American Bar Association Law Student Division
Work-A-Day Community Service Program
“Attacking America’s Debt: Take
Control of Student Loans”
Public Interest Committee
Committee Co-Chairs
Katrina Castillo
Brendan Patrick Manning
7th Circuit Governor 4th Circuit Governor Valparaiso University- School of Law Charlotte School of Law
[email protected] [email protected]
Committee Members
Steven Cometa
9th Circuit Governor Whittier Law School [email protected]Nick Guinn
Vice Chair-SBASt. Mary University School of Law [email protected]
Jordan Haygood
10th Circuit GovernorOklahoma City University School of Law [email protected]
2012 ABA-LSD Work-A-Day Public Interest Committee 3
Table of Contents
Page
What is Work-A-Day?
1
Why Student Debt?
5
Section One: Understanding Student Debt
6
Section Two: Understanding Repayment Options
11
Section
Three:
General
Tips 18
Tips for Success
20
Avoiding Pitfalls
21
What is Work-A-Day?
Work-A-Day is the annual public service project of the ABA Law Student Division, which brings law students from across the country together to participate in a one-day, public service project in their communities. The 2012-2013 Work-A-Day theme is about understanding student debt and how it works. This toolkit provides information on what student debt is, the different types of student debt, and what kind of repayment plans are available. This year’s program is entitled “Attacking America’s Debt: Take Control of Student Loans.”
The Committee Members and ABA-Law Student Division want to encourage law schools, and law students across the country to create activities and events during the month of October (or a time convenient for your law school) to provide students information, allowing them to learn about student debt. We ask you to engage with the various groups and offices on your campus in order to reach the largest group of people.
The Attacking America’s Debt toolkit will help get you started, but feel free to be creative in designing programs that target unique student debt topics in your community. This is a great way for law students to not only learn about debt management, but also help educate and effectuate dialogue and debate regarding the student loan process in their local communities. The Law Student Division encourages all law students and law schools to get involved by implementing the Attacking America’s Debt initiative this year. Your community will benefit from your efforts.
If you have any questions, please do not hesitate to contact one of the committee co-chairs or members.
Committee Co-Chairs Committee Members Katrina Castillo , 7th Circuit Governor
Valparaiso University- School of Law [email protected]
Brendan Patrick Manning
4th Circuit Governor
Charlotte School of Law [email protected]
Steven Cometa
9th Circuit Governor
Whittier Law School [email protected]
Nick Guinn
Vice Chair-SBA
St. Mary University School of Law [email protected]
Jordan Haygood
10th Circuit Governor
Oklahoma City University School of Law [email protected]
2012 ABA-LSD Work-A-Day Public Interest Committee 5
Why Student Debt?
In today’s economy, students who pursue an undergraduate or graduate degree are facing more debt than ever before, with fewer job prospects. The Attacking America’s Debt toolkit provides law students needed information to help other students learn about the debt that they are taking on and how to effectively handle their debt after leaving school. Since this is an extremely timely topic facing students, the Committee and the Law Student Division are committed to helping students deal with their debt.
What are the issues?
The Attacking America’s Debt toolkit addresses the difference between private and public loans, the different types of public loans, and the different ways that you can repay your debt, or even have your debt forgiven. All of these issues are of great concern to graduate students who already have debt as well as those taking out loans for the first time.
How Law Students Can Make A Difference?
By taking this information and teaching it to other students, law students can be an invaluable resource to undergraduate and graduate students taking on various types of debt. This information can help students make better decisions about the loans that they take out and provide them with information on how to repay those loans without defaulting.
Understanding Student Loans:
Stafford Subsidized Loans
Stafford subsidized loans, generally, are federally guaranteed loans based on individual financial needs. Interest does not accumulate on the loan while in school or during any duration period.
Duration Period (Specifically for Stafford)
o Principle and interest payments may be deferred while person is:
At school at least part time
Unemployed (up to three years)
Studying in an approved graduate fellowship, or rehabilitation program for the disabled
Experiencing economic hardship (up to three years) The Federal Government subsidizes interest rates. When the government subsidizes, the government is essentially paying the interest accumulating during school.
