FINANCIAL EDUCATION AND WELLNESS
Student Guide to Financial Assistance
Welcome The University of Maryland, Baltimore is committed to the overall wellness of its students. Because of this commitment, the University has established the Office of Financial Education and Wellness (FEW), which is an extension of the Office of Student Financial Assistance and Education (SFAE), to help students establish and maintain financial wellness.
Our goal is to provide students with education and tools necessary to make smart financial decisions during their time in school and beyond. This valuable resource is provided to students free of charge and will serve students via three platforms: on-campus educational programming, individual consultations, and online financial education.
This handbook has been designed to assist you with the process of financing your education and to increase your literacy and capability in five core competencies of financial education as identified by the U.S. Department of the Treasury’s Financial Literacy and Education Commission: earning, spending, saving, borrowing, and protecting.
Table of Contents Earning Uses of financial aid................................................................................................2 Types of financial aid..............................................................................................3 Gross vs. net earnings............................................................................................4
Spending Importance of tracking your spending..........................................................5 Ways to reduce spending....................................................................................5 Checking accounts, fees, and features..........................................................6
Saving Why you should save money.............................................................................8 Choosing where to keep your savings..........................................................9 Types of savings accounts..................................................................................9
Borrowing Overview of the financial aid process............................................................10 Your borrowing options........................................................................................13 Importance of establishing a solid credit history.....................................14 What to expect as student loan repayment begins...............................16
Protecting Types of insurance...................................................................................................19 Ways to protect against identity theft..........................................................20 Help after identity theft........................................................................................21
Glossary....................................................................................................................23
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
1
Earning
{to gain typically for the performance of service, labor, or work}
EDUCATION PAYS According to the U.S. Department of Labor, education pays in the form of higher earnings and lower unemployment rates. But what about earnings while you are in school? For the majority of our students, the earnings will come after the education. This can make financial aid a necessity in order to cover certain expenses for students during their pursuit of higher education. UMB’s Office of Student Financial Assistance and Education (SFAE) is here to assist you with navigating your options for financing an education.
USES OF FINANCIAL AID Funds you are awarded via financial aid will be applied in the following order: 1. Tuition and fees. These amounts vary by academic program. 2. Living expenses for the student only. These amounts vary by student. The sum of these two figures equals the cost of attendance (COA). As a student, you can be funded by financial aid up to the COA for your academic program. SFAE develops a budget for students that is based on the COA for each program. This budget is presented during each orientation for new students and can be viewed on SURFS (Student User Friendly System). If you have questions about the budget, contact your financial aid counselor.
DID YOU KNOW? Some academic programs are not funded for all 12 months of each academic year (AY). If your program is funded for less than 12 months, you will need to find another source of income or stretch your budget for living expenses to accommodate during periods of non-enrollment (e.g., summer). SFAE allocates a monthly budget of $2,150 for living expenses. The figures below illustrate adjusting a less than 12 month budget to accommodate 12 months of living expenses. Total for the AY
Split Over 12 months
9 months
$19,350
$1,612.50
10 months
$21,500
$1,791.67
11 months
$23,650
$1,970.83
The bottom line: If your academic program is only funded for nine months and financial aid is your only source of funding, you will need to cover your living expenses for the entire year by spending an average of no more than $1,612.50 per month.
APPLYING FOR FINANCIAL AID Applying for federal student aid is always free. The first step is to complete the Free Application for Federal Student Aid (FAFSA). You can complete the FAFSA online at www.fafsa.ed.gov. It becomes available January 1 of each year. Although the priority deadline date for the state of Maryland is March 1, SFAE encourages students to apply in early January using estimated information if their taxes have not been prepared yet. If you use estimates to complete the FAFSA early, you can revise those estimates at a later date.
2
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
SOURCES OF FINANCIAL AID Here are the basic categories of financial aid: Federal Student Loans Source: Federal government Terms: Borrow now, pay more later. Interest rates vary by loan type. Flexible repayment options available.
Scholarships/Grants Source: Varies Terms: Funds do not have to be repaid.
Federal Work-Study Source: Federal government Terms: Similar to a job, pay is earned for hours worked up to a limit designated by SFAE. Subject to availability of funds, granted to federal student loan borrowers. Borrowers must indicate interest in work-study each year on the FAFSA.
Private or Alternative Loans Source: Banks (not government) Terms: Borrow now, pay more later. Repayment subject to terms of the bank. Protections and flexibility (as compared with federal student loans) not offered.
Every student’s financial aid package is different. Every student’s financial aid package may vary from one year to the next.
COST OF FINANCIAL AID Loans are the only form of financial aid that will cost you. Interest rates and origination fees on student loans are determined by each lender. For federal student loans, you can visit the U.S. Department of Education’s website for rates and fees. Do not feel obligated to borrow every loan amount you are offered. If you can afford to borrow less than you have been awarded, you can always decline all or a portion of each loan.
FEW tip: File your FAFSA before March 1 Completing your FAFSA before March 1 can improve your chances of receiving scholarships and grants. Both are limited funding sources, the amount of which may vary each semester. If you receive a scholarship or grant, you can borrow less now and have less to repay later. The chart below summarizes the federal student loans available to UMB students. For a complete list of award types, visit our website.
Loan Type
Direct Loan (Stafford)
Eligibility Requirements
FAFSA Deadline
Need Based?
