In this webinar, learn practical tips for staying financially organized, paying off your loans and staying one step ahead of student debt.
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Now I’ll turn it over to today’s presenters. Take it away, Debbie.
Good morning, or good afternoon for some of you. My name is Debbie Lewis, and I’ve worked for U.S. Bank for 34 years. Currently, I work in vendor management as the relationship manager for attorney vendors. Prior to that, I was a relationship manager for six of our student loan servicers. I’ve worked for the student loan center for 24 years, seven years in the special assets loan recovery department.
My experience in student loan operations consists of originating loans through the Federal Family Education Loan program and educating borrowers on our U.S. Bank private student loan products, as well as assisting them through the online application process and financial aid and FAFSA process. This included customer service, staffing, managing our phone system, processing federal loans, marketing, and 13 years of supervisory management experience, supervising a staff of up to 10 customer service reps plus temps during our peak season.
Rebecca, would you like to introduce yourself as well?
Yeah, thanks Debbie. Hi, everyone. My name’s Rebecca. I’ve been fortunate enough to work for U.S. Bank over the last 12 years. I’ve held a number of positions within the career, such as a teller, vault teller, personal banker, sales and service manager, and most recently took over as a dual manager in one of our branches in the heart of downtown, as well as an advisory center located centrally on campus for easy student access. I work directly with students and parents as they onboard to the campus experience, as well as both our consumer and business customers within the community. And I’m excited to share some of my experience with you.
Thank you for those introductions. Now, we’d like to take a quick poll. Please look at your Webex screen. We just opened the poll. And answer the question, how much do you know about student debt? Are you an expert? Do you know a little bit but are here today to learn a little bit more? Or are you looking to this webinar to learn a lot? The poll will be open for five minutes, and we’ll go ahead with the presentation.
So throughout the presentation, there are a number of common student loan terms that we want you guys to be familiar with because we’re going to be using them fairly regularly. Some of the terms that you should know include FAFSA, loan consolidation, subsidized loans, grace period, accrue, capitalization, and co-signer.
And then I wanted to touch base on a couple of the items in the slide, just provide a little more context. The grace period, that’s the six month period from the time you leave school until the time you enter repayment status. So all federal student loans receive the six-month grace period automatically. You can make payments during that period if you wish to, but it’s not required.
A subsidized loan is subsidized federal Stafford loan, which is need-based. And then there is an unsubsidized Stafford loan that is non-need-based. Anybody can obtain the unsubsidized federal Stafford loan. You need to complete the free application for federal student aid, known as the FAFSA. Even if you don’t think you’re going to qualify for the subsidized loan, you will still need to complete the FAFSA so the school can determine your eligibility, based on the student aid report, which is generated after you complete the FAFSA. Your school also may require the FAFSA before certifying you for any private student loans as well.
And the interest that is subsidized during the in-school and six-month grace period, when payments are not required, that’s subsidized only if you are eligible for the federal subsidized Stafford loan. On an unsubsidized Stafford loan, that interest is accruing and is not being paid. Interest accrues during the periods of in-school, grace, deferment, and forbearance.
And then capitalization, that is the amount of unpaid interest that accrues on your loan while you’re in school during the grace and any period of deferment. That’s the amount that is added to the principal balance of your loan when you enter repayment. So the principal amount you borrow plus all of that accrued interest during those periods I previously mentioned, that then becomes the principal balance that is used to determine your payment amount over the 10-year standard repayment plan or whatever repayment plan you’re eligible for.
A few other terms that you’re going to hear us using and discussing are deferment, principal balance, interest, interest rate, repayment, and forbearance.
And just a few more items, the standard repayment plan is that basic repayment plan for federal student loans. Payments are fixed for up to 10 years. But if you’re getting a consolidation loan, you can go up to a 30-year term. With the standard repayment plan, you pay less over time.
With the graduated repayment plan, you start with lower payments up first that increase every two years to ensure the loans are paid off within the 10-year period. For consolidation loans, you can go up to that 10 or 20-year term. Extended repayment plan, you have to owe $30,000 or more to qualify. That extended repayment plan offers a 25-year term.