Interest Rates and Timelines
o Deferment does not lock interest rates.
o Even though loans are deferred, they can still have flexible rates,
unless it was a deferred loan that was consolidated as well.
o When a loan is consolidated, the interest rates are fixed. o Borrowed loan before July 1, 2006 then the Stafford loan has
variable interest rates.
o Borrowed loan after July 1, 2006 then the Stafford loan has fixed
interest rates.
The Federal Government places maximum amount of money an applicant is allowed to receive per year based off his/her education classification:
Freshmen can receive a maximum of $3,500.
Sophomores can receive a maximum of $4,500.
Juniors can receive a maximum of $5,500.
American Bar Association Law Student Division
Work-A-Day Community Service Program
Stafford unsubsidized loans are generally understood as Federal Government loans that are not based on financial need. Interest accrues from the time the loan is dispersed to the school. Under an unsubsidized loan, the applicant must first determine if they are a dependent or independent student.
Dependent Student
o An applicant is automatically considered a dependent student for
financial aid purposes
2 Exceptions:
An applicant meets any one of the criteria stated under independent student requirements; or
An applicant has an exceptional circumstance
o All circumstances must be documented.
Exceptional circumstances should be discussed further with a financial aid counselor.
o In cases where the applicant may not qualify for independent
status but receives no parental financial support, the applicant should talk to a financial aid counselor who can provide the applicant with information on:
Alternative financing
Employment opportunities
Alternative routes to help pay for college expenses
Independent Student
o Instances when an applicant is considered independent for federal
financial support:
Applicant is 24 years of age or older by December 31 of the award year;
Applicant is married;
Applicant is currently or will be enrolled in a master’s or doctoral program during the school year (beyond a bachelor’s degree);
Applicant has children who receive more than half their support from the applicant;
Applicant has dependents, other than a child or spouse, that lives with the applicant and receives more than half their support, and will continue to receive more than half their support through June 30th of the school year;
Applicant is an orphan or ward of the court (or were a ward of the court until age 18); or
Applicant is a veteran of the U.S. Armed Forces.
Veterans includes students who attended a U.S. service academy and who were released under a condition other than dishonorable
o Debunking common stereotypes about automatic independent
status:
An applicant is not automatically independent for financial aid purposes simply because the applicant’s parents stop claiming the applicant as a tax exemption or refuse to give financial support for college.
Unwillingness, inability, or reluctance of parents to help pay for your educational costs does not make you independent.
Qualifying for in-state tuition does not mean that you are independents for federal financial aid purposes.
The Federal Government also places a maximum amount an applicant receives based off whether or not he or she is a dependent or independent student. The amounts are further divided by education classification:
Educational Classification Dependent Student Independent Student
Freshman $2,000 $6,000
Sophomore $2,000 $6,000
Junior $2,000 $7,000
2012 ABA-LSD Work-A-Day Public Interest Committee 9
The Federal Government has multiple repayment options and plans for a Stafford Loan that an applicant may choose to use. The standard repayment for this type of loan is 10 years. An applicant may extend repayment by deferring the loan or by consolidating the loan. While repayment typically takes between 10 and 20 years, the time period for repaying a consolidated loan may be extended up to 30 years.
The applicant can choose one of the following plans, however, these types of repayment plans are subject to approval by a lender
o Standard Repayment Plan – allows the applicant to pay a fixed
amount each month.
Required amount: monthly payments will based on your principle and interest, not less than $50, or the interest that has accumulated.
o Graduated Repayment Plan – allows the applicant to make a
monthly payment that starts out low and then gradually increases until the loan is paid in full.
Required amount: monthly payment is calculated based on the applicants loan debt and interest rate, but it will never be less than the amount of interest that accrues each month.
o Income Based Repayment Plan – allows the applicant to make a
monthly payment based on their income; payment amount will change if income changes.
Required amount: monthly payment is based on the applicant’s yearly income and loan amount.
o Extended Repayment Plan – allowed for applicants with loans
totaling more than $30,000. This plan offers fixed or graduated payments over a period of up to 25 years.