All Programs, 6+ credits
N/A
No
All Grad Programs, 6+ credits
N/A
No
Parent PLUS
All Undergrad Programs, 6+ credits
N/A
No
Perkins Loan
All Programs, 6+ credits
March 1
Yes
Nursing Loan
Nursing Undergrad and Graduate Anesthesia, 6+ credits
March 1
Yes
Graduate Dental (DDS) and Pharmacy
March 1
Yes
Direct PLUS (Grad PLUS)
Health Professions Loan
(PharmD), 6+ credits
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
3
WHAT ABOUT PRIVATE LOANS? Private loans have been excluded from this chart because private lenders operate outside of the federal government. Their terms are often not as affordable or as flexible as those of the Department of Education.
FEW tip: Exhaust federal before going private Private lenders set their own terms and often use promotional offers and incentives to attract students. These offers are usually short-term in nature and subject to substantial changes. SFAE cannot recommend private loan lenders. If you must use private loans, please visit our website to find a list of questions you need to ask of each potential lender.
YOUR EARNINGS: GROSS VS. NET The term “earnings” does not exactly apply to financial aid, as it typically references income received as a result of working or investing. Let’s focus on income from working so you can have a better idea of what to expect from paid internships or jobs after graduation.
#
EXAMPLE: Matt’s summer job Matt’s summer job pays $18 per hour and during his first pay period he worked 32 hours. Matt called the bank to find out if his first check had been paid. The direct deposit transaction posted but for less than $500. Matt called his payroll representative to find out why, and she explained the difference between “gross” and “net” pay. Matt: What is my “gross” pay and why is my paycheck so much smaller? Payroll Representative: Your gross pay of $576 is based on your work of 32 hours at $18 per hour. However, several deductions are taken before you receive your “net” pay.
Some of these deductions include mandatory items such as federal taxes, state taxes, and FICA (this funds Social Security and Medicare). Other payroll deductions may be for optional items such as parking, gym membership, and contributions to your retirement plan. The bottom line: When making financial plans based on your future earnings potential, be sure to use your net pay for a more accurate estimate of your actual income.
FEW tip: Think beyond UMB What do you expect to earn after you graduate? Considering this now can help you develop ideas about your future— for instance, how much you can afford for housing. Also think about when you can expect to begin working. If you borrow student loans, the options you select determine how you can repay them most affordably.
4
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
RESOURCES Federal Student Aid—www.studentaid.ed.gov Financial aid at UMB—www.umaryland.edu/fin/awards Tuition and fees—www.fincsvc.umaryland.edu/sa Education and earnings—U.S. Bureau of Labor Statistics, www.bls.gov Gross vs. net pay—Net-to-gross paycheck calculator, www.bankrate.com
ACTION ITEMS • File your FAFSA early. Complete your FAFSA by March 1 every year, and aim for as close to January 1 as possible. • Know the COA. Find your program’s cost of attendance. • View your academic calendar. Plan to cover living expenses for 12 months.
Spending $
{to pay out or expend money}
A parking meter here, a latte there, sushi over there—have you ever counted how much money you spend over the course of one day? If not, you should try it. Spending money is such a part of everyday life, it can become easy to lose track of what is spent and what you have left.
ARE YOU IN THE RED? Earnings - Expenses = Surplus or Deficit “In the red” means you are spending more than you have earned. When you are in school, financial aid often comes in a lump sum at the start of each semester. Here are a few steps to help you pace your spending and stay out of the red. 1. Know where you are. Track your inflows and outflows to determine if you are operating at a surplus or deficit. A week can help, but a month of tracking would help much more! FEW has a notebook you can use to track your expenses for three months. 2. Change if needed. If you are operating at a deficit, you have three options to convert to a surplus: increase earnings, decrease expenses, or do both. Doing both may be difficult while in school. So, we will focus on ways to spend less. 3. Save the surplus. If you find yourself with a substantial amount of money left at the end of an academic year, you may want to consider returning some of your borrowed funds or lowering the amount you plan to borrow for the following year. This will save you money in the long run since you will have fewer loans to repay.
WHAT YOU CAN DO NOW Separate needs and wants. This does not mean you cannot have any of the things you want! Categorizing your expenses is simply one way to see the differences between where your money must go and where you choose to let your money go.
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
5
For example, perhaps the most expensive need you will have during school is housing. Several options may be available to satisfy this need. Think about what you want and why, then think about what you need and what you can afford.
Need
Want
Realistic compromise
Food
Dine out every day
Dine out twice a week
Television
400 cable channels
Basic cable and Netflix
Be realistic. We do not expect you to live on needs alone. But during school you must live off of limited resources—some of which are borrowed funds. As such, it is important to consider your needs and resources before paying for your wants. Compromise where you can. In the space below, list some of your needs and wants. In which areas can you meet in the middle? I need
I want
I can compromise by
1. 2. 3. Learning how to balance your budget while you are in school can prepare you for managing greater financial responsibilities once you graduate!
HOW DO YOU SPEND? Cash is always accepted, but it is not always the best form of payment. Using a bank or credit union can help. Here are a few points to consider before choosing where to put your money.
CHECKING ACCOUNTS Convenience Paying by check or debit card can prevent you from having to carry large amounts of cash. When cash is lost, you can assume it will not be recovered. If you lose your checkbook or debit card, your bank has insurance to protect against fraud or identity theft. Tracking With checks, you can maintain a register of your transactions or you can ask for a carbon copy checkbook— this will allow you to keep a record of each check you write. You can then use the copies to compare and reconcile with your bank statement each month. Alternatives If you do not want to have a checking account, you can always pay for certain items with cash. For bills that you need to mail, you can use money orders (you will have to pay for them).