And then there are other repayment plans eligible for borrowers who are experiencing financial hardship. So there is the repay revised pay-as-you-earn repayment plan. The payments are 10% of discretionary income and are recalculated annually. Income-based repayment, which are payments that are 10% or 15% of your discretionary income, and those are also recalculated annually.
Then income-contingent repayment plan, this is for the federal direct loan borrowers only, and those payments are 20% of discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income, and are recalculated annually. And then there’s an income-sensitive repayment plan. So you can find detailed information on all of the repayment plans offered for federal student loans at studentaid.gov/manage-loans, Repayment Plans.
And then for the first tip, tip number one, first and foremost, you’re going to want to keep track of everything that you borrow. College will be over before you know it. And at the end of year four or five, you want to make sure you know what you’ve borrowed throughout those years. The Department of Education does keep track of federal student loans on the National Student Loan Database, also known as an NFLDS, and your college will be tracking the information and should be explaining that to you during your exit interview. Always remember to review and save your federal student aid report and keep track of all loan disclosures for each loan you borrowed.
If any disbursements are partially refunded or canceled, make sure those were credited to your loans. Check the NFLDS database to ensure your loan servicer has reported the adjusted loan amount. And if those amounts were not applied, you need to follow up with your loan servicer and your school.
And then tip number two is take classes at a two-year college. Typically the tuition cost at a two-year college is lower than a four-year college. Those course credits can transfer from your two-year college to apply towards your degree at the four-year college that you’re attending. Do some research, and talk with an academic advisor to see if this is an option for you.
When I worked in the student loan center, I had a married couple come in. Both of them were graduates of Gonzaga University. They graduated as pharmacists. And I assisted them in obtaining consolidation loans. They had very little debt because they earned their math credits from the local community college and were able to pay for those with cash as they went along. And at that time, the underlying loans they consolidated had variable interest rates, and they were able to consolidate to fixed-rate loans with an interest rate under 3%. So they did really well. Obviously, they were financially savvy throughout their college years. Rebecca, did you have a similar experience you’d like to share while you were attending school?
Yeah, so when I was a student in college, I actually took a lot of courses at our two-year community college near to where I lived. I was able to receive credits for those classes that then applied to my degree at my four-year university. And I was able to take the majority of my prerequisite courses through the community college and save a lot of money by transferring those credits.
The cost for an undergraduate course at the university here in town is around $318 a credit, whereas our local community college is basically $100. So classes such as like a basic Writing 121 course that most people need for a prerequisite-- it’s a three-credit course-- it would have cost $954, had I taken it at university, and only around $300 when taken at the community college. The classes are the same, but the cost savings is significant.
So just do your research, and see if that’s available to you. The other thing is our local community college has a dual enrollment program with our university. So you can actually take advantage of the undergraduate program at the community college and transition that directly over.
So tip number three that we have for you today is to take federal student loans before looking into private loans. This is because federal loans typically are going to have a lower interest rate for you than a private loan. You may be eligible for unsubsidized federal student loans, and your parents can also take out PLUS loans, potentially.
The subsidized federal student loan is income-based, but you may obtain it if your tuition is high. Remember, to qualify for these loans, you must complete that FAFSA, no matter what your income, because you don’t know what federal aid you might be eligible for. I was personally able to use federal loans for the majority of my schooling at a rate of around 3%, compared to some of my friends at the time who took out personal loans at 14%, so huge difference.
Yeah, and keep in mind that a Parent PLUS Loan is credit-based. So when your parents apply for that, they’re going to run their credit report and base their eligibility on that. And if they’re denied, then the student automatically become eligible for an additional amount of an unsubsidized Stafford loan. Stafford loans are not credit-based. They’re either need-based or non-need-based on the information you provide in the FAFSA, so any student can get that additional unsubsidized Stafford loan. Also, private student loans are credit-based. And generally, you need a co-signer for those.
And also, you have to do the FAFSA even if you don’t plan to take out federal student loans. Most colleges will not certify a private student loan application without that FAFSA information. Before they’ll even originate or disperse the loan, they’re going to want the school to certify that, yes, this is the amount of money you’re going to need for tuition. So keep that in mind as well.
