Loan A, B, Cs

1
Loan A, B, Cs!

• Presented by
• Mary Ellen Duffy, Director of Financial Aid
• Albright College
• Lesa Angell, Director of School Relations
• College Loan Corporation

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Topics To Be Covered

• Federal Loan Programs
• Stafford
• PLUS
• Private Loans
• Debt Management

3
Federal Loans

• Federal Family Education Loan Program and Federal
  Direct Loan Program
• Federal Stafford, subsidized and unsubsidized
• Federal PLUS
• Federal Grad PLUS

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Federal Subsidized Stafford Loans

• Interest is not charged to borrower while in
  school or during grace or eligible deferment
  periods
• Loan is need based, subject to data from the
  FAFSA
• Six-month grace period begins when student
  graduates or drops to less than half-time
  enrollment leaves of absences or semesters with
  low credit loads affect repayment of loans

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Unsubsidized Stafford Loans

• Interest accrues while in school, grace and
  during eligible deferment periods
• Borrower is responsible for all accrued interest
  from date of disbursement
• Unpaid interest is typically capitalized before
  repayment begins
• Loan available regardless of need
• Same grace period and enrollment requirements as
  subsidized Stafford Loan

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Stafford Rates and Fees

• Current interest rate is
• 6.0 for Subsidized (undergraduate only)
• 6.8 for Unsubsidized and Graduate Subsidized
• Origination fee for AY 08-09 is 1 of the amount
  disbursed
• Federal Default Fee is 1 may be reduced or
  waived by the guarantor

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Stafford Loan Limits
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Aggregate Loan Limits

• For loans first disbursed on or after July 1,
  2008
• Increases the aggregate unsubsidized loan limit
  for undergraduate dependent students from 23,000
  to 31,000 (of which, no more than 23,000 can be
  subsidized).
• Increases the aggregate unsubsidized loan limit
  for undergraduate independent students from
  46,000 to 57,500 (of which, no more than
  23,000 can be subsidized).

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PLUS Loans

• Parent loan for dependent, undergraduate students
• Available to parents, stepparents and adoptive
  parents of eligible dependent students for each
  academic year
• Student must be enrolled at least half time
• Simple credit check - no debt to income
• May borrow up to total Cost of Attendance each
  year, minus other aid received by the student

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PLUS Loans

• The maximum interest rate is 8.5 for FFEL, 7.9
  for FDLP
• A 2 origination fee and 1 Federal Default Fee
  may be deducted from the loan proceeds before
  disbursement for FFEL and 3 origination for FDLP

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Federal Parent PLUS Loan Borrowers

• As of July 1, 2008, borrowers may be able to
  postpone payments on their PLUS loan until six
  months after the date their child ceases to be
  enrolled at least half time.
• Lenders may consider approving PLUS loans even
  if, during the period from January 1, 2007
  through December 31, 2009, the parents are or
  were
• no more than 180 days delinquent on a primary
  mortgage or medical bill payments or,
• no more than 89 days delinquent on any other
  debt.

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Grad PLUS Loans

• Available to graduate and professional students
  enrolled at least half time
• Simple credit check - no debt to income
• May borrow up to total Cost of Attendance each
  year, minus other aid received
• Many lenders offer automatic in-school deferment
  during half-time enrollment
• Rates and fees are the same as parent PLUS Loans

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Private Education Loans

• Not federally insured
• Lender determines approval, fees,
  terms/conditions and loan limits
• Terms may vary by product, lender, school,
  applicant and time period

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Fees

• Lender determines loan fees. Types of fees may
  include
• Application
• Origination
• Disbursement
• Repayment
• Prepayment penalty

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Considerations

• Loan limits annual and aggregate
• Borrower incentives and benefits
• Deferment or forbearance options
• Repayment options
• Co-borrower option
• May increase approval rate
• May reduce interest rates and fees

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Approval Factors

• Lenders may evaluate various factors to determine
  an applicants creditworthiness
• Credit score (FICO)
• Credit history
• Assets
• Income
• Debt-to-income ratio
• Field of study, school and academic standing
• Indicators of earning potential
• Co-borrower, cosigner, co-maker

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Funding of Aid by Type
Source College Board, Trends in Student Aid
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Loan Profile Changes
Source College Board, Trends in Higher
Education
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Private Loan Borrowing Characteristics

• Academic Year 2003-04
• 83 of private loan borrowers were undergraduate
  students
• 9 of private loan borrowers were graduate
  students
• 7 of private loan borrowers were professional
  students (medical or law)
• Calendar Year 2004
• 5 of all undergraduates took out a private loan,
  up from nearly 4 in 2000
• The average amounts borrowed also grew marginally
  from 5,675 in 2000 to 5,918 in 2004

Source Institute for Higher Education Policy -
The Future of Private Loans Who is Borrowing
and Why (December 2006)
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Private Loan Borrower Profile

• Most private loan borrowers do receive a Federal
  Stafford Loan
• 80 of dependent undergraduate private loan
  borrowers
• 76 of independent undergraduate private loan
  borrowers
• 88 of private loan borrowers do file the FAFSA
• Statistical perspective
• 1 out of 5 private loan borrowers do NOT receive
  a Federal Stafford Loan
• Half of these students do NOT file the FAFSA
• Low-income students are among those most
  misinformed about financial aid

• Source American Council on Education, 2007

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Driving Forces for Private Loans

