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 2005-06, private loans represented 20% of all education borrowing - $17.3 Billion (An increase of 900% in inflation-adjusted terms from 1995-96 to 2005-06)
• Federal education loan programs totaled $68.6 Billion in 2005-06
Source:ACE Issue Brief titled “Who Borrows Private Loans?”
Aug 2007 – author Jacqueline E. King
Why Such an Increase• Alternative Locator• http://www.theeasystudentsloans.com/• Apply For A Student Loan
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• Chase LoansLow rates, flexible student loan repayment options. We can help you get up to $40,000 per school year. Official Chase student loans Web site.www.collegeloansite.com
• College Planning GuideFree Keybank College Planning Guide Order Your Copy Online Today.Key.com/collegeguide
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
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
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?
YesCombined bill?Less likely to default?
NoPerhaps not as flexible a program?Perhaps won’t be the best deal?