PLASTIC OR PLASTIC? When opening a checking account, your bank may offer you an ATM card or a debit card. These cards are not the same. Transactions allowed: ATM card
ATM transactions only
Debit card
ATM transactions; bill payments and purchases (including online and over the phone)
6
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
A card with more flexibility may come at a higher cost. ASK YOUR BANK if it charges any of the following fees. Find out how much and how often, then fill in the results in the column below.
Fee type
Explanation
Price and Frequency
Overdraft/NSF
Charged when your account does not have
enough money to pay for a check or withdrawal
Monthly Service Fees
AKA “maintenance fees.” Cover bank’s cost of
servicing your account. May be waived if your balance
is higher than a predetermined minimum balance.
Overdraft Protection
Pays bank to transfer funds from a linked account
Transfer
in the event your account becomes overdrawn
ATM
Fee for using ATM. May be charged by your bank
and the bank that owns the machine.
FEW tip: Watch out for fees Banks hold your money but they need to make money, too. Ask for a fee schedule for each account you have and check it often as fees are often subject to change.
BALANCE VS. AVAILABLE BALANCE What is the difference? Have you ever seen two balances for one account on your receipt from an ATM or the bank? Your balance reflects what is in your account right now. Your available balance is the amount of your account balance that can actually be used right now. Some transactions result in money being added to or deducted from your account instantly. Others take some time to process. Reflected immediately
May take some time to clear
Direct deposits
Check deposits
Cash deposits*
Debit card purchases
Online payments
*Deposits made after normal business hours may not be available until the next business day.
Remember:
ACCOUNT BALANCE ≥ AVAILABLE BALANCE
If you do not opt out, your bank may pay for purchases you do not have enough money to cover and then charge you a fee. That’s why it is important to know what is available!
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
7
g
“The art of living easily as to money is to pitch your scale of living one degree below your means.”
—Sir Henry Taylor
FEW tip: Don’t bank on float Many companies process a check as an electronic funds transfer (EFT). This means there is a much shorter amount of lag time (also known as float) between when you send the check and when the money will be deducted from your account.
RESOURCES • umaryland.edu/fin/few
• FEW has Personal Money Journals for you to record your daily expenditures for up to three months.
Stop by the office and ask for one!
• FEW also has budget work sheets you can print and complete or fill in on your computer.
ACTION ITEMS Track your spending. FEW has outlined six methods. Try them and find which one works for you. Pay your bills on time. Paying late can cost you extra. Prioritize your budget. Take care of the essentials first. Compromise where you can. This is especially important if you have borrowed student loans. Every dollar counts.
Saving
{reducing expenditures in order to become financially stable}
You may not make a lot of money while in school but there are still opportunities for you to save. You can save by not spending all you earn (or receive as financial aid) and by not borrowing the maximum amount available to you. (Borrowing is the next chapter.)
WHY SAVE? Savings grow The deposits you place in a savings account will earn interest. The best way to make your savings grow is to save regularly.
Balance
One-time $10 deposit, $10/month, 1.25% interest per year
no interest
$10/month, 1.25% interest per year
Year 1
$10.125
$120
$120.69
Year 2
$10.25
$240
$242.90
Year 3
$10.38
$360
$366.64
Year 4
$10.51
$480
$491.94
Year 5
$10.64
$600
$618.81
8
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
In case of an emergency When the unexpected happens, savings can keep you from having to borrow money or use credit cards. Achieving financial goals Looking to buy a car or a home? It is likely you will need to make a deposit or down payment. Make saving a routine and you can meet your goals.
WHERE SHOULD I SAVE? IN MY CHECKING ACCOUNT? You can keep your savings in your checking account, but here are a few points to consider: • Keeping savings in checking makes your savings easier to spend. • Savings accounts earn interest. Your checking account might not. It is best to keep your savings separate from your checking.
CHOOSING A BANK FOR YOUR SAVINGS A piggy bank is nice for loose change, but it lacks insurance and does not pay interest! It is safest to keep your savings in a bank or credit union. But before you open an account you should compare your options. Below you will find some questions to ask of each institution. • What are the monthly or recurring fees? • What is the current interest rate on deposits? • Will I be automatically enrolled in any program/service with a recurring fee? If so, how can I opt out? • What are the other fees? • Is there a minimum balance requirement? • Are there any restrictions on withdrawals?
CHOOSING A BANK IN GENERAL In addition to the questions above, consider the following: What do you want most from your banking experience? Do you want to visit a bank branch to conduct transactions or are you comfortable with banking in a virtual setting? Will you need to access your bank or ATMs in multiple locations?
SAVINGS BY ANOTHER NAME Money Market Money market accounts (MMAs) earn interest but at varying rates that could depend on the account balance and economic conditions. The interest rate on an MMA may fluctuate more often than the interest rate on a savings account, and there might be higher minimum balance requirements. MMAs often come with similar access to funds as do checking accounts and may include check-writing privileges. Certificate of Deposit Also known as a CD, a certificate of deposit pays a fixed interest rate on a set amount of money for a set period of time. Banks pay higher rates on CDs than on regular savings accounts because you agree to leave the money with the bank for a set period of time. Early withdrawals are typically subject to penalty. Money placed in stocks, bonds, and mutual funds should not be considered savings. The main characteristic that separates savings from investments is the lack of risk.
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
9
“The mint makes it first, it is up to you to make it last.”
—Evan Esar
WHAT ARE YOUR FINANCIAL GOALS?
RESOURCES • www.americasaves.org • www.mymoney.gov
ACTION ITEMS Shop around. Search for a bank that meets your needs. Start saving. Even if you save one dollar a day you would have more than $1,000 in less than three years. Think about your financial goals. What part will your savings play in achieving them?
