Changing the Conversation – Home Equity, Federal and Private Loans. Leslie Bembridge, Vice-President Product Management, Education Finance. It Started with a Discussion on Student Debt.
Leslie Bembridge, Vice-President
Product Management, Education Finance
It's not surprising that student loan debt remains a problem child. College prices continue to defy inflation rates and the biggest percentage price hikes are coming from public universities, which is where most middle and low-income students have traditionally depended upon for bachelor degrees.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the Director of the Consumer Financial Protection Bureau and the Secretary of Education to submit a Report on private student loans. (Issued August 2012)
The Conversations are changing… Consumer Protection
Like all things in the world of student financial aid, nothing really lasts forever….
1.5% of Principal Loan Amount rebated after 12 consecutive on-time monthly payments (eliminated July 1, 2012)
Funding Education with Home Equity Loans
…a home equity loan -- otherwise known as a second mortgage -- may also be a better solution than some of the federal student loan programs as well. If you can deduct your mortgage interest at tax time, your effective interest rate on a home equity loan could be less than that of a PLUS or even a Stafford loan.
That said, a fixed-rate second mortgage delivers the entire amount in one lump sum, and you must begin paying it off right away. Your lump sum can't be cut, and your payment is attached to a fixed rate. One way of splitting the difference is to get a HELOC that allows you to fix the rate at one or more points during the life of the loan.
Borrower Eligibility Financial Aid Office
Loan Payment and Terms
Interest Rate and Caps
Loan fees; origination, repayment, appraisal, “closing costs”
Deferment and Repayment Options
Pre-payment PenaltiesLoan Features to Consider
Can you manage a monthly payment plan to finance a portion?
Who will be doing the primary borrowing?
Should you share the borrowing?
What affect does this have on other family plans?
What are short and long term goals of family, student?
Is smallest monthly payment most important?
Is lowest interest rate important?
Are low origination fees important?
Are the tax benefits most important?
What is your FICO Score? (myfico.com)Questions to Consider
Parent is the borrower for undergrad students, Graduate students for GPLUS
Death, disability, identity theft cancellation
Fixed/Capped interest rate
Economic Hardship and Unemployment Deferments
In-school Deferment based on borrower’s enrollment
For those with poor credit, often best option
No shared debt burden with student (undergrad)
Ten year term
Fixed rate of 7.9%
4% origination fee
Higher rate than fixed private loans for high credit scoresFederal PLUS Loans
Lower rates for some
Parent acts as co-signer with possible release
Student establishes credit
Longer repayment terms
0 fees (in many cases)
More debt burden on student
Rates and fees may vary
Longer term means more interest
Can’t be consolidated into a federal loanAlternative Loans
Interest is tax write-off
No school certification
More difficult to get approved
Application fees may be higher
Many do not have death/disability cancellation benefits
Market sensitive limits - equity
Longer term means more interest
Higher interest rate caps
Failure to repay the loan may jeopardize home ownershipHome Equity Loans