• Widening funding gap
• Shifting family philosophies who pays for
  education? Private vs. public?
• Increased direct-to-consumer marketing
• Increased student diversity with unique needs
• FAO recommendations increasingly important
  factor

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Driving Forces - Schools

• Many financial aid officers are still requiring
  Suggested Lender Lists due to
• increased student demand for private loans
• the institutions enrollment expectations and
  competition
• limited or decreasing availability of
  institutional funds
• Bursars encouraging payment of past-due balances

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Family Decision

• Families increasingly opt for private loans
  instead of PLUS Loans
• Parents expect their children to cover the cost
  of education
• Parents who will not borrow a PLUS Loan are apt
  to cosign a private loan
• MISCONCEPTION private loan application process
  is faster and simpler than the FAFSA
• Choice of school (public vs. private, in-state
  vs. out-of-state)

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Student Diversity

• Diversified population requires nonfederal aid
• Some attend institutions that are ineligible to
  participate in federal aid programs
• Continuing education students attending less than
  half time

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What Can We Expect?

• Expected annual private loan growth of 25
• Current economics in country will influence this
  2006 data
• Some predict that private loan volume will exceed
  federal loan volume by 2010
• Private loan market will be dominated by
  direct-to-consumer marketing
• Students will be faced with increasingly complex
  decisions

• Source Institute for Higher Education Policy -
  The Future of Private Loans Who is Borrowing,
  and Why? (December 2006)

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What Can You Do?

• Encourage consumer awareness for your students
  more critical than ever as students evaluate a
  myriad of marketing offers
• Increase financial literacy on campus
• Ensure that your senior administration is
  supportive of your philosophies and practices
• Work closely with Admissions and the Bursars
  offices to coordinate information
• Reevaluate your requirements for suggested
  lenders. Your Suggested Lender List should
• Ease shopping burden
• Avoid confusion
• Educate borrowers about favorable choices

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Questions to Ask Private Loan Lenders

• Terms and conditions
• What fees, if any, are charged?
• Are fees added to principal?
• How is interest calculated?
• What is the interest capitalization policy?
• Will using a co-borrower provide better pricing?
• What borrower benefits/incentives are offered?
• Customer service
• How do you define customer service for
  students? For schools?
• What financial literacy programs do you provide?
• Ease of process
• Is online application for borrower and
  co-borrower available?
• How is the loan certified and disbursed?
• Is the loan CommonLine compliant?
• Do you have combined billing with federal loans?
• Who is the loan servicer?

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The Future of Private Loans

• Title X of the Higher Education Opportunity Act
  (HEOA) legislation now requires lenders to obtain
  a certification form from all borrowers before
  originating private loans
• No school signature required on the certification
  form
• Includes disclosure to students
• Qualifying for financial aid in place of loans
• Students should ask the financial aid office
  about availability of federal, state, and
  institutional aid
• Private student loans can decrease student
  eligibility for student aid
• Form must contain
• Cost of attendance
• EFC if the FAFSA was filed
• Estimated financial assistance (EFA)
• Difference between COA and EFA, and the sum of
  that difference plus EFC

• Source NASFAA 8/28/08

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Borrow Wisely

• Work with families to project their total loan
  debt now before college graduation (estimated
  monthly payment 134 per month for 11,625
  principal borrowed)
• Advise students to keep excellent records on loan
  borrowing
• Encourage students to develop a personal budget
  in college, teaching them that if they cant pay
  the cash for purchases, then they should resist
  the urge

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Managing Debt

• Financial obligations affect nearly every aspect
  of a borrowers life
• Type of car they will drive
• Where they will live - one roommate or with
  parents!
• Their activities
• The ability to support a family

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Budgeting for the Future

• In 2003, 1.6 million Americans filed for
  bankruptcy, the highest amount in history (Amer.
  Bankruptcy Inst.)
• 43 of American families spend more than they
  earn (Federal Reserve)
• Americans carry an average credit card debt of
  more than 8,500 (The Motley Fool)
• College students carry an average of three credit
  cards with a total balance of 2,748 (Natl
  Center for Educ. Stat.)

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Credit Card Facts

• Read the fine print! Each state has different
  laws regulating interest rates.
• If a student carries a 5,000 balance for 5 years
  at 15 interest, he/she will end up paying 2,137
  in just interest alone. The student has also
  increased the cost of the original purchase by
  42.
• Students only need one credit card for emergencies

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Credit Card Facts

• Average outstanding balance on undergraduate
  credit cards is approx. 2,169
• Freshman year is most prevalent time for
  obtaining first credit cards
• 56 report obtaining the first card at the age of
  18
• During college, credit card usage swells
• 91 of graduates have credit cards with 56 of
  them carrying more than 4 different cards
• 42 of freshman have cards with only 15 having
  numerous cards

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Credit Card Facts

• Final year students carry 2,864, freshman have
  1,585
• 21 say they pay off each month
• 44 say they make more than the minimum payment
• 11 make less than the minimum payment
• 74 use credit cards for school supplies, second
  most common usage was tied between books and food
• lt24 used credit cards for tuition

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Resources

• The Future of Private Loans Who is Borrowing,
  and Why? - Institute for Higher Education Policy,
  December 2006
• How Are Schools Handling Alternative Loans -
  presentation from NASFAA Conference, July 2007
• Who Borrows Private Loans? - ACE Issue Brief,
  August 2007
• Briefing.com
• Bankrate.com
• College Board, Trends in Student Aid 2007