Understanding Your Options:
Public Service Loan Forgiveness (PSLF)
How it works?
o Make 120 Qualifying loan payments on eligible Federal Direct
loans while working full-time in a qualifying public service program AND
o The federal government will forgive the balance remaining on
those Federal Direct Loans
Three Steps to earning PSLF
o Make sure you have eligible loans
Must be federal loans, not private or commercial loans because private loans are never eligible
Be careful when consolidating the loans
o Make sure you are working full-time in qualifying employment
Such employment includes full-time paid work in:
The government
A 501(c)(3) nonprofit organization
A full-time AmeriCorps program
The Peace Corps OR
For a private “public service organization”
o Must not be organized for profit, a labor union,
a partisan political organization, or an organization engaged in religious activities
Other qualifications may apply
Full time differs based upon employment
o Make 120 qualifying payments on those eligible loans while in the
qualifying employment; i.e.,
Payment must be made separately, on-time, for the full amount, in a qualifying repayment plan
2012 ABA-LSD Work-A-Day Public Interest Committee 11
Income-Based Repayment
Calculation of monthly payments based on income, rather than the amount owed
Qualification
o Person may qualify when the annual amount due on all of a
borrower’s eligible loans exceeds 15% of discretionary income
Typically, if you earn less than you owe, you qualify
o Discretionary income is calculate using your adjusted gross
income from last income tax filings with consideration given to family size
o Public service employees with a relatively high debt-to-income
ratio generally also qualify for a Partial Financial Hardship
Loans
o Commercial or private loans do not qualify—must be federal loans o If most or all loans are federal, then you may be eligible
The more you borrow in commercial or private, the less likely you qualify
o Federal Direct and Federal Family Education Loans are eligible for
Income-Based Repayment
o ONLY Federal Direct Loans are eligible for Public Service Loan
Forgiveness
BONUS
o If you have a partial financial hardship and are allowed to enroll in
the Income-Based Repayment program, you may also qualify for the PSLF program after making 120 payments
Loan Repayment Assistance Program
Program that can help you make payments on your educational loans
Sources
o Schools
About 100 law schools provide financial aid to those working in public interest, government, or other low-paying, hi-need legal fields
o State
May be created and administered by state education administrations, independent nonprofit organizations, and professional associations or foundations
Employment requirements differ from state to state
o Federal
Programs exist for those who perform volunteer work, those in military service, those who teach, practice medicine in certain types of communities, and those who practice law as a state or local prosecutor or as a public defender
Each program has its own eligibility criteria and application process
The following information was collected from FinAid.org/loans Volunteer Work
AmeriCorps
o Serve 12 months and receive up to $7,400 in stipends plus
$4,725 to be used toward loans
Peace Corps
o Volunteers can ask for deferment and partial cancelation of
Perkins Loans
Volunteers in Service to America (VISTA)
2012 ABA-LSD Work-A-Day Public Interest Committee 13
Military
Army National Guard
o Students may be eligible of Student Loan Repayment Program
which offers up to $10,000 Teaching
Full-time teachers in elementary or secondary schools that serve students from low-income families can have a portion of their Perkins Loan forgiven under the National Defensed Education Act
o Forgives 15% of your loan for the first and second years of
teaching service, 20% for the third and fourth, and 30% for the fifth
Mississippi Teachers
o Those that have their Alternate Route Teaching License and teach
in a shortage area may be eligible of Teacher Loan Repayment program
Visit the Mississippi Office of State Student Financial Aid for details
See US Department of Education’s website for other offers and eligibility requirements
Legal/Medical Students
See Equal Justice Information provided above
US Department of Health and Human Services
o Loan forgiveness offered through National Health Service Corps
and the Nursing Education Loan Repayment Plan
Programs offer forgiveness to physicians and registered nurses who practice for a set number of years in areas that lack adequate medical care
US National Institutes of Health
o NIH Loan Repayment Programs repays up to $35,000/year for US
US Department of Agriculture
o Veterinary Medicine Loan Repayment Program
Offers loan forgiveness of $25,000 per year for three years for veterinarians who work in veterinary shortage area for three years
California residents can contact the Office of Statewide Health Planning and Development for consideration for the State Loan Repayment Program
o Other states may have similar programs
Occupational and Physical Therapists
o Hospitals and private healthcare facilities offer loan forgiveness
programs
Contact the American Physical Therapist Association or the American Occupational Therapy Association
Other Loan Repayment Programs for Medical Students (American Association of Medical Colleges maintains a database of state and other loan repayment programs)
o Nicholas J. Pisacano MD Memorial Foundation, Inc. (American
Board of Family Practice)
o Disadvantaged Health Professions Faculty Loan Repayment
Program
o Indian Health Service Loan Repayment Program
o US Air Force, Army, and Navy Financial Assistance Programs
Federal Agencies
Can establish loan repayment program where they pay up to $10,000 per employee per calendar year in federal student loans when the employee agrees to work for at least three years
2012 ABA-LSD Work-A-Day Public Interest Committee 15
Understanding Your Options:
Repayment
How does one get out of debt?
