CLFE Panel

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The following is a presentation prepared for
NASFAAs 2006 Conference in Seattle, WAJuly 5-8,
2006
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Comparing and Assessing Private Loans and
Graduate PLUS Loans
NASFAA July 6, 2006
Together We Achieve More
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Comparing and Assessing Private Loans and
Graduate PLUS Loans
NASFAA July 6, 2006
Moderated By Sun Ow Sallie Mae Presented
By Nina Prikazsky - Nellie Mae Cheryl Barnes -
Citibank Keith Ninemire - Student Capitol
Corporation Lesley Phelps - Wachovia Education
Finance debi fidler-University of California,
Haas School of Business
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Agenda

• Why Use Private Loans?
• Differences Between Federal Private Loans
• Terms for Private Loans
• Student Eligibility Criteria
• Application Process
• Credit Issues
• Disbursement
• Repayment Options

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Why Private Loans

• Higher cost of education
• Higher annual loan limits
• Higher aggregate limits
• Flexible repayment options
• Fast and easy application process
• no FAFSA required
• online applications

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2005/06 Cost of Attendance 222 billion
Scholarships, Grants, Other
Parent/Student Contributions
Federal Loans
Private Loans
Source Based on estimates by Octameron
Associates, Dont Miss Out, 29th Edition, by
College Board, 2004 Trends in Student Aid and
Sallie Mae. Includes tuition, room, board,
transportation and miscellaneous costs for two
and four year college degree granting programs.
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2005 Cost of Attendance 222 billion

• In 20 years, average tuition and fees have
  doubled for private institutions
• More than doubled for public institutions
• 04/05 to 05/06 increase for private tuition,
  fees, room, board almost 6, or 29,026
• For public institutions, increase is nearly 7 or
  12,127

Source College Board
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Borrowing for College Today

• More than half of all college students borrow
• Total federal loan dollars 04/05 63B
• 141 increase in 10 years
• 28 increase in 2 years
• Total private loan dollars 04/05 14B
• 934 increase in 10 years
• 75 increase in 2 years
• 74 of students use credit cards for school
  supplies
• 24 report using credit cards to pay some portion
  of tuition
• OF NOTE Section 529 college savings plan assets
  72 billion in just 10 years

Source College Board, Nellie Mae
2005 Credit Card Study
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Loans for Grad Students

• STAFFORD
• 18,500 annual limit
• 138,500/189,125 aggregate
• 6.8 fixed rate
• Subsidized deferment
• Many lenders offer benefits
• Certified
• HT/US citizen
• MPN

• PRIVATE LOANS
• Cost of attendance limit
• Credit-ready or credit-worthy
• Variable rates wide range
• No subsidy
• Longer repayment
• Most certified, some not
• Use instead of home equity credit cards
  personal loans low-earning savings

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PLUS Loans Parents and Grad Students

• Cost of attendance limit
• 8.5 fixed rate
• Origination and default fees
• Unsubsidized deferment
• Many lenders offer benefits
• Grad students especially
• FAFSA required
• MPN
• Good credit/endorser allowed
• as of June, 2006

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Private Loans Unique Features

• Student, parent or sponsor can borrow
• LTHT, foreign students
• Disbursed directly to borrower
• Cosigner(s) allowed/encouraged
• Cosigner release
• Range of borrower benefits
• Private consolidation loan

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Loan Terms

• Why use Prime, LIBOR, or 91-day T bill
• Loan fees Guarantee fees, repayment fees
• Tiered-pricing based on borrowers credit
• Co-signer

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Loan Fees

• Origination Fee a percentage of the loan that
  is added to or deducted from the original loan
  balance.
• Repayment Fee a percentage of the original loan
  that is added to the balance as the borrower
  enters repayment.

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Prime Rate

• The Prime Rate is the interest rate at which
  banks lend to their best and most creditworthy
  borrowers.  Generally considered to be a lagging
  indicator of the economy.
• The Prime Rate is defined by The Wall Street
  Journal as "The base rate on corporate loans
  posted by at least 75 of the nation's 30 largest
  banks."

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Loan Fees

• LIBOR is an abbreviation for the "London
  Interbank Offered Rate," and is the interest rate
  offered by a specific group of London banks for
  U.S. dollar deposits of a stated maturity. The
  LIBOR is used as a base index for setting rates
  of some adjustable rate financial instruments,
  including Adjustable Rate Mortgages (ARM's). The
  term "LIBOR Loan" is commonly used to describe
  loans which have an interest rate based on the
  LIBOR Index. 

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T-Bill

• Treasury securities are backed by the full faith
  and credit of the U.S. Treasury, they represent a
  risk-free borrowing rate.

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10 Year Comparison
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Comparing Lenders

• Loan Program Requirements
• Product Pricing
• Reputation and History of Lender
• Reliability of Loan Servicer
• Customer Service
• Credit Evaluation

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Comparing Lenders Continued

• Disbursement Options
• Processing Capabilities
• Accessibility of loan application
• Application Process

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Top Ten Criteria Private Lenders Use

• Presence of creditworthy co-borrower.
• Credit history of the Student.
• Debt burden on the co-borrower.
• Income of the co-borrower.
• Loan Amount.
• Status of the Student
• Full Time
• Part Time

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Top Ten Criteria Private Lenders Use

• Part Time Students.
• Income
• Debt Burden
• Ability to Repay
• Willingness to make payments in school.
• Year in School.
• Seniors are viewed more favorably.
• Seniors are closer to repayment status.
• 9. The College/University/Graduate School

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Top Ten Criteria Private Lenders Use

• The Major of the Student.
• Engineering is viewed more favorably than a
  History Major.

