques to contact students and borrowers.

Loan Repayment

Repay your Direct Loan / Federal Stafford Loan

Here are a few details about repaying Direct Loans and Federal Stafford Loans:

  • After you stop attending school at least half time, withdraw, or graduate, a 6-month grace period begins. You receive only one grace period per loan.
  • Repayment begins after the grace period ends, with your first payment usually due 45-60 days later.
  • The maximum repayment period ranges from 10-25 years, depending on the repayment plan.
  • Payments are expected each month.
  • The minimum monthly payment is generally $50, but this amount may be different depending on your loan balance and your repayment plan.
  • You may prepay your loan at any time without penalty. Prepayment may substantially reduce the amount of interest you pay.

Repayment plans

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
  • Payments cannot be lower than your monthly interest amount
  • 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 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).
  • Payment is not more than 10 percent of the amount by which your adjusted gross income exceeds 150 percent of the poverty line for your family size.
  • 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.

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
  • Adjusted payment amount based on income and family size
  • Payment is not more than 15 percent of the amount by which your adjusted gross income exceeds 150 percent of the poverty line for your family size.
  • 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.