1. Stop increasing your debt
a. Get rid of all but one credit card and ONLY use it in emergency situations or things that can be paid off in a short amount of time 2. Record your spending
a. This is the key to getting out of debt as it provides you with information on how you are spending your money. Since most people did not get into debt based on a single purchase, knowing where your money goes is very important
3. Categorize your spending
a. Must haves—things that will cause you harm if you do not have them such as food, rent, etc.
i. Debt payments will be one of these also
1. Always try to pay more than the minimum required b. Should haves—things that you need but can do without for a little
while such as new clothes, gym memberships, etc.
c. Like to haves—things that you don’t need but enhance your life such as cable TV, coffee, extras on your phone, etc.
d. First look to should haves and like to haves as ways to cut spending i. Do not cut all of these as they make life better
4. Make a budget based on your spending record a. Write down the amount spent in each category 5. Figure out your debt pay-down fund amount
a. Based on the new budget, there will be areas of spending which can be cut back to provide extra money to be put toward paying down your debt
b. Be realistic and come up with budget amounts that are livable i. Do you actually use your gym membership or need the
large size coffee in the morning?
c. Recognize that some areas of spending may increase
d. Now, calculate the amount you can put toward paying off your debt and write down the amount of money you spend each day in the categories you are trying to cut back on
6. Figure out how much you owe, to whom, and on what terms
a. Create a spreadsheet including the name of the creditor, your total balance, your minimum monthly payments, and your interest rate b. Prioritize the debt
i. Debt that is passed due or has an exceedingly high interest rates should be top priorities
7. Start paying it off
a. Take the debt pay-down figure calculated in step 4 and apply it to your debt repayment
i. Apply this ‘extra’ money to debt in the top priorities categories while still paying at least your monthly minimums to the other categories
8. Continue with the process until you eliminate your debt
a. When you pay off convenience credit cards (gas, store cards, etc.) cancel them
b. Continue paying off the high priority creditors 9. Don’t give up
a. You did not get into debt in a day and you won’t get out of debt in a day either
2012 ABA-LSD Work-A-Day Public Interest Committee 17
Understanding Your Options:
General Tips
Determine how much you want to spend and do not spend more than that amount
Debt consolidation or consumer credit counseling agencies are a last resort
When you pay off one creditor, take what you were paying them and apply it to the next largest debt item on your list, until only the biggest one remains
o Now, all payments you were making to the other creditors will be
going toward your biggest debt
Who to pay first?
o Highest interest rate
Provides for the best return on your dollar
o Largest debtor
Paying this off first can provide a sense of relief
o Smallest debtor
Get satisfaction of getting rid of one creditor
Do not ignore your creditors phone calls—everything will be okay
o If you have been ignoring calls, call them as most creditors are
willing to work with you
o Writing may be even better as it creates a paper trail showing you
are attempting to pay off your debt just in case the creditor takes you to court
Contact your credit card companies and ask them for help
o While they are not likely to forgive your loan, they may be willing
to reduce your interest rate
If your rate is more than 12%, ask them to cut the rate in half
Consider a debt consolidation loan to pull all your debt together into one account
o Preferably, this would feature a fixed, low interest rate
o Use the money from the loan to pay back the other creditors and
then only have to pay one person back
Home refinancing may allow you to lower your payment on you mortgage to help pay off other debt
o WARNING—you are placing your home “at risk” if you opt for this
choice
Make sure to pay yourself first—create a contingency fund in case of emergencies
Can you earn more by utilizing a skill or hobby
Check your credit report
o You are allowed a free report once every twelve months through
AnnualCreditReport.com
Use CASH as this will make you feel as though you are spending more money
If you need support, there are Debtors Anonymous groups to help
When paying down debt, try not to pay the minimum payment on any debt, but especially the smallest debt to lessen the amount of time needed to pay it off
Credit Card companies are not your friend and want you to be in debt
If you want something, save for it and then buy it in cash
o Only finance items that are absolutely necessary (home and car) o Do not finance other items
2012 ABA-LSD Work-A-Day Public Interest Committee 19
Tips for Success
Below are some planning ideas to keep in mind that will help your hard work pay off and ensure that your attendees will leave your program or event appreciating a unique experience.