Borrowing
{obtaining funds to be repaid at a later date}
80+ the percentage of UMB students who use some form of financial aid Even though use of financial aid is common, every student’s financial aid package is unique.
THE FINANCIAL AID PROCESS—WHAT YOU NEED TO DO Step 1: Complete the FAFSA each year (best by March 1). Step 2: View your award package via SURFS. Step 3: Use SURFS to accept or decline awards. Step 4: Satisfy outstanding requirements and complete required forms.
10
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
WHAT STUDENT FINANCIAL ASSISTANCE AND EDUCATION WILL DO SFAE will process your aid and any loans you have accepted will be originated by the U.S. Department of Education. Funds are then sent to the University. From there: 1. Funds are first used to pay your tuition and fees. 2. The remainder is disbursed through Student Accounting. 3. Student Accounting then requests that the remaining funds be disbursed to you. 4. Once the refund request has been submitted you should receive the funds. The timing will depend upon your selected preference: • Personal account • Paper check • An account established in your name by a third-party vendor selected by the University*
WHAT ABOUT GRANTS AND SCHOLARSHIPS? These are not borrowed funds and can come from a variety of sources. SFAE must receive notice from the source in order to award the funds. Sometimes these funds become available after you have accepted your award package. When this happens, your award package may be adjusted.
WHAT ABOUT WORK-STUDY? Work-study must be awarded.** Once accepted, funds are earned according to hours worked. Work-study funds are not loans and do not have to be repaid.
WHERE IS MY REFUND? Funds post to your tuition account no earlier than 10 days before the start of classes for your program. Your refund could take any amount of time depending upon your selected refund preference.
FEW tip: Borrow what you need Do not feel obligated to borrow everything you have been offered! The more you borrow, the more you owe. *If you prefer not to use the University’s selected third-party vendor, visit http://www.fincsvc.umaryland.edu/sa/ **First year day division law students are prohibited from working.
HOW MUCH TO BORROW Unsure how much to borrow in your first year? Begin your decision with the cost of attendance for your academic program. SFAE has designed a budget for students in each program as a guide to determining each student’s total cost of attendance (COA).
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
11
STEP 1: Begin with the budget that SFAE developed for your program and examine the sections that you can and cannot influence. Use some of your costs to fill in the blanks below:
Cost
Influence?
How?
Tuition
None
Fees
None
Books
Some
Buy used, rent
Yes
Roommate, fewer amenities
Housing Parking
STEP 2: Borrow what you need. When you borrow money for now, you are agreeing to repay more money later.
f
EXAMPLE: Eric has a cost of attendance of $40,000 this year. If he borrows the full COA,
he can expect to repay $55,515. But, if Eric
Borrows
He Can Repay*
$5,000 less
$7,000 less
$10,000 less
$15,000 less
$15,000 less
$21,000 less
*Based upon standard repayment of an initial award package: $20,500 Stafford, $6,000 Perkins, and $13,500 Grad PLUS, reducing loans in order of most to least expensive. Student loans are a form of credit. Establishing credit requires you to meet obligations, so it is important to choose your obligations carefully. Here are some points to consider if during the semester you have: Run out of money
Lots of money left over
Look for ways to cut spending.
Borrow less in future years.
Ask SFAE for a loan increase.
Return funds this year.
LOAN INCREASE: If you have not borrowed up to your COA, you can request a loan increase from SFAE. LOAN RETURN: You can reverse all or part of a loan if you return the funds prior to the semester’s end. For loans disbursed in the fall semester, you will need to complete the loan return by the end of November. For loans disbursed in the spring semester, you will have until the end of March.
12
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
Loan Type
Key Features
DIRECT SUBSIDIZED
Alias: Stafford Sub Availability: Undergraduate
Rate: 3.4% Grace Period: 6 months
DIRECT UNSUBSIDIZED
Alias: Stafford Unsub Availability: Undergraduate and Graduate
Rate: 6.8% Grace Period: 6 months
DIRECT PLUS
Alias: Grad PLUS Availability: Graduate/Professional
Rate: 7.9% Grace Period: None*
PERKINS
Availability: Undergraduate, Graduate/Professional
Rate: 5% Grace Period: 9 months
NURSING
Availability: Undergraduate Nursing, Graduate Anesthesia
Rate: 5% Grace Period: 9 months
HEALTH PROFESSIONS
Availability: Graduate Dental (DDS) and Pharmacy (PharmD)
Rate: 5% Grace Period: 12 months
*PLUS Loans have no grace period but may be eligible for deferment. Contact your loan servicer for more information.
HOW YOUR AWARD CAN CHANGE SFAE reserves the right to change your award at any time as the availability of funds varies at times throughout the year. This is typically the case with scholarships and grants.
)
EXAMPLE: Joey has been awarded a total of $32,000 in financial aid for this academic year. He was offered $20,000 in unsubsidized Stafford loans and $12,000 in Grad PLUS loans. After accepting these awards, Joey was offered a University grant of $6,000 and scholarships totaling $7,500. SFAE will now adjust Joey’s award by applying the scholarships and grants, and then reduce his loans in order of most to least expensive. In this case, Joey’s scholarships total $13,500. SFAE would reduce his Grad PLUS to zero and reduce his Stafford by $1,500 to $18,500. Regardless of the different kinds of awards Joey is offered, his overall aid package will remain at $32,000.
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
13
PLUS LOANS = CREDIT CHECK PLUS Loans are the only federal student loans that require a credit check. If you are denied a Grad PLUS loan, you can ask a parent or someone close to apply as an endorser and co-sign on the debt. Your parent may borrow a Parent PLUS Loan to assist with your educational expenses. A PLUS Loan may be denied for many reasons, all of which are determined by the U.S. Department of Education. The Department of Education makes all lending decisions. SFAE has no influence over this matter!
