1. Sarah Pingel CAFAA Professional Development Seminar April 20, 2012

2.  Purpose of Alternative Loans  Lender Selection and Lender Lists  Application Processes  Federal Loans vs. Private Loans  Case Studies  Q&A

3.  “Gap” funding  Utilized if the student has exhausted all other options and still has unmet costs.  Students who are not eligible to file the FAFSA  Student needs to cover a past due balance, is on SAP, or is less than half-time  Student has reached the federal aggregate limit  Students who prefer to work through their private bank rather than the federal government

4.  Position of most schools is to provide accurate, unbiased information so that students can make informed decisions regarding their loans.  Exhaustive list of loans available at www.finaid.org  Your institution has its own policies with regards to private lenders and loans.  Do you maintain a lender list?  Do you have any Preferred Lender Arrangements?

6. Student initiates application Student is approved Student turns in all docs requested to lender Lender requests school certification Rescission period begins once cert rec’d Loan disburses to the school directly Student is declined Lender should advise, possibly add a co-signer

7.  Also called “Direct to Consumer” loans  Application process is entirely between student and lender, funds disburse directly to student.  Many lenders no longer offering due to increased risk.  Student could feasibly borrow in excess of their cost of attendance.  Interest rate and other terms are not as favorable as with school-certified loans.

8. FEDERAL  Terms are federally regulated  Fixed interest rates and origination fees  Repayment and loan forgiveness options ALTERNATIVE  Private lender chooses terms  May have a variable interest rate and/or fees that fluctuate based on student’s credit rating  Standard monthly payment until the loan is paid in full

9.  Alternative loan lenders have to offer loans that are different from federal student loans in order to survive in the market- but they still need to make money!  Fixed rate loans and/or lower, variable rate loans  Loans for relatives other than parents  Graduation incentives  0% origination for creditworthy borrowers  No annual aggregate limits, higher lifetime aggregates

10. Case Study #1 Sally Student finishes the 2011-2012 school year successfully. When she tries to register for the 2012- 2013 school year, she realizes that she has left a balance unpaid from the previous year of $5,000. She does not have $5,000 to pay immediately, so she needs to find a loan. FederalPrivate May be able to use for past due balance

11.  Wells Fargo Collegiate  $5,000 principal  Student falls in best credit tier (Prime +.25%), yields 3.5% variable rate  119 payments of $50  $920.19 in total interest repaid  Wells Fargo Collegiate  $5,000 principal  Student falls in worst credit tier (Prime + 6.74%), yields 9.99% variable rate  120 payments of $66.05  $2,925.53 in total interest repaid

12. Case Study #2 FederalPrivate Interest subsidy with a higher rate Interest capitalization with a lower rate Ursula Undergrad’s grandparents paid the majority of her tuition, but she has a $4,000 gap to fill in her sophomore year. She has financial need and qualifies for a subsidized loan at 6.8%. But, her friend just got approved for a private loan at 4%. What should Ursula do?

13. FEDERAL SUBSIDIZED  $4,000 principal  1.0% origination fee ($40)  6.8% fixed interest, 2 years subsidized  106 payments of $50  $0 in accrued interest during deferment period  Total of $1,300 in interest paid PRIVATE LOAN WITH VERY STRONG CREDIT  $4,000 principal  0% origination fee  4.0% interest, 2 years of capitalization  102 payments of $50  $331.43 in accrued interest during deferment period  Total of $1,100 in interest paid

14.  More typical private loan offer:  CitiAssist Undergraduate Loan  $4,000 principal  9.47% variable interest, No Fees  $823.44 accrued interest during deferment period  120 payments of $62.33  Total of $2,656.16 in interest repaid

15. Case Study #3 Federal Graduate PLUS Private May have lower interest rate May have lower origination fees Income Based Repayment Public Service Loan Forgiveness Gloria Graduate wants to complete her Master’s in Social Work. She takes out her $20,500 unsubsidized loan, but still has a gap of $30,000 to fill her cost of attendance for the year.

16.  Federal Graduate PLUS  $30,000 principal  7.9% fixed interest  2 years of In-School Deferment  4% origination fee ($1,200)  120 payments of $377.50  Total of $15,299.91 paid in interest

17.  Sallie Mae Smart Option  $30,000 principal  Best credit rating: 1-month LIBOR + 3% = 3.24%  0% origination fee  2 years of In-School Deferment  120 payments of $293.02  Total of $5,162.06 paid in interest

18. But, if student borrowed all federal loans…  2 years of borrowing = $100,100  If she pursued DL Consolidation, would have 7.5% fixed rate  360 payments of $706.21, interest paid= $153,234

19.  Income Based Repayment with Public Service Loan Forgiveness  $40,000 salary  Single tax filing status Under IBR, would pay 120 payments of $290.56 Would have $131,949.95 forgiven

20.  What is the interest rate and how often does that rate change?  Is the lender charging fees?  Do I need a cosigner?  How often is interest capitalized?  Am I required to make payments while I’m in school?  Are there any borrower benefits associated with this loan?  What are the repayment terms on this loan?  Can this loan be deferred in graduate school?  What happens with this loan if I die or become permanently disabled (unable to work)?

21.  www.finaid.org, go to “Loans,” then “Calculators” www.finaid.org  www.finaid.org’s Private Loan Lender List www.finaid.org  www.bankrate.com to find current index rates (Prime and LIBOR) www.bankrate.com

22.  Credit unions working through larger umbrella organizations (i.e. Student Choice)  Many larger lenders leaving or reducing visibility the market (i.e. US Bank, Chase)  If lenders are leaving the market, what does that tell us?  Other new trends?

23.  Students need to exercise their own best judgment regarding their borrowing, but we can help them become educated consumers.  Calculators available at www.finaid.orgwww.finaid.org  Read their loan disclosure statements (TILA regulations) and promissory notes  How can we encourage students to take the time to educate themselves about their options in our daily practice?