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International Students

• These students usually do not have a sufficient
  credit history.
• Most use a US co-borrower.
• Few have no co-borrower requirement

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Top 5 Categories of data that affect your credit
rating

• Five types of information used to calculate your
  FICO score
• Payment History 35
• Amounts Owed 30
• Length of credit history 15
• New Credit 10
• Types of credit in use 10

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Some Interesting Numbers

• 11 The average number of credit obligations on
  record.
• 7 credit cards
• 4 installments loans
• 4 out of 10 30 days late.
• 2 out of 10 60 days late.
• Less than 85 have been 90 days over due.
• Less than 10 have ever been in default

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Disbursement and Repayment

• UNDERSTANDING THE FUNDAMENTAL DIFFERENCES
• Centralized Disbursing Agent (CDA) Functions as a
  clearinghouse for disbursement files and transfer
  of funds. Ex. National Disbursement Network.
• Guarantor Process Some guarantors offer private
  loan processing solutions. May or may not be
  integrated with FFELP processing products.
• Direct to School-Lenders can send a disbursement
  roster and funds directly to the school. Many
  lenders offer on-line systems to view
  statuses, view reports, certify loans, etc.

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School based Software

• Systems that offer integration of processes such
  as FFELP and Private with a loan management
  function reports, status information, historical
  information, etc.

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Making a Decision Checklist

• How well does this process work with my FFELP or
  DL process?
• Is there a single place where I can make changes?
• How quickly are changes made?

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Making a Decision Checklist continued

• Can I receive a single disbursement roster for
  multiple lenders?
• Can I receive a single wire or ACH for multiple
  lenders?
• Is there an e-sign process?

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Making a Decision Checklist continued

• What of my lenders support this process?
• What kinds of report are there?
• What sort of on-line access will I have to review
  status information?
• What sort of testing will I need to do?

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Loan Repayment - What to look for

• Interest rate index performance
• Fees
• Capitalization monthly, quarterly or at
  repayment?
• ACH incentives?
• APR Calculation

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Differences in Repayment Options

• Can I make interest payments during the grace
  period?
• If there is a fee at repayment, is it calculated
  on the original amount-or the total amount owed?
• Is there an incentive for on-time payments?

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Differences in Repayment Options continued

• Can the borrower receive a combined bill for
  their Federal Loans and their Private loan?
• How long is the grace period?
• Is there a co-signer release option?
• Repayment length Are there extended repayment
  or step options for larger loans?
• Availability of forbearance option

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Comparative Repayment Terms
Above illustration assumes a 48 month in-school
period (interest accruing), and a 7.5 annual
interest rate
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Impact of Fees on Repayment
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Next Steps

• Selecting a Disbursement Process
• Create a checklist to make sure you have reviewed
  all of the features and issues of various
  disbursement options.
• Selecting Products
• Create a checklist that compares all of the
  repayment features.

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2006-07 Loan Comparison Chart for Graduate
Students
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2006-07 Loan Comparison Chart for Graduate
Students cont
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How to make your own comparisons

• Visitwww.finaid.org/calculators/loananalyzer.phtm
  l
• Ask your lender representative
• Excel Spreadsheet
• In addition to the numbers compare Customer
  Service, timeliness of application process,
  reliability, communication

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Summary

• By creating a formula for comparing processes and
  products, you will be better prepared to evaluate
  your lenders
• Select a process that works well for your office
  and your students
• Select products that meet your students needs at
  the lowest cost.

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Questions? Thank you CASFAA
On behalf of CLFE and our membership
organizations we want to thank you for the
opportunity to present todays session.
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Who Are We?
Formed in 1988 and incorporated as a non-profit
mutual benefit corporation, The California
Lenders for Education (CLFE) is an association
represented by lenders, secondary markets,
servicers and guaranty agencies. CLFE members
originate over 85 of the FFELP volume within the
state of California.
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CLFE Members
ACS Education Services, All Student Loan,
American Education Services, America Student
Assistance, Bank of America, Bank One/Chase,
Brazos Group/EFSI, Chela Educational Financing,
Citibank/Student Loan Corporation, Collegiate
Funding Services (CFS), Comerica/CollEDGE Loans,
Edamerica, EDFUND, Education Finance Partners,
Great Lakes Higher Education Loan Services, Inc.
Loan Star Systems, Inc. Mercantile Adjustment
Bureau, LLC, Mission Federal Credit Union,
MOHELA, National Education Servicing, Nellie Mae,
Nelnet, Inc. Northwest Education Loan Association
(NELA), Sallie Mae, Inc., Student Capital
Corporation, Southwest Student Services
Corporation, SunTrust, Texas Guaranteed Student
Loan Corp. (TG), USA Funds, Wachovia Education
Finance, Washington Mutual Bank and Wells Fargo
EFS.
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