CREDIT REPORT VS. CREDIT SCORE Through www.annualcreditreport.com, all consumers are entitled to a free copy of their credit report once every 12 months. However, the credit scores are not included. If you want to receive your credit scores, you must pay a fee.
WHAT IS YOUR CREDIT SCORE? 300s - HIGH RISK 600s - FAIR 800s - LOW RISK
When you apply for credit (e.g., store credit cards, loans to buy a car or a home), the lender will ask for your Social Security number to access your credit report and score in order to decide: 1. Whether to lend you money 2. What cost (interest) you will be required to repay if you are granted a loan
What difference does the credit score make? EXAMPLE: Darren wants to buy a car with a $21,000 sticker price. The dealer approves his purchase and his car note will be $455 per month for 60 months. His twin sister, Karen, was approved to buy the same car at the same price and her car note will be $405. Why? Karen had a higher credit score. Darren was approved at a rate of 10.9%, while Karen was approved at a rate of 5.9%. The difference in interest rates will cause the same car to cost Darren $3,000 more.
The bottom line: one car, two prices Darren $27,300
Karen $24,300
14
ď‚Ž
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
CREDIT SCORE COMPOSITION Your credit score is based on the following five factors. Each has a varying amount of influence. For more detailed descriptions, visit myfico.com. Payment history: Do you have a history of paying your credit obligations as promised (in full and on time)? Amounts owed: How many debt accounts do you have? Are your credit card balances near their limits? Length of credit history: When did you open your first account? Is it still open? Types of credit: Do you have a mix of accounts? If so, is the mix necessary? New credit: Are you opening up several new accounts at once?
FEW tip: Risk can cost you When it comes to credit, higher risk equals higher borrowing costs and lower risk equals lower borrowing costs. The riskier your behavior with money, the more you may be required to pay when you borrow.
DEBT REPAYMENT—TIME IS NOT ON YOUR SIDE Payment history makes up the largest portion of your credit score. To achieve the best score, pay on time every time. With any debt obligation, the lender sets a minimum amount for you to repay. Paying the minimum will take the longest time and it will cost you the most money.
EXAMPLE: Spring Break
J
A friend invites Erin to take a spring break excursion to an all-inclusive resort in Cancun, Mexico, for the small price of $1,375. Erin agrees to go and places the cost on a credit card. Her card has an annual percentage rate of 19.9% and the minimum monthly payment is $30. At this pace, how long will it take Erin to pay off the trip?
A. 46 months
B. 62 months
C. 87 months
The answer is C—87 months! Seven years later, Erin could be paying for a trip that lasted seven days. At this rate, the $1,375 spring break vacation would cost her $2,604! That’s almost double the original price. This assumes Erin does not put any other purchases on the credit card. FYI—this is a lofty assumption!
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
15
FEW tip: Aim higher
With credit cards, the minimum payment is the minimum amount you are required to pay, but in the long run paying just that will cost you the maximum.
In the spring break example, paying just $5 extra per month would save Erin two years of payments and $361 in interest.
STUDENT LOAN REPAYMENT TIMELINE IN-SCHOOL
GRACE
REPAYMENT
REPAID
While enrolled in school
This is the period of time
You will make monthly
You have fully
at least half-time, your
between graduation
payments according to
satisfied your
loans will be placed in
and when your first loan
the repayment plan you
student loan
an “in-school deferment”
payment becomes due.
selected. Repayment
obligation.
status. During this time
Use this time to transition
plans and calculators
interest will accrue on
out of school and into your
can be found at
unsubsidized loans. You
career. You will receive
studentloans.gov. If
can pay the interest
correspondence from your
you have any questions
during school or wait until
loan servicer(s) asking
about repayment or
after school.
you to select a repayment
think you may not
plan for your loans. See
be able to make a
the “Borrowing Options”
payment, contact
section of this chapter for
your loan servicer
an explanation of loan types
immediately.
and grace periods.
PLEASE NOTE: SFAE IS NOT INVOLVED IN REPAYMENT Your servicer is your point of contact for your federal student loans. To find out who services your loans, visit NSLDS.ed.gov. Perkins, Health Professions, and Nursing loans servicing information can be found through ECSI.net.
REPAYMENT PLANS Several repayment plans are available to federal student loan borrowers. The best source of information on repayment plans is the Department of Education website: studentloans.gov. The following is a brief summary of existing basic student loan repayment plans: Standard: Fixed monthly payment, 10-year repayment term Extended: Fixed monthly payment, up to a 25-year repayment term Graduated: Lower payments in early years, payments increase every two years. Borrowers with under $30,000 in federal student loans have up to a 10-year repayment term. Borrowers with more than $30,000 can choose up to a 25year repayment term.
16
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
EXAMPLE: Loan Repayment Stephen has $60,000 in Unsubsidized Stafford Loans, all borrowed at a rate of 6.8%. The chart to the right displays Stephen’s repayment options.
Taking the longest time to repay will cost the most money. Paying in the shortest time will cost the least.