And then tip number four, only borrow what you need for tuition fees and living expenses. Keep in mind that every dollar you borrow will cost you about $2 in repayment for the typical borrower. This accounts for accrued interest, compound interest, and extended repayment periods utilized by most student loan borrowers.
So your total debt, it should be less than your first year salary. You can use that information, and there’s guidance from the CFPB, the Consumer Financial Protection Bureau, at consumerfinance.gov/gradpath. There’s an interactive tool that takes your financial aid offer for the upcoming school year and helps you figure out if you can afford it in the long run.
Another excellent resource to help you understand the cost of college over time is savingforcollege.com article, Student Loans Will Cost You Double. So take a look at those websites, and use those tools to help you plan. Don’t underestimate your expenses. Make sure you budget for completion. Statistics show that students who finish college with a degree have better luck and less problems paying off their student loan debt.
So make a budget and stick to it. Be realistic. Shortfalls can interrupt your education, but the worst situation is student debt without the degree to help pay for it. Loans can definitely save you money in the long run, if they allow you to finish on time. Working more than 20 hours a week is associated with lower grades, which can slow down completion and jeopardize eligibility for grants and scholarships.
And tip number five is to make payments while you’re in school and during grace periods. Since interest accrues during the in-school grace and repayment period, making payments when interest begins to accrue will help you save money on capitalization. Also, if you obtain a deferment or forbearance, interest accrues during those periods as well. All that interest that accrues during these nonpayment periods will capitalize.
When my daughter started college, right when she got her very first disbursement of her federal student loan, we started making $50 payments right away. So when she actually entered repayment, she still had the 10-year standard repayment plan, but she owed much less than she would have if we had not been paying the interest along the way. So even a small amount helps a lot.
Generally, payment amounts are determined by the amount you owe and the repayment term. So for every $4,000, you’ll pay approximately $50 a month, if you go with the 10-year repayment period. So even if you have a subsidized loan, you can try and make principal payments while you’re in school, which just reduces the amount of debt when you enter repayment. And if you have an unsubsidized loan, at least try to make the interest-only payment.
And the minimum payment is always $50, even if you owe less than the $4,000. Accrued interest will capitalize and start bearing interest, so you have interest on interest. And then that will help avoid a large principal balance, which then becomes the amount interest continues to accrue on at repayment. And going into tip number six.
Yeah, so tip number six is to stay in repayment. Just be as consistent as you possibly can with your payment. It’s important that you make your payments in full and on time to avoid delinquency and default, as these things can have a negative impact on your credit score and may block you from achieving other financial goals that you have in the future, like buying a car or a home. Delinquency and default can also result in wage and tax refund garnishment. So you want to make sure, even if you’re just making that minimum payment, pay that payment on time.
Be proactive about contacting your servicer. So don’t wait for your payment to be due. If you don’t understand, ask to speak to someone. There are plenty of legal advisors available at the Department of Education for federal loans and the CFPB for private loans that are there to help you with understanding all of your options for repayment.
If you don’t ask, you may not know what’s out there and available to assist you. And as you can tell, from what Debbie has been talking on, there are so many options for repayment. There is definitely a program that can work with you. Federal student loans offer multiple plans, including the income-driven plan, which we’re going to be discussing a little bit later on.
Tip number seven that we have for you today is to finish that degree. You might think that the size of the debt is the biggest risk factor in defaulting on your loans. But the reality is that the biggest risk factor is actually failure to graduate. Defaulters tend to have much smaller debt. It might be better to graduate with more debt and obtain your degree slash skill set than to drop out with less debt.
While you’re taking classes at the university, I would highly encourage you to research scholarship opportunities that your school provides. Talk with your college financial aid officer for more information or your advisor. Another thing that can potentially save you costs over attending school is checking with your employer to see if they offer a tuition reimbursement program or any sort of employee perk for attending a specific university.
Tip number eight is to take advantage of interest rate discounts. Taking advantage of interest rate discounts can save you a lot of money over the life of the loan. Some loans offer additional discounts after you reach a milestone. That’s typically available with private lending and not federal. You also might have the ability to get an interest rate discount if you sign up for automatic payments. So remember to read the fine print when you’re signing up for your payment program, and make sure that you have an understanding of exactly where that payment is going each month.