Recruit presenters (faculty, staff or practitioners) for your program who represent different ethnic groups, gender and lifestyles.
Advertise your “Attacking America’s Debt: Take Control of Student Loans,” initiatives using creative, high-quality publicity. Try to use titles that law students, lawyers and the general public can easily understand and that specifically identify the topic of the program.
Make a commitment not to “mask” the issues or bury your initial intent by focusing on entertaining attendees. Bring the issues to the forefront of your event.
There is a fine line between providing the facts and initiating a shock effect, which is something you want to avoid. Remember, your objective is to create a life-long passion for your cause not shocking your audience into short-term action.
Take advantage of the various social media outlets like Facebook, Twitter, etc., to help advertise your initiative, get feedback from attendees and participants, or even to share ideas with other law schools.
Plan early. Promote your event in the law school and in the community in order to provide maximum attendance and create a link between the law school and the surrounding community.
Consider contacting local schools, community centers, churches, and other community institutions that address the needs of students.
Avoiding the Pitfalls
In constructing a Work-A-Day event, it is important to develop your programs in way that makes everybody feel included. There are many common mistakes that student leaders inadvertently make which could hinder their hard work. Here are a few tips to keep in mind as you plan your event.
Check the calendar to prevent scheduling your event to coincide with any religious observance that may exclude some members of your school or community.
Be sure to inclusive. Provide means and accessibility to community members with disabilities. Include a diverse mixture of individuals as speakers and invited guests in your activities and publicity.
The scope and publicity of your event should convey an open invitation to all and create interest in your cause. If you are planning a fundraiser in the evening, consider a family event. If it is a luncheon in the afternoon, consider creating an atmosphere that will entice a lively forum.
Avoid mottos or program titles that may be misconstrued as insensitive.
In your publicity, you want to encourage interest. Don’t guilt your audience into attending
Attempt to have things donated by your bar associations, community groups, law firms, businesses, etc.
Don’t be afraid to as other organizations at your institution to participate even if they’re not part of your law school.
2012 ABA-LSD Work-A-Day Public Interest Committee 21
Further Resources
http://www.elevateurbanyouth.org/v2/new/Grades9-12/avoiding%20credit%20blunders.html This is a really good lesson. It focuses on how recently graduated students can avoid credit blunders such as avoiding fees and such. Explaining to students about fees and interest rates is just as important as explaining that borrowing too much is bad.
http://www.elevateurbanyouth.org/v2/new/Grades9-12/CollegePrep.htm
This article talks about the cost of graduate degrees but the advantage of expending that debt into a quality education.
http://lifesmarts.org/index.php?page=credit_cards
This website provides the definitions of terms used in lending and the types of consumer protection legislation that protects credit card customers. It also contains a quiz that participants take to test their knowledge on the subject.
http://www.theabcsofcredit.com/#/Home-01-00/
This is the Center for Student Credit Card Education. It has information for students with quizzes, downloads, a glossary of terms, and along with information for parents to help them understand more about credit cards and credit card debt.
http://www.moneyinstructor.com/creditcards.asp
This site has a variety of user-friendly lessons which cover a multitude of topics including how to read a credit card statement and how to look for incorrect transactions.
http://www.practicalmoneyskills.com/
This website is geared toward young people with a central theme of being responsible with your money as you go through life.
http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#Market-share-debit
Facts Sheet
http://www.asa.org/policy/resources/stats/default.aspx This site concentrates on student loan debt.
