Students financing their college education are often faced — for the first time in their life — with developing knowledge and skills about initiating and managing loans, which can be a very complex process.
At Truckee Meadows Community College, all first-time student loan borrowers receive entrance counseling.
“Entrance counseling includes two online financial literacy modules and attending an informational group session with the FLAME$ student mentors,” said Debra Buringrud, Student Loan Coordinator. “The session also includes a hands-on portion where students learn how to log in to the National Student Loan Data System (NSLDS) where their loans and Pell Grant records are kept.”
Financial Literacy and Money Education by Students (FLAME$) presented 60 workshops between July 2015 and May 2016, reaching 1794 students, added Sharon Wurm, Director of Financial Aid and Student Success. They gave workshops specifically directed to first-time borrowers every Friday of Spring Semester as part of their “FAFSA Fridays” events. The sessions will continue on into the Fall Semester.
“Most students are familiar with what a loan is but they don’t know about the in-depth factors like interest rates and grace periods — our FLAME$ presentations go into detail about these things, along with what (tax) dependency status is,” said Victor M., FLAME$ mentor. “They feel a lot more confident and trust the information we’re giving and know they can contact us at any time with future questions.”
Additional financial literacy counseling
The federal government does not require financial counseling once a student already has taken a loan, but Buringrud helps counsel those needing additional financial guidance.
“I meet with students who have borrowed more than $20,000 or have defaulted on a loan prior to coming to TMCC,” Buringrud said. “Most of the time they have a plan to get out of default.”
She typically meets with two or three students each week on a one-to-one basis. The meetings are voluntary; a reminder to schedule the meeting is a “to-do list” item that appears on their MyTMCC student center page.
Many times she has found that students don’t have a background in knowing how much loan they should take for a two-year versus four-year degree in order to graduate with a job that generates enough income to pay back the loan.
“Any time a student gets over $20,000 for an associate degree, that’s when it’s getting too high for a two-year degree — especially when they’re going on to University of Nevada, Reno, because the annual limit goes up to $10,500 in the sophomore year and to $12,500 in the junior year,” Buringrud said. “These amounts reflect the increased tuition and fees at UNR.”
The amount students can borrow varies by each year of college and their dependency status:
- $5,500 freshman dependent students
- $6,500 sophomore dependents
- $7,500 junior/senior dependents
- $9,500 freshman independent students
- $10,500 sophomore independent students
- $12,500 junior/senior independent students
Students also are many times surprised when they top out at $57,500 for loans before reaching their bachelor’s degree, she added.
New payback plans
There is a new federal repayment plan based on income — Revised Pay As You Earn Repayment Plan is called REPAYE. Monthly payments are 10 percent of discretionary income and recalculated each year based on income and family size. Discretionary income is the difference between a person’s adjusted gross income minus 150 percent of the poverty guideline in his or her state based on number of people in the family. Adjusted gross income includes the income of a spouse, regardless of income tax filing status.
“It’s nice because if you’re not working, you don’t have to make payments, but the difficult part is that it can be spread out to 20 years for undergraduate study and 25 years for graduate degrees, and the interest still accrues,” Buringrud said. “If you’ve already been paying for a time and reach the 20 to 25 year point, the balance is then forgiven, but you have to claim it on your taxes like it is added income.”
An advantage to this repayment plan is that the payment amount is not limited — borrowers can pay it back sooner without penalty, reducing the loan period and accumulation of interest.
There is a several month grace period for all student loans. After a student has not been in classes for six months, he or she begins repayment. At that time, the default plan is the “Standard Repayment Plan” but other options, including REPAYE can be chosen. To choose another option, a borrower needs to call the loan servicer whose name appeared on the first loan disbursement to the student. Other repayment plans include the following:
- Income-based Repayment Plan (IBR)
- Income-contingent Repayment Plan (ICR)
- Graduated Repayment Plan
- Extended Repayment Plan
- Income-sensitive Repayment Plan
The student loan default rate by TMCC students or graduates is calculated on a four-year lag time and has decreased by more than three and a half percent from 2011-2012 to 2012-2013.
“We’re hoping this trend continues — that is our greatest wish,” Buringrud said.
One of the reasons for a decreasing default rate is that in the past the loans were auto-packaged and approved online with the click of one button. Now, with the entrance counseling requirement, students need to fill out a form, apply for a specific amount and read information about loans, finding out more about the loan they’re getting into, she added.
For more information about financial aid or student loans, call the Financial Aid, Scholarships and Student Employment Office at 775-673-7072 or the FLAME$ at 775-673-7263.