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PLUS and Private Education Loans

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.

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PLUS and Private Education Loans

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  1. 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

  2. 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 Agenda 2

  3. SOURCE: The College Board, Trends in Student Aid 2013

  4. SOURCE: The College Board, Trends in Student Aid 2013, Figure 1

  5. Credit Factoid: 19.6% of the population has a credit score of 750-799 18.1% of the population has a credit score of 800-850 Source: MyFico.com 5

  6. Federal and Private Comparison, continued 6

  7. 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

  8. 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% Key Differences: loan approval & pricing

  9. Understanding APR & Rate Shopping To fee, or not to fee…that is the question Direct PLUS in 2014-15 Loan amount $10,000 4.288% fees ($428.80) Interest rate 7.21% Term 120 months Monthly payment $122.40 Cumulative payment $14,693.52 Interest paid $4,693.52 Private Education Loan Loan amount $10,000 Zero fees ($0) Interest rate 8.21% Term 120 months Monthly payment $122.44 Cumulative payment $14,692.81 Interest paid $4,692.81 The 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

  10. Is your school “Pro-PLUS?” Here’s a website example: School Communication Strategies “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!

  11. 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 Presenting loan options: a tale of three campuses

  12. 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. Private loans: how the Dept. of Ed. views schools

  13. 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) Understanding the use of 3rd party websites

  14. School Communication Strategies, continued SOURCE: Geneva College

  15. Is everyone aware of interest rates and… • How they are determined? • When they change? • Future predictions? • Business Office • Admissions Counselors • Support Staff Staff Training

  16. 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

  17. 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

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