PLUS and Private Education Loans

What’s right for each student? Understanding the differences and exploring the options for

your office.

PresentersCarolyn Julian, Penn St. HarrisburgBernard McCree, Kutztown UniversityChristopher Mowl, Elizabethtown CollegeBen Brudnock, Wells Fargo EFS

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

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Agenda

SOURCE: The College Board, Trends in Student Aid 2013

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

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Credit Factoid: 19.6% of the population has a credit score of 750-

79918.1% of the population has a credit score of 800-

850

Source: MyFico.com

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Federal and Private Comparison, continued

Key Differences: loan approval & pricing

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

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%

Understanding APR & Rate Shopping

To fee, or not to fee…that is the question

Direct PLUS in 2014-15Loan amount $10,0004.288% fees ($428.80)Interest rate 7.21%Term 120 monthsMonthly payment $122.40Cumulative payment$14,693.52Interest paid $4,693.52

Private Education LoanLoan amount $10,000Zero fees ($0)Interest rate 8.21%Term 120 monthsMonthly payment $122.44Cumulative payment$14,692.81Interest paid $4,692.81The 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

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Is your school “Pro-PLUS?” Here’s a website example:“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!

School Communication Strategies

Presenting loan options: a tale of three campuses

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

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

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.

Understanding the use of 3rd party websites

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)

14SOURCE: Geneva College

School Communication Strategies, continued

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Is everyone aware of interest rates and… How they are determined? When they change? Future predictions?

Business Office Admissions Counselors Support Staff

Staff Training

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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

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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