Standard
Initial Monthly Payment
Total Payment Amount
$690
$82,858
$474*
$87,333
$416
$124,933
$340*
$135,324
10 years Graduated 10 years Extended, Fixed 25 years Extended, Graduated 25 years
*This number will increase every two years. Source: StudentLoans.gov—Financial Awareness Counseling
INCOME-BASED REPAYMENT PLANS An income-based repayment plan may be more affordable than the basic plans in the previous example. These plans are typically based upon a repayment term of 25 years. The monthly payments offered through income-based plans are typically lower than payments offered by the standard, graduated, and extended plans. However, stretching the repayment term out to 25 years will increase the amount of money you pay overall. One benefit provided by income-based repayment plans: At the end of making payments for 25 years, any remaining loan balance will be forgiven. As of July 2012, the forgiven amount is considered taxable. Income-based repayment: Annually adjusted payment depending on income and family size Income-contingent repayment: Payment adjusted annually, depending upon income, family size, and total amount of your Direct Loans only
DIFFICULTY IN REPAYMENT If you have any difficulty repaying your student loans, contact your loan servicer immediately. There are options that can reduce or postpone your student loan payments, but you must be proactive.
FEW tip: Jump-start your repayment plan Do not let repayment come to you as a surprise. Visit studentloans.gov and use the repayment plan calculators to estimate your payments. Develop a budget based on what you expect to earn during repayment and explore the federal student loan repayment plan options to find which one is most feasible for you.
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
17
LOAN REPAYMENT ASSISTANCE Loan repayment assistance programs are available at the federal and state levels. Many are discipline specific. Each offers different levels of loan forgiveness in exchange for satisfying specific requirements. Federal options include: Income-Based Repayment
studentaid.ed.gov
Public Service Loan Forgiveness*
studentaid.ed.gov
National Health Service Corps
nhsc.hrsa.gov
State options: For residents of Maryland, visit the Maryland Higher Education Commission website: www.mhec.state.md.us.
DIRECT CONSOLIDATION LOAN Through a Direct Consolidation Loan, you can opt to combine all or a portion of your existing federal student loans into one new Direct Loan. As a result of consolidation, you will make one payment to one loan servicer each month. The interest rate on your consolidation loan will be a weighted average of the rates on your existing student loans. Visit loanconsolidation.ed.gov to explore consolidation or apply for a Direct Consolidation Loan. *If you are interested in applying for Public Service Loan Forgiveness and you have loans from the Federal Family Education Loan (FFEL) Program, you should consider a Direct Consolidation Loan. FFEL Program loans are not eligible for Public Service Loan Forgiveness. FFEL Program loans that have been consolidated through a Direct Consolidation Loan are eligible for Public Service Loan Forgiveness.
BEFORE YOU GO ... The moment you have been waiting for is finally here! You have completed every class, passed every exam, and you have even received your cap and gown. But wait! If you borrowed student loans while enrolled at UMB, there is one more requirement for you to complete: exit counseling. If you borrowed student loans during your time at UMB and you do not complete exit counseling, you will not get your diploma!
EXIT COUNSELING • Is required before you withdraw, graduate, or drop below half-time attendance (even if you plan to transfer to another school) • Helps you understand your rights and responsibilities as a student loan borrower • Provides useful tips and information to help you manage your loans
Source: Federal Student Aid, U.S. Department of Education
For exit counseling requirements and the schedule, visit www.umaryland.edu/fin and select “Graduating Students” from the menu bar. Individual post-exit interview counseling for graduating students is available by appointment only through the Office of Financial Education and Wellness. Email FEWTalk@umaryland.edu to schedule an appointment.
18
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
Borrow responsibly. RESOURCES Cost of attendance: www.umaryland.edu/fin/prospective_students/coa.html Credit score information: myfico.com Get a credit report: annualcreditreport.com Refunds: www.fincsvc.umaryland.edu/sa
KEEPING TRACK OF FEDERAL STUDENT LOANS
I want to look up my ...
Go to:
Grad PLUS
NSLDS.ed.gov
Health Professions
ecsi.net
Nursing
ecsi.net
Perkins
ecsi.net or NSLDS.ed.gov
Stafford
NSLDS.ed.gov
Alternative or Private
Contact servicer
Loan increases/returns: Visit SFAE to pick up the form and meet with a counselor. Loan repayment plans: studentaid.ed.gov Tuition and fees: www.fincsvc.umaryland.edu/sa/tuition.cfm
ACTION ITEMS (by year) Enrollment
Complete entrance counseling
Every year
Complete FAFSA by March 1
Compare your budget to the budget prepared by SFAE
Borrow accordingly
Order your free credit report
Graduation
Attend exit counseling
Protecting
{to keep from being damaged or stolen}
The best method of protection is prevention. If an unexpected loss occurs, then insurance provides a way to lessen the burden.
HEALTH INSURANCE Every full-time student is automatically enrolled in the University’s health care plan for students. If you are already covered, you can opt out of the University’s insurance by completing a health insurance waiver and taking it to Student Health. Completing the waiver will remove the health insurance charge from your bill. Waivers must be submitted by:
September 15—For enrollment beginning in the fall semester
February 15—For enrollment beginning in the spring semester
Note: A waiver is only effective for the current academic year.
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
19
AUTOMOBILE INSURANCE The University is not involved in auto insurance. However, you may be able to receive reduced rates for being a “good” student, by completing a defensive driving course, or for reduced use of your vehicle while you are in school. Call your insurance provider and inquire.
RENTERS INSURANCE Your landlord’s insurance probably will not cover your belongings in the event of an unexpected loss. Renters insurance can help you recover the value of your possessions in the event of unforeseen circumstances including, but not limited to, weather-related damage and theft. Renters insurance is optional and offered by several companies. A quick search online will allow you to find a company or agent offering coverage in your area.
