Alternative Loans…… A Beacon of Hope for Your Students?

Alternative Loans…. A Beacon of Hope for Your Students? What Are Alternative Loans? Why Borrow an Alternative Loan? Types of Alternative Loans Debt Management Tactics

What are Alternative Loans? Alternative Loans are loans that are not federally backed or insured. Typically the lenders are taking the financial risk on these loans

How Lenders Minimize Risk with Alternative Loans Tiered pricing based on school information Use of Co-borrower Tiered pricing based on borrower (and co-borrower) credit record

Alternative Loans On the Rise In , private loans represented 20% of all education borrowing - $17.3 Billion (An increase of 900% in inflation-adjusted terms from to ) Federal education loan programs totaled $68.6 Billion in Source: ACE Issue Brief titled “Who Borrows Private Loans?” Aug 2007 – author Jacqueline E. King

Why such an increase? Rising cost of tuition Direct to Consumer campaigns

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Why Borrow an Alternative Loan? “My school does not participate in the FFEL program.” No loans

Why borrow an Alternative Loan? Span the gap between Cost of Attendance and Aid Additional costs for special programs, like Study Abroad COST Alternative Loan Grants Scholarships Federal Loans Work

Why Borrow an Alternative Loan? Student is not maintaining Satisfactory Academic Progress Student is not enrolled at least half-time Student may not be enrolled as a “regular” student

Why Borrow an Alternative Loan? Bar Study Loan Residency Relocation Loan

Types of Alternative Loans School certified loans Loans NOT certified by the school

What type of loan is best? The answer is the same as it is for all financial aid questions... It depends!

What type of loan is best? All are not created equal –Commercial Paper –Libor –T Bill –Minimum credit score requirement –Credit of borrower

School Certified Loans Can control the amount of loan a student borrows (Cost minus other aid) Record of alternative loans used by your students More accurate information if you are engaged in debt management counseling.

Loans NOT Certified by School It’s between the lender and the borrower No opportunity for school to conduct debt management counseling

Loans NOT Certified by School Consumer determines which loan to use, so he/she is not limited by school recommendation Flexibility in disbursement, etc. Amount is not tied to cost of attendance

Debt Management What are you doing? Are you concerned about your students borrowing patterns?

PLUS Alternative Parent debt Fixed interest rate No FAFSA required (at some schools) Additional Unsub available if PLUS is denied Student debt (but parent might be co-borrower) Variable interest rate No FAFSA

GPLUS Alternatives Security Benefits Possible consolidation In-school deferment Repayment options Flexibility Greater amount Deal with lender only No FAFSAA

Selecting an Alternative Loan Lender Should the student use his Stafford lender? Yes Combined bill? Less likely to default? No Perhaps not as flexible a program? Perhaps won’t be the best deal?

Questions/Comments

Alternative Loans…… A Beacon of Hope for Your Students?