Show Me the Money: Best Practices in Advising Students on Federal & Credit-Based Loans
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Show Me the Money: Best Practices in Advising Students on Federal & Credit-Based Loans

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Shifting credit standards, loan fees, and interest rates have narrowed the differences between PLUS and Private Education Loans. There are significant benefits and drawbacks to each of these types of ...

Shifting credit standards, loan fees, and interest rates have narrowed the differences between PLUS and Private Education Loans. There are significant benefits and drawbacks to each of these types of education financing options. For some students, a low variable-rate private loan may be the best financial decision for funding their education. For others, a PLUS Loan with flexible repayment options may be the most sensible. Understanding the nuances of these programs and the long-term outlook for paying back supplemental loan debt is key to advising students on where to turn to cover the gap not covered by a student’s financial aid package. Join us for a look at Federal and Private Student Loan options and how you can best answer the question “what now?”

**This session will be presented at the annual conference for the Massachusetts Association of Student Financial Aid Administrators on November 7, 2013.

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Show Me the Money: Best Practices in Advising Students on Federal & Credit-Based Loans Presentation Transcript

  • 1. Show Me the Money Best Practices in Advising Students on Federal & Credit-Based Loans ROSEMARY HILLIARD & DAVID KELLY GRADUATE & PROFESSIONAL CONCERNS COMMITTEE MASFAA CONFERENCE NOVEMBER 7, 2013
  • 2. What Now? TUSDM Award Letter 13-14 120000 100000 80000 60000 40000 20000 0 Gap Stafford Loan HPSL Grant Merit Scholarship
  • 3. Starting the Conversation  Has the family maxed out more favorable loan opportunities?  Has the student (or their parent) taken a look at their credit report?  Has the student developed a realistic budget for themselves?  “If you live like a dentist while you’re in school, then you’re going to have to live like a dental student when you’re a dentist.” – Lori Moore, Access Group
  • 4. Funding the Gap FEDERAL PLUS LOANS VS. PRIVATE EDUCATION LOANS
  • 5.  Grad & parent of undergrad. FEDERAL PLUS LOANS •A federally-backed supplemental education loan.  US Citizens, Permanent Residents, & Eligible NonCitizens.  COA less other financial aid received.  13-14 interest rate is 6.41%.  Student must file a FAFSA and meet federal financial aid guidelines to apply for a PLUS Loan.
  • 6. PLUS Loans: The Good  Consolidation available with other federal loans.  Flexible repayment schedules: Standard, Extended, Graduated, IBR, (Grad PLUS), PAYE (Grad PLUS).  Public Service Loan Forgiveness (Grad PLUS).  ‘Easier’ credit check than some private loans = possible ease of approval.  Fixed interest rate for all applicants.
  • 7. PLUS Loans: The Bad  All applicants receive same interest rate regardless of creditworthiness.  Only remaining borrower benefit is interest rate reduction for utilizing ACH.  Rates now fluctuate (yearly, fixed for the life of the loan) up to a 10.5% cap.  High origination fees: currently 4.204%, will be 4.288% starting 12/1.
  • 8. PRIVATE EDUCATION LOANS  Student or student with a co Education loans backed by a private company, such as a bank or a credit union.    signer. US Citizens, Permanent Residents, Eligible NonCitizens, & Foreign Students. COA less other financial aid (unless lender sets annual/aggregate caps). 13-14 interest rates between 2.25%-13.99% (anecdotal). Students not required to meet federal aid guidelines.
  • 9. Private Loans: The Good  Interest rates based on creditworthiness, typically     between 2.25% - 13.99%. Adding a co-signer may further bring down the interest rate. Often no origination/disbursement fees. Lenders may offer discounts and borrower benefits, such as interest rate reductions for participating in ACH, making a certain number of on-time payments, and a co-signer release option. Students not required to complete the FAFSA or meet federal aid requirements. In most cases, lender/servicer will remain the same through the life of the loan.
  • 10. Interest Formula Pros & Cons  Credit score  Credit history (length, consistency re: payment)  Default rate of school  Income  Program of study= future earning potential  ???  Does this mean only “worthy” applicants will be approved?  Check with individual lenders for more specific criteria.
  • 11. Private Loans: The Bad  Less flexible repayment terms (typically 5-15 years, some offer a max of 20 years).  Limited consolidation options  Cannot be included in a Direct Consolidation Loan to receive federal loan repayment benefits.  In-school deferment options vary by lender.  Variable interest rates may be more risky over time.
  • 12. What Now? PLUS PRIVATE
  • 13. IF…… PLUS Poor Borrowing History….
  • 14. IF… PRIVATE Excellent credit & high earning potential…
  • 15. IF… PLUS Enrolled in school for a long time…
  • 16. IF… PLUS Low earning potential postgraduation…
  • 17. IF… PRIVATE “Non-traditional” student…
  • 18. What Now? STRATEGIES FOR SUCCESSFUL COUNSELING
  • 19. Strategies for Successful Counseling  Max out favorable aid/scholarship opportunities.  Live like a student!  Financial circumstances post-graduation (BLS?)  Default rate/success of graduates.  Transparency.  How are you presenting this information?
  • 20. Thank You! QUESTIONS? COMMENTS? CONCERNS? ROSEMARY.HILLIARD@TUFTS.EDU DAVEK@BU.EDU