YOUR ASSETS MAY BE COVERED BUT YOUR IDENTITY NEEDS PROTECTION! Ways SFAE Protects Your Information • Requiring you to email us from your UM account • Making certain forms available only in our office • Requiring identification for in-person visits • Discussing your financial aid with you only, unless you authorize us (in writing) to discuss information with another person
Ways You Can Protect Your Identity • Do not leave personal documents lying out in the open at home or work. • Mail checks from the post office. • Review your credit report at least once per year. • Do not give out your Social Security number unless absolutely necessary. • Avoid choosing easy passwords and PINs such as your birthday, or the last four digits of your phone or Social Security number.
DID YOU KNOW? The most common password is password. Other passwords among the top 25 most common: • 1234
• qwerty
• 111111
• letmein
• abc123
DOS AND DON’TS OF IDENTIFICATION CARDS
DO
DON’T
SOCIAL SECURITY Store somewhere safe. CARD
Carry in your wallet. Share unless needed. Leave in plain view.
CREDIT CARDS
Store the customer service number in a safe place.
Keep in plain view. Sign the back illegibly.
DEBIT Store the customer CARDS service number in a safe place.
Keep PIN in plain view. Write PIN on card. Sign the back illegibly. Choose an easy PIN.
20
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
PROTECT YOUR SOCIAL SECURITY NUMBER The greatest potential for damage is if a thief gets your Social Security number. With your Social Security number, a thief can apply for credit (e.g., credit cards) using your name, then run up bills for which you could be held responsible. If your Social Security card or number is stolen, it is unlikely you will be issued a new number. You will need to monitor your credit routinely in order to protect your credit report. You can obtain a new Social Security card by visiting your local Social Security Administration office. Find a location by visiting ssa.gov.
WHEN IDENTITY THEFT STRIKES Who do you call? The answer: credit card companies, the police, and credit bureaus. Credit card company: Use the phone number on your card or the customer service phone number on your statements. Tell them your card has been lost or stolen. The company can cancel the account and let you know when a replacement card will reach you. Police: DO NOT CALL 911! Call the nonemergency number for your neighborhood and have the details gathered before calling. Ask for a case number and use it to share with your bank or credit card company, or to add information or get updates from the police as needed. Credit bureaus: You can report fraud online or call them to place a fraud alert on your accounts. Equifax: 888-766-0008 Experian: 888-397-3742 TransUnion: 800-680-7289
IF YOUR DEBIT AND/OR CREDIT CARD IS LOST OR STOLEN • Have an alternative payment method available until your new card arrives. • Change your account information for any automatic payments usually paid with the stolen card. • Liability levels for debit cards differ from credit cards. Report the theft right away to maximize the amount of your protection against fraudulent charges. An example of how to store your financial information:
Bank/Issuer
Last 4 digits
Customer service number
Bank of USA
1234 800-345-6789
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
21
DID YOU KNOW? Young adults are often targeted by identity thieves because they usually have a good or nonexistent credit history.
SOCIAL MEDIA Do you use social media? How many of your personal details are shared? Circle the following networking sites you use, and add any you do not see listed. Then log in to each account and adjust your settings to protect your personal details.
Aside from personal data such as your phone number, your social media posts can provide thieves with your image and your location.
FEW tip: Don’t write a book on Facebook Information regarding your birthday, your pet, your high school, or your place of birth is commonly used for verification through security questions that are asked in order to reset access to online accounts. Consider this when sharing information in highly visible places.
Be proactive. Protect your information and your identity!
N
RESOURCES • myfico.com/CreditEducation/idtheft.aspx • www.myfico.com/Downloads/Files/myFICO_IDTheft_Booklet.pdf • Federal Trade Commission’s Defend: Recover From ID Theft consumer.ftc.gov
ACTION ITEMS Select a safe place to store sensitive information—not your wallet or backpack. Keep contact information for credit card companies separate from the cards. Otherwise if the card is stolen, you won’t have the phone number to call. File a police report. Some banks or companies will want a case number from the police. Remember, do not call 911! Use the nonemergency number for your city or state of residence.
22
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
GLOSSARY Accrued Interest: Interest that accumulates over the life of a loan. Interest accrues on the principal balance. Alternative Loan: Student loan issued by a financial institution outside of the federal government. Alternative loans often have less attractive rates and less flexible repayment terms than federal student loans. Annual Percentage Rate (APR): Rate charged for borrowing, including fees, over the course of one year. Capitalized Interest: Unpaid interest added to a loan’s principal balance. If a borrower chooses not to pay interest as it accrues, interest will capitalize (usually at the end of an in-school period—check with your servicer for an exact date). After interest is capitalized, interest will continue to accrue but on the new larger balance. Example: You borrowed $10,000 to go to graduate school and while in school, the loan accrued $1,400 in interest. After the interest of $1,400 is capitalized, interest will begin accruing on $11,400. Charge Card: Card that allows the holder to make purchases using funds from the card’s issuer under the agreement that funds will be repaid in full each month. Unlike credit cards, you are not allowed to carry a monthly balance. Consolidation: Process of combining multiple existing loans into one new loan. Co-signer (endorser): Another person who accepts responsibility for repaying your loan. If the lender is unable to collect payment from you, it can pursue payment from your co-signer. If you are unable to obtain a loan due to your credit, a cosigner can provide additional security for the lender. Cost of Attendance (COA): Varies by school. The sum of tuition, fees, books and supplies, school-specific costs, University health insurance, and living expenses (housing, food, transportation, etc.). Credit Card: Card that allows the holder to make purchases using funds from the card’s issuer under the agreement that funds will be repaid plus interest where applicable. Cardholders can carry a balance and pay off debts over time. Interest rates, credit limits, and terms may vary by customer. Credit Report: Summary of a consumer’s borrowing activity and history that has been reported to the major