I learned this the hard way. When I consolidated my loans to another funds servicer, I thought that my auto-pay was set up and ready to go. I was making what I thought was additional principal payments manually. Come to find out, I was missing out on 0.25% discount because I had not properly enrolled in automatic payment. So there are quite a few discounts available. You want to make sure that you’re taking advantage of those and not paying more in interest than you need to.
Tip number nine is to consolidate to loans with lower interest rates. You might be asking what loan consolidation is. Loan consolidation allows you to combine several student loans into one larger loan. Loan interest rates may change over time. And if you have the opportunity, consolidating to a lower rate will save you over the total repayment of the loan. Remember, the other thing to consider is that most private lenders don’t offer private student loan forgiveness programs, like some of the federal programs do.
You can get creative with consolidation. Courtney, today’s moderator, was telling me about recently, her sister-in-law took advantage of consolidating her loans personally into her mortgage when she refinanced to get a lower rate. With rates at record lows, it never hurt to take advantage of talking to a banker or financial advisor to see what options might be available for you to put you in the best position for your financial future. There are many things to consider when consolidating, such as the interest rate, payment and terms, and if remaining in a federal program better meets your financial needs.
And then tip number 10 is to research federal student loan forgiveness programs. There are two types you can obtain-- occupational and income-driven repayment plans. More information on these plans can be found on studentaid.gov. When researching loan forgiveness programs, make sure you’re researching on the federal websites because there are a lot of scams out there.
Occupational forgiveness programs require you to meet certain criteria to qualify. The public service loan forgiveness is available for federal direct student loan borrowers. If you’re employed by government or not-for-profit organization, you may be able to receive loan forgiveness of the remaining balance after making 120 payments. Teacher loan forgiveness is available for both direct loans and Federal Family Education Loan program loans. If you teach full time for five consecutive academic years in a low-income elementary or secondary school or educational service agency, you may be eligible for forgiveness up to $17,500.
Income-driven repayment plans are designed for borrowers experiencing financial hardship. More information on these plans can be found on studentaid.gov. When researching loan forgiveness programs, again, make sure you’re researching on the federal website, just to avoid all of those scams that are out there today.
And then tip number 11, is to note that income-driven repayment plans may offer loan forgiveness. We did mention this with tip number 10 but wanted to emphasize that there might be loan forgiveness offered with an income-driven repayment plan. And income-driven repayment plan sets your monthly student loan payment at an amount that is intended to be affordable, based on your income and family size.
Some loans provide a forgiveness option after 25 years of payment. Also keep in mind that as your income increases, your eligibility for income-driven repayment may change, and you may no longer be eligible for forgiveness through this program. Rebecca, you had an experience with this program at one time?
Yeah, so I personally used income-driven plans for repayment of student loans. And like I had mentioned earlier, you want to make sure that you have an understanding of the program that you’re enrolling in. Read that fine print to make sure that payments are all set up correctly. But in addition to that, take note that you have to certify and meet certain guidelines. So each year, I have to go in and certify my income, as well as my dependents, to make sure that I still qualify for that program and can remain in it.
It’s super important that you’re making your payments per the agreement set within that program. The thing that I found most beneficial with it was that the program worked within my family’s budget, so it was what worked best for us. But once again, I would refer you back to just researching all of the programs available to make sure that you’re enrolled in the one that works best for your financial needs.
Thanks, Rebecca and Debbie. Now we’ll go into some additional resources that are available to you. The Consumer Financial Protection Bureau has great resources available to help you learn more about paying for college and repaying student debt. You’ll see here on the screen, there are a lot of different options and resources available through the Consumer Financial Protection Bureau. And there’s also an Ask the CFPB reference site where you can ask specific questions based on your circumstances. We recommend visiting consumerfinance.gov to find more information.
At the beginning of the presentation, we introduced a slide with a specific poll. And so now, we’re going to share the results with all of you. As you can see, we’re in a similar boat where most of the participants today have a little bit of knowledge about student debt, but you all attended today to learn a little bit more, and we’re so glad that you did.
