private loans vs. plus loans presented by: michael mcfarlane, charter one/citizens bank cheryl...
TRANSCRIPT
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Private Loans vs. PLUS Loans
Presented By:
Michael McFarlane, Charter One/Citizens BankCheryl Barnes, Discover Student Loans
Julie Rehder, ELM ResourcesKathleen Koch, Seattle University, School of Law
Jamie Shrode, Univ. of CA Berkeley, Haas School of Business
WASFAA 2013, Phoenix, AZ
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WASFAA Presentation 2013
Why do I need to know this?
• Dispel Myths• Gain greater understanding of the industry• Empower your office with new knowledge
• Help Students• Comprehensive loan counseling• Provide access to financing options
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WASFAA Presentation 2013
The Private Student Loan Market
Fact about Today’s Market Originations
Did you Know?
93% of all new student loans are originated by the federal government? ($114 billion –Page R-15 Dept. of Ed Budget)
Private lenders only originate 7% of today’s loans equal to $7 to $8 billion
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WASFAA Presentation 2013
Myth versus Fact
MYTH: Government loans are always less expensive for borrowers than private loans.
FACT:When measuring the true cost of credit through an APR comparison, private loans often compare favorably to unsubsidized federal loans, particularly Graduate PLUS Loans.
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WASFAA Presentation 2013
Myth versus Fact
MYTH:Private student loans are all variable products with extremely high interest rates.
FACT: Most lenders offer students the choice of fixed-rate or variable-rate products.
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WASFAA Presentation 2013
Myth versus Fact
MYTH: Private student loans can pose more risk for borrowers than federal student loans.
FACT: Federal loans, in contrast to private student loans, are provided without the most basic consumer protection – a determination of the borrower’s ability to repay.
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WASFAA Presentation 2013
Myth versus Fact
MYTH: Students and families do not receive adequate information about private student loan terms before borrowing.
FACT: Lenders provide three notices containing 18 disclosure items about private loan terms at three different times before a private loan is made. These disclosures are required by law. The Federal Reserve conducted extensive consumer testing before establishing these new disclosure requirements, which have been in effect since February 2010.
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WASFAA Presentation 2013
Private vs. PLUSFeatures Private Student Loan
(Most Major Lenders)PLUS
Fixed Interest Rate As low as 3.75% 7.90%
Variable Interest Rate As low as 2.75% Not available
Fees Usually 0% 4.204% (as of 7/1/13)
Term Up to 25 years Up to 25 years
Borrower Benefits 0.25% - 0.50% IRR for ACH and or on-time payments;Graduation Rewards
0.25% IRR for ACH
FAFSA Requirement No Yes
SAP Requirement Varies by Lenders Yes
Primary Borrower Student Parent or Graduate Student
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WASFAA Presentation 2013
Private vs. PLUSFeatures Private Student Loan
(Most Major Lenders)PLUS
Credit Eligibility Loan approval is based on credit. Students without sufficient credit areencouraged to apply with qualified cosigners.
Student must not be in default on a federal student loan. No adverse credit (90 days or more delinquent on any debt).
< than ½ time attendance
Sometimes Yes No
School Certification >95% Yes
Past Due Balance Varies by Lenders No
Choice of repayment options
Yes: Deferred, Interest only, full Principal & Interest
Yes: Deferred or full Principal and interest
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WASFAA Presentation 2013
Private vs. PLUSFeatures Private Student Loan
(Most Major Lenders)PLUS
Forbearance Options
Limited Liberal
Loan Forgiveness The loan will be forgiven in the unfortunate event of the student borrower’sdeath or permanent and total disability
The loan will be forgiven in the unfortunate event of the student borrower’s death or permanent and total disability
Debt Forgiveness for Public Interest service
No Yes, must meet the Federal Public Interest Loan Forgiveness Program requirements
IBR, Graduated Repayment
No Yes
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WASFAA Presentation 2013
What are other schools doing?
• Providing objective comparisons • Encouraging students to make the best choice for
their particular situation• Issuing RFP’s • Publishing Preferred Lender Lists• Ceasing to auto-package Grad PLUS • Providing disclaimers on financing options
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WASFAA Presentation 2013
School reference #1 – Seattle University School of Law
Insert Screen Shots
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WASFAA Presentation 2013
Seattle University School of Law
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WASFAA Presentation 2013
Seattle University School of Law
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WASFAA Presentation 2013
Seattle University School of Law
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WASFAA Presentation 2013
School reference #2 – University of California Berkeley, Haas School of Business
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WASFAA Presentation 2013
UC Berkeley Haas School of Business
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WASFAA Presentation 2013
University of Mississippi (Ole Miss)
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WASFAA Presentation 2013
University of Mississippi (Ole Miss)
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WASFAA Presentation 2013
University of Mississippi (Ole Miss)
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WASFAA Presentation 2013
University of Mississippi (Ole Miss)
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WASFAA Presentation 2013
University of Mississippi (Ole Miss)
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WASFAA Presentation 2013
School reference #4 - Texas Christian University
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WASFAA Presentation 2013
Texas Christian University
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WASFAA Presentation 2013
Texas Christian University
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WASFAA Presentation 2013
School Texas Christian University
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WASFAA Presentation 2013
School reference #5 University of Maine
http://umaine.edu/stuaid/files/2010/03/Graduate-Lender-List-UMO9.pdf
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WASFAA Presentation 2013
University of Maine
http://umaine.edu/stuaid/files/2010/03/Graduate-Lender-List-UMO9.pdf
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WASFAA Presentation 2013
Many vendors in the marketplace:• ELM Select 2.0• Fast choice (Great Lakes)
These platforms provide students and schools:
• Comparison Tools• Data Management• Compliance
Loan Comparison Tools
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WASFAA Presentation 2013
How can I help my students?
• Educate them to become savvy consumers• Provide them with the best available consumer
information and financing options• Network with colleagues at pair institutions • Meet with lender partners to review their loan
products• Attend FSA conferences/review conference materials
that pertain to private loans and PLUS loans
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WASFAA Presentation 2013
ReferencesThank you to the following schools and organizations:
CBA Education Funding Committee www.cbanet.org/Advocacy/Issues/Student_Lending_Facts_Archive.aspx
Seattle University School of LawInsert LInk
UC Berkeley Haas School of Business www.haas.berkeley.edu/MBA/finaid/loans/private-loans.html
University of Mississippi (Ole Miss)www.olemiss.edu/depts/financial_aid/CreditBasedLoan.html
Texas Christian Universitywww.fam.tcu.edu/loans_ugrd_loan_compare.asp
University of Mainehttp://umaine.edu/stuaid/files/2010/03/Graduate-Lender-List-UMO9.pdf
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WASFAA Presentation 2013
CLFE Mission
As a diverse coalition of industry participants, CLFE engages in activities that improve and preserve the quality and integrity of education financing products and services delivered to California students, parents and schools. We are a non-profit mutual benefit corporation that represents lenders, servicers, secondary markets and guarantors that provide free resources including collaborative training, legislative updates that supports local and regional associations.