credit bureaus. Credit Score: Generally ranges from 300 to 850. Ranks a borrower’s creditworthiness in the eyes of lenders. Lower scores represent lower creditworthiness (higher risk) and higher scores represent higher creditworthiness (low risk). Debit Card: Can be used to pay for purchases from your checking account. Default: Failure to repay a loan according to agreed upon terms included in a signed promissory note. For federal student loans, a borrower is in default after going 270 or more days without making a payment. Deferment: Temporary postponement of student loan payments. During deferment interest accrues on all unsubsidized loans and is capitalized if payments are not made. Delinquency: Failure to repay a loan according to the terms you agreed to when you signed a promissory note. For federal student loans, a borrower is considered in default if he or she fails to make a payment for 270 days (if payments are scheduled monthly). Dependent Student: A student who does not meet any of the criteria for an independent student. See independent student for criteria. Disbursement: Process through which the loan holder (the Department of Education) sends approved loan funds to the University. Electronic Funds Transfer (EFT): Similar to a wire transaction. A method of moving money from one account to another without a physical transfer of funds. Increasingly used by retailers and utility companies to decrease the processing time on payments made by check. Entrance Counseling: Offered online at studentloans.gov. Incoming students and continuing students who are new to a certain loan program must complete this before they can receive any federal student loans. Exit Counseling: Mandatory for students who are leaving the University (graduating, withdrawing) or dropping below halftime status. Online at nslds.ed.gov and through school specific sessions on campus. Expected Family Contribution (EFC): Number used to determine your eligibility for federal student financial aid. Based on your information from the FAFSA and determined by a formula set by Congress. Federal Direct Loan Program (FDLP): Known formally as the William D. Ford Federal Direct Loan Program. Program through which federal student loans are originated and issued. “Direct” indicates the loan was issued directly from the federal government via the U.S. Department of Education.
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
23
Federal Family Education Loan Program (FFEL): The program through which federal student loans were issued prior to the start of the Federal Direct Loan Program. FFEL loans could be issued by financial institutions outside of the federal government. Fixed Rate: A rate that will not change over the life of the loan. Students can receive discounts or rebates for meeting certain criteria. Federal student loans have fixed rates. Forbearance: Temporary postponement of student loan payments. Borrowers who do not qualify for a deferment may request a forbearance. Interest accrues on all loans during forbearance and interest payments may be required. Free Application for Federal Student Aid (FAFSA): The document used by the Department of Education and UMB to determine your eligibility for Federal Student Aid as well as University aid. Completion is required of any student seeking financial aid. Available annually January 1. File your FAFSA as close to this date as possible, and before March 1, to improve your chances of receiving grants. Grace Period: The months before repayment on student loans begins. Students who graduate, leave school, or drop below half-time enrollment have several months before payments become due. Length determined by loan type. Grant: A need-based award for students who meet all qualifications. A grant does not need to be repaid. Independent Student: Must be one of the following: over the age of 24, married (before submission of their original FAFSA transaction), a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependents (for whom you provide more than 50 percent of their support) other than a spouse. Interest: Cost charged to borrowers in exchange for borrowed funds. Interest accrues periodically on the principal amount of the loan. London Interbank Offer Rate (LIBOR): A rate used in the banking and mortgage industries worldwide as a basis for setting rates on items including home equity lines of credit and private student loans. Master Promissory Note (MPN): A legally binding document that must be signed before a student can receive a student loan. National Student Loan Data System (NSLDS): The Department of Education’s database for federal student aid. You can access the database at nslds.ed.gov and view the history of your federal student loans and Pell Grants, along with other details including outstanding balances, disbursement dates, and loan servicer(s). Origination Fee: A charge that occurs each time a loan is disbursed. A percentage of each loan’s principal is deducted as a loan or origination fee. This reduces the amount of money received by the student. For example, a $5,000 loan with a 1 per- cent origination fee would result in a disbursement of $4,950. This equals $5,000 less the origination fee of 1 percent of principal. Prime: National interest rate used by banks as a basis for setting rates on consumer loans, credit cards, car loans, and private student loans. Principal: The original amount borrowed. Interest accrues according to the amount of principal. Private Loan: See alternative loan. Servicer: The point of contact for a loan. The servicer completes administrative tasks for the loan’s holder. The servicer sends you correspondence and bills on behalf of the loan’s holder, and you submit all correspondence and payments to the servicer. Subsidized: A student loan for which the student is not responsible for paying interest for a set period of time. The federal government pays the interest on a subsidized loan while you are in school at least half-time and/or during your grace period. Any interest accrued after graduation, grace period, or leaving school is the responsibility of the student. Unsubsidized: A student loan for which accrued interest is the responsibility of the student once the loan has been disbursed. The student can pay the interest while in school or wait until repayment begins. Variable Interest Rate: A rate on a loan that can move up or down over the loan’s life. Usually linked to an underlying rate such as LIBOR or Prime. When the interest rate rises, the payment rises. When the interest rate falls, the payment drops. Most alternative loans have variable rates, and rates offered will depend on the credit history of the borrower.
24
UNIVERSITY OF MARYLAND, BALTIMORE | FINANCIAL EDUCATION AND WELLNESS
PRODUCED BY THE OFFICE OF COMMUNICATIONS AND PUBLIC AFFAIRS, 2013
Written by: Tisa Silver-Canady, MBA Assistant Director, Financial Education and Wellness Edited by: Patricia A. Scott Assistant Vice President, Student Financial Assistance and Education
OFFICE OF STUDENT FINANCIAL ASSISTANCE AND EDUCATION
www.umaryland.edu/fin