plus and private education loans
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PLUS and Private Education Loans What’s right for each student? Understanding the differences and exploring the options for your office. Presenters Carolyn Julian, Penn St. Harrisburg Bernard McCree, Kutztown University Christopher Mowl , Elizabethtown College Ben Brudnock, Wells Fargo EFS. - PowerPoint PPT PresentationTRANSCRIPT
PLUS and Private Education Loans
What’s right for each student? Understanding the differences and exploring the options for
your office.
PresentersCarolyn Julian, Penn St. HarrisburgBernard McCree, Kutztown UniversityChristopher Mowl, Elizabethtown CollegeBen Brudnock, Wells Fargo EFS
Funding the gap Recent statistics and trends Key Differences between PLUS and Private
Eligibility; primary borrower Repayment How pricing is determined
Understanding APR and rate shopping FAO panel discussion: strategies & school
communication examples Resources for schools and families
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Agenda
SOURCE: The College Board, Trends in Student Aid 2013
SOURCE: The College Board, Trends in Student Aid 2013, Figure 1
5
Credit Factoid: 19.6% of the population has a credit score of 750-
79918.1% of the population has a credit score of 800-
850
Source: MyFico.com
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Federal and Private Comparison, continued
Key Differences: loan approval & pricing
PLUS loan: one size fits all Approval process based on the results of “adverse
credit history” check No…credit score, debt-to-income ratio, minimum
income, proof of income and/or employment requirements
Pricing: 10-year Treasury Note + 4.60%, fixed for life of loan
2014-15 rate: 7.21% (2.61% T-Note + 4.60%), less 4.288% (now 4.292%) up-front fees
Key Differences: loan approval & pricing
Private education loan: to each his/her own Approval process based on layers of credit &
income checks; each lender has own criteria Adverse credit history, plus…credit score, debt-
to-income ratio, minimum income, proof of income and/or employment requirements
Pricing: Risk Based, per credit checks. Most lenders have several tiers based on Prime (some LIBOR) plus a margin per tier. Nearly all have zero fees.
Rate options: Variable rates generally between 3.00-9.00%; Fixed rates generally between 6.00-12.00%
Understanding APR & Rate Shopping
To fee, or not to fee…that is the question
Direct PLUS in 2014-15Loan amount $10,0004.288% fees ($428.80)Interest rate 7.21%Term 120 monthsMonthly payment $122.40Cumulative payment$14,693.52Interest paid $4,693.52
Private Education LoanLoan amount $10,000Zero fees ($0)Interest rate 8.21%Term 120 monthsMonthly payment $122.44Cumulative payment$14,692.81Interest paid $4,692.81The example above shows a “break-even”
point on a $10,000 loan between PLUS and a zero-fee Private Education Loan for 2014-15
The up-front fees on Direct PLUS makes the total debt equal to that of a zero-fee Private
loan at 8.21%Calculator used: FinAid.org
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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
Presenting loan options: a tale of three campuses
Penn State University (and branch campuses) Major land-grant public institution(s) Private loan historical list on school website
Elizabethtown College Small/medium sized private institution No private loan list
Kutztown University Medium sized public institution Private loan preferred list on ELMSelect
Private loans: how the Dept. of Ed. views schools
1. No List School No display of private education lenders on school
website or via printed materials
2. Historical List School Lenders displayed (on school website or 3rd party site)
that have made loans to students at the school for a “set period of time.”
3. Preferred Lending Arrangement (PLA) Lenders displayed (on school website or 3rd party site)
that have been selected by the school using a defined criteria & process.
Understanding the use of 3rd party websites
1. Consider the website an extension of your school The information & messages displayed are yours, particularly
when it is linked from your school website.
2. Using a 3rd party site does not automatically mean your school has a Preferred Lending Arrangement The content and messaging will determine whether or not the
list of lenders is a historical or PLA listing.
3. Most commonly used 3rd party sites ELM Select (historical or PLA) Great Lakes Fast Loan Choice (historical or PLA) PA Private Loan Marketplace (PLA) Simple Tuition (PLA) FinAid.org (comprehensive list; considered neutral)
14SOURCE: Geneva College
School Communication Strategies, continued
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Is everyone aware of interest rates and… How they are determined? When they change? Future predictions?
Business Office Admissions Counselors Support Staff
Staff Training
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What’s the bottom line?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: 7.21% with 4.292% 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
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Resources for Schools and Families
FastWeb’s “Quick Reference Guide on Choosing a Student or Parent Loan
Studentloans.gov Federal v. Private Loan comparison chart
FinAid.org’s Private Loan Comparison
PA Marketplace
ELM Select
Fast Choice/Fast Alt Loan Choice by Great Lakes
Choice wrap from Wells Fargo
Other lender publications/comparison tools