What is the Right Type of Loan What is the Right Type of Loan? – Help your students fast break to the best loan for them! Greg Carlo Thrivent Financial Atiya Coleman Young Citizens One Bank

Comparing PLUS and Private Loans Understanding APR and rate shopping Agenda Funding the gap Comparing PLUS and Private Loans Understanding APR and rate shopping Strategies and school communication examples Our agenda today… Today’s session is not be tell you what you are doing is right or wrong but to present information and bring insight to PLUS loans and Private Loans to help you decide what approach maybe the beneficial for your families.

Common Ways to Pay Gap Funding After the “free money” and savings run out….. some wise, some not so much…..! Hold Out Until Your Kid Gets to the 11th Grade then Start Up a 529 Plan Powerball Lottery 1 in 146,107,962 Google Direct Loan Perkins PLUS Payment Plans Credit Cards Home Equity Retirement Accounts Educational Private Loans Greg So, it will come as no surprise to you that College costs a lot of money…the cost of attending college continues to go up. You know also that many students and families need help in addition to the money they will received from filling out the FAFSA. Students and families have options of the federal loan programs, repayment plans, federal PLUS, private loans to credit cards, retirement accounts, home equity to winning the lottery. Education Loan Resource Continuum Source: Adapted from 2012 PASFAA Fall Conference Presentation 3

Comparison Credit Factoid: Greg Credit Factoid: 19.6% of the population has a credit score of 750-799 18.1% of the population has a credit score of 800-850 Source: MyFico.com 4

Federal and Private Comparison, continued Greg 5

APR vs. Interest Rate: Incorporating the Cost of Fees Fees are sometimes a “hidden” cost that can increase the overall cost of borrowing more than just the fees themselves because of the interest that capitalizes on the fees, or the reduced loan amount received up front. The interest rate is the cost of borrowing money expressed as a percentage rate. It does not reflect fees or any other charges you may have to pay for the loan. Federal loans only talk about interest rate. An Annual Percentage Rate (APR) is a broader measure of total cost to you of borrowing money. The APR reflects not only the interest rate but factors in fees and other charges that you have to pay to get the loan. For that reason, your APR is usually higher than your interest rate. Private lenders must disclose APR. Greg Sometimes there is a “hidden” cost that can increase the overall cost of borrowing, because of the interest that capitalizes on the fees, or the loan amount up front. APR reflects not only the interest rate, but factors in the fees and other charges that you have, and therefore that fee is usually higher. Private lenders must disclose APR, but the federal loans only mention the interest rate. Now I am going to turn it over to Raina so she can show you what I am talking about…

The Cost of Not Shopping Raina

Understanding APR & Rate Shopping Direct PLUS in 2016-17 Loan amount $10,446.70 4.276% fees ($446.70) Net Loan Proceeds $10,000.00 Interest Rate 6.31% Term 120 months Monthly payment $117.61 Interest paid $3,666.96 Cumulative payment $14,113.66 Private Education Loan Loan amount $10,000.00 Zero fees ($0) Net Loan Proceeds $10,000.00 APR 7.29% Term 120 months Monthly payment $117.61 Interest paid $4,113.66 Cumulative payment $14,113.66 To better understand APR and rate shopping, let’s take a look at this example between a Direct PLUS and a zero-fee Private Loan borrowing $10,000. *Due to the PLUS fees, the loan amount is at the $10,446.70 so both types have the net loan proceeds of $10,000. *Keeping in mind the difference between Interest Rate and APR…PLUS loans shows just the interest rate not including the fee and Private loans disclose APR which is inclusive of the broader cost of all fees. *So, looking at the break-even point, if we are to show the APR (broader cost) on the Direct PLUS, the PLUS would be the same as taking out a private loan with an APR of 7.29%. *And also, that 7.29% APR is on the mid higher end of APR range for most private loan lenders. As we mentioned earlier APRs with private lenders range from 2.25% to 12.99%. The borrower may be qualified for a lower APR on a private loan than a PLUS. The up-front fees on Direct PLUS push the actual Annual Percentage Rate (APR) to 7.29% The example above shows a “break-even” point on a $10,000 loan between PLUS and a zero-fee Private Education Loan with immediate repayment

Fees Make a Difference! PLUS vs. Private Loan Amount $20,893.40 $20,000.00 Fees in % 4.276% 0% Fees in $ $893.40 $0 Net Loan Proceeds Interest Rate % 6.31% Monthly Payment $235.23 $225.17 Total Amount Repaid $28,226.85 $27,019.94 Difference Savings of $1,207 Raina Here is an example where PLUS and Private take out $20,000…PLUS is $20,893.40 due to fees so we can have the net loan proceeds at $20,000. *Here we are looking at interest rates on both at 6.31% on a 10 year immediate standard repayment term. *Because of the fees on the PLUS, the borrower would save money taking out a Private Loan versus a PLUS. (If PLUS was expressed in APR, it would be higher than the 6.31% because of the fees. APR for Private would still be the 6.31% IR expressed in this example as there are no fees.) Assumes 10 year immediate standard repayment terms

Interest Rates Make a Difference! PLUS vs. Private Private A Private B Loan Amount $20,893.40 $20,000.00 Interest Rate / APR 6.31% / 7.29% 5.31% / 5.31% 4.31% / 4.31% Fees % 4.276% 0% Fees in $ $893.40 $0 Net Loan Proceeds Monthly Payment $235.23 $215.17 $205.45 Total Amount Repaid $28,226.85 $25,821.11 $24,653.99 Difference Savings of $2,406 Savings of $3,573 Raina Here…another example of previous slide example. Same $20,000 net loan amount, with PLUS rate at 6.31% and APR of 7.29% if you include the fee. On the private examples, the interest rate and APR is the same because of there are no fees. Assumes 10 year immediate standard repayment terms

Examples of School Communication Strategies

School Communication Strategies Is your school “Pro-PLUS?” Here’s a website example: “Before applying for a private or alternative education loan, you may qualify for grants and/or other assistance under Title IV of the Higher Education Act. Loans under Title IV include the Federal Stafford and the Federal PLUS loan. These Title IV loans may have terms and conditions that may be more favorable than the terms and conditions of private education loans.” Is your school “neutral” Here’s a website example: Private Educational Loans and Direct PLUS Loans should be considered as a last resort, but may be necessary to finance a college education. To learn more about these options, please review the comparison chart and the suggestions below. If you have good credit history, a private loan may cost less than a federal student loan- be sure to consider all of your options and compare carefully!

School Communication Strategies, continued Example of the report showing changes the lender has made to their loan product information. SOURCE: Geneva College

Shopping Sheet Example

Ferris State University School Award Letter Strategies

University of Tulsa

Univ. of Tulsa – Credit Based Loan Information

Univ. of Tulsa - website

What’s the bottom line? Each family’s situation is unique All consumers should make an informed decision before deciding on a loan. There is no down side to shopping around. Each family’s situation is unique Applying for multiple credit-based student loans (rate shopping) in a 30-day window is treated as one inquiry when determining a credit score* Applying for a private student loan does not impact ones eligibility for a Direct PLUS Loan for parents or graduate and professional students All approved borrowers get the same PLUS deal: 6.31% with 4.276% up-front fees. While PLUS may be a good option for those with less than excellent credit, private loans may offer those with above average credit a better rate, zero fees and more repayment discounts. *Source: myFICO.com Raina

Questions / Discussion? Thank You! Questions / Discussion? Raina How many of you package PLUS? Reasons? How many of you do not package PLUS? Reasons?