Yeah, we’re proud of everybody for taking the time to prioritize this call and focus on ways to help avoid or get out of debt. You’ve got this.
Yeah, so just to echo, Debbie, thanks for taking the time today to prepare for your financial future. I’m excited to see you guys engaged in wanting to learn more, putting yourself in a good position going forward. Please take advantage of the resources that are available to you, all of them that were in the slides today, the learning on the website. I know that you’ve got this.
I just want to take a minute to thank Rebecca and Debbie for their words of wisdom today. We also received some really fantastic questions during the registration process, and I wanted to go through a few of the questions with you here today.
So we’ll start with a question that came from Dennis. Dennis asked, how do you refinance a student loan at a lower interest rate? Debbie, I believe you have some advice here for Dennis.
Right, so if you want to consolidate federal student loans, you can learn more and apply for a Federal Direct Consolidation Loan. You can go to studentaid.gov/app/launchconsolidation.action. The interest rate is determined by taking the weighted average interest rate of all the underlying federal student loans being consolidated and round up to the nearest 0.00125%. There’s also an interactive demo that you can use prior to submitting your application to determine what your interest rate will be.
If you go with a private lender, there are a lot of other options. Earlier in the presentation, Rebecca mentioned that one of her friends did a refinance of her mortgage because the interest rates are so low and rolled her student debt into that. But you’re going to want to be careful when you do something like that because you can lose some of that benefits. Whereas with a federal loan, there’s a lot of opportunity for forbearance, deferment, income-based repayment options if you need those. And then if you are disabled or pass away-- I hate to say that-- but the loans are then forgiven.
So when you consolidate with a private lender, you could lose some of those items that are out there that you might need to take advantage of one day. But then at the same token, you just need to personally weigh your own needs or whatever suits your situation at the time. So just do your research before you do the consolidation. There’s lots of options out there.
Thanks, Debbie. That’s really helpful information and advice. Our next question comes from Joseph. Joseph asked, can I get a credit card with my credit score being low? Rebecca, I think you had some advice for Joseph.
Yeah, so credit card companies are going to look at a variety of factors when they’re evaluating a credit card application, such as your credit report, your debt, your assets, income, what you have in savings, et cetera. Rates are also going to vary based on what lender you go with. So you’re going to want to shop around to make sure that you’re getting the best deal possible, and don’t forget to look for rewards out there.
If you don’t qualify for a traditional card because of credit score, you can try doing a secured credit card. Many banks and credit unions will offer those cards. With most of these, your credit line starts out fairly low. You put an amount equal to the credit limit into a depository account that’s held. An as you show that you can pay that credit card back over time, your credit limit may grow. You may receive a refund of that deposit.
The important thing to know with secured card though, fees and interest rates can be high. So you want to make sure you’re using it to establish or reestablish credit and then moving on from there. So I wouldn’t recommend keeping that for a long period of time. You can always talk to your personal banker for more information or questions you may have, too.
Thanks, Rebecca. That’s interesting information on the secured credit card. Our last question that we have today come from Melissa. Melissa asks, how much does student loan debt really hurt your credit? Debbie, I think you have some advice for Melissa?
Yeah, so the student loan that doesn’t necessarily hurt your credit score. If you’re making all of your payments on time, it can actually help build your credit history and your credit score. A lot of students, when they first start out, the only debt they have are student loans. But on the other hand, missing monthly student loan payments on your student loans can have a significant impact on your credit score.
So just make sure you’re making those monthly payments, and that’ll will help build your score up. I know my daughter, the only credit line she had on her credit report was her student loan at first. But she was making her payments, so her score wasn’t really affected negatively on that.
Thanks, Debbie. We appreciate your advice, as well. And thank you to all the students who have joined us today for our presentation. Please use your phone’s camera to register for our next session, “How to spot and protect yourself from common student scams,” which will be held on September 22.
As a reminder, we’ll post the recording from today’s session to usbank.com/wellnesswebinar. Remember to provide us with your feedback from the post-event survey following the session. This concludes today’s webinar. Have a wonderful afternoon, everyone.
Get more tips and inspiration to help you on your journey to financial wellness with more of our Financial Wellness Webinar series.