1. Alternative Loans Best Practices for Financial Aid Offices SUNY Directors’ Meeting December 7, 2005 Stephen G. Brown Fordham Law

2. What’s going on here?  School is getting more expensive  We used to be experts in college finance  Direct marketing and the ‘Net  Other financial products available  “You don’t need the Financial Aid Office”

4. Who Cares ??!! WWait a minute – How about PLUS ?! GGood point! WWhat is a private educational loan? AAre they for my students? FFor my school? WWhat do I need to know? WWhat do students need to know?

5. Private loans – brief history  Parents paying cash  Parents tapping home equity – 1970s  FamilyED and GradED  TERI family and secured loans  LSAC Law Access Loans  1990s explosion in programs Students, parents, other co-signers  Secured vs unsecured

6. Private Loans  Credit- based  No federal guarantee  No federal subsidy  Signature- no collateral  Market rate interest - no cap  Variable interest rate  Guarantee fees - WHY??!!  Co-Signer options/requirements

7.  Designed to supplement, not replace federal loans  (Many lenders would probably rather have higher $$ limit federally!)  Many lenders have online applications “instant” credit decisions  Many disbursed directly to school  Most require school approval

8. For my students?  Increased/increasing COA  Decreased resources Not meeting full need Independent – exhausted unsub  Other parental needs -home equity?  Additional cost  Repayment issues  Deferment/forbearance/cancellation – hah!

9. Credit based  Imagine…  No job  No “ability to pay”  No collateral  Low interest rates  Flexible repayment  No payment for 7 years  Think “mortgage” “car loan”

10. Nationally, 15-20% rejection rate for bad credit Likely to increase !

11. What is credit scoring?  Fundamentally a way to tell if a loan is likely to be profitable  Review of all aspects of student credit history  may be used to accept/deny or set rates and/or fees  Scores now available to consumer

12. FACT Act of 2003  Fair and Accurate Credit Transactions  Free credit report annually  www.annualcreditreport.com www.annualcreditreport.com

13. Credit Reporting Agencies  Experian  www.experian.com  Trans Union  www.transunion.com  Equifax  www.equifax.com

14. “Signature” Loans  Made solely on the basis of signature No collateral – nothing to repossess Diploma?  Credit must be excellent

15. Market rate interest  Variable  Commonly “index” plus “spread” 91 day T bill LIBOR Commercial Paper Prime

16. As of December 1, 2005  91 day T-Bill 3.90%  LIBOR (3 mo) 4.410%  Commercial Paper 4.29% (90 day financial)  WSJ Prime 7.00%

17. Fees  Origination/ guarantee  Remember – no federal guarantee  Re-insurance and self-insurance  Fees at disbursement and/or repayment

18. “Cost” of funds  Function of interest rate and fees  Kantrowitz “K” factor – www.finaid.orgwww.finaid.org  Or… Divide fees over repayment period and add to rate  Changing indices – variable, no cap

19. Repayment  How much will this really cost?  Can I afford it?  Repayment options/incentives  10, 15, 20, 25, 30 year repayment

20. What do I need to know?  All of the above plus… Basic financial info Know when to refer Websites for rates Lender websites Counseling info  Do you really need this?

21. Remember  Private loans can be an important option for educational finance  Other (cheaper) options should be exhausted first Know the difference  Credit, Credit, Credit  Repayment amounts, length, calculators

22. Have I exhausted you yet?

23. Stephen G. Brown Assistant Dean Fordham University School of Law New York, NY 10023 212 636-6815 sbrown@law.fordham.edu