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Bridging the Gap to Higher Education Financing
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Bridging the Gap to Higher Education Financing

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  • Explain why Private are more expensive than Federal loans
  • Transcript

    • 1. Bridging the Gap to Higher Education Financing An Overview of the Private Student Loans Tamera Briones, Chief Executive Officer, Education Finance Partners
    • 2. Student Loan Landscape
    • 3. Market Dynamics
      • Tuition rose 59% in the past decade
      • Family income rose 2%
      • Federal loan limits remain stagnant
      • Grants and scholarships are not keeping pace with inflation
      Source: The College Board, 2005
    • 4. Market Overview Other Student Loans = Federal Perkins Program ($1.14 B), State Sponsored Loans ($1 B), and other Federal Loans ($157 MM) “ FDLP” indicates loans originated through the Ford Direct Loan Program “ FFELP” indicates loans originated through the Federal Family Education Loan Program Source: The College Board – Trends in Student Aid 2006 Private Loans 19% Grants & Credits 44% Student Loans 56% Total Financial Aid Market Size: $152 Billion $86 B $66 B Federal (FDLP) 17% Federal (FFELP) 61% Student Loan Composition $14.8 B $16.3 B $52.5 B Student Loans Market Size: $86 Billion Other Loans 3% $2.3 B AY 2005 - 2006
    • 5. The Funding Gap Total Cost of Education Versus Federal Loan Limits (2005/06 Academic Year) - 3rd - 5th Years - 2nd Year - 1st Year $105,000 $85,000 $65,000 $45,000 $25,000 $35,264 $71,843 $94,843 Private Four-Year Public Four-Year Cumulative Loan Limit Federal Loan Limits (Subsidized & Unsubsidized) $23,000 Notes: Assumes average student enrollment of 4.75 academic years for public and 4.25 years for private. Estimates are for in-state resident students and include tuition, room and board, books and supplies, transportation costs, and other expenses. Excludes annual grants and scholarships, estimated at $3300 per student for public and $9600 for private. Source: The College Board. $58,264
    • 6. Family Dynamics
      • America does not save
        • Personal Savings Rate negative 0.5% 1
        • 74% aged 45-54 have a retirement plan in place 2
          • Of those, 57% have saved less than $50K 2
      • College Savings
        • 9% of adults saving for retirement are also saving for college 2
      • Home Equity
        • 75.9% own a home
        • $150,000 in home equity
      • Touch Choice between retirement or education
        • $1MM 2 needed for retirement
        • 62% believe paying for their children’s college will significantly impact their retirement
      • US Dept. of Commerce, The Organization of Economic Cooperation and Development
      • “ 2006 Retirement Confidence Survey,” Employee Benefit Research Institute
      • “ Undergraduate Students and Credit Cards,” Nellie Mae, May 2005
    • 7. Evolving Financial Aid Landscape Federal Private $ Amount (Billions) Stafford subsidized & unsubsidized, PLUS and Grad PLUS.
    • 8. Pricing for Risk The Key Difference Between Federal and Private Loans
    • 9. Federal Lending Lender & School
    • 10. Private Lending
    • 11. Pricing for Risk $7,500 $7,500 Federal Private Loan Amount
    • 12. Pricing for Risk $7,500 $225 Risk Amount Interest & Processing Federal Private
    • 13. Price Equates to Risk
      • Bankrate.com 2/8/07
      • Survey of top 6 private lenders 2/8/07
      Consumer Loans Mortgage (5/1 ARM) 1 Mortgage (30 year fixed) 1 Equity Line of Credit ($30,000) 1 Car Loan (60 month, new car) 1 Private Education Loan 2 Credit Card (student class) 1 Average Interest Rates 5.62% 5.80% 8.20% 6.95% 10.88% 18.24%
    • 14. Undergraduates & Credit Cards
      • 76% have credit cards
      • 24% use credit cards for tuition
      • 56% graduate with four credit cards & an average total balance of $6,400
    • 15. The Gap Source: The College Board, 2005 Federal Loan Aid Grants and Scholarships Employment and Work/Study 25% 20% 35% 20% Funding Gap
    • 16. Student Debt – Meet Frank
      • Frank Needs a $10,000 Private Loan
      • He Has:
        • Established Credit
        • Parents Willing to Co-Sign
        • 850 FICO  Score
      • His Rate: 7.5% - No Fee
      • His Monthly Payment: $123.99
      • Total Cost Over Life of Loan = $22,317.82
      Based on an $8000 loan amount deferred for 54 months, interest rate never changes, paid off over 180 monthly payments.
    • 17. Student Debt – Meet Sue
      • Sue Needs a $10,000 Private Loan
      • She Has:
        • Established Credit
        • No Co-Signer
        • Minor Flaws on Credit Report
        • 665 FICO  Score
      • Her Rate: 11% + Fee of 2%
      • Her Monthly Payment: $173.32
      • Total Cost Over Life of Loan = $31,197.54
      Based on an $8000 loan amount deferred for 54 months, interest rate never changes, paid off over 180 monthly payments.
    • 18. National FICO  Score Distribution <500 500 520 540 560 580 600 620 640 660 680 700 720 740 760 780 >800 2% 1 % 2 % 2 % 3 % 4 % 5 % 7 % 8 % 9% 9% 9% 9% 9% 8% 8% 5%
    • 19. Student Loan Debt
      • 55% - Feel burdened by school debt
      • 76% - Loans mean attending the college of choice
      • 85% - The benefits are worth it
    • 20.  

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