thursday, september 27, 2007 region vi - presentation and panel discussion presented by christina...

Thursday, September 27, 2007Thursday, September 27, 2007Region VI - Presentation and Panel DiscussionRegion VI - Presentation and Panel Discussion

Presented by Christina RosadoPresented by Christina Rosado

Marymount Manhattan CollegeMarymount Manhattan College

The 411 on The 411 on Alternative LoansAlternative Loans

What is an Alternative What is an Alternative Loan?Loan?

A loan offered to credit-worthy students.A loan offered to credit-worthy students. Not regulated by the government; there is no cap on interest rates.Not regulated by the government; there is no cap on interest rates.

Interest ratesInterest rates Rates are variable on almost all alternative loans.Rates are variable on almost all alternative loans.

Rates can be adjusted monthly or quarterly depending on the lender.Rates can be adjusted monthly or quarterly depending on the lender. Lenders can either use the prime rate or the LIBOR rate.Lenders can either use the prime rate or the LIBOR rate. Depending on the student and/or cosigner’s credit, the lender may Depending on the student and/or cosigner’s credit, the lender may

choose to add a percentage to the interest rate.choose to add a percentage to the interest rate. The better your credit rating, the better your rate and vice versa.The better your credit rating, the better your rate and vice versa.

Origination FeesOrigination Fees Depending on the lender, fees can be deducted anywhere from 0 – Depending on the lender, fees can be deducted anywhere from 0 –

10% or more.10% or more. Most lenders will add on the fees to the back end of the loan.Most lenders will add on the fees to the back end of the loan.

EligibilityEligibility

Eligibility varies from lender to lender.Eligibility varies from lender to lender. A FAFSA form is not required.A FAFSA form is not required. Student and cosigner must be a US citizen or Student and cosigner must be a US citizen or

permanent resident.permanent resident. International students may apply for alternative International students may apply for alternative

loans but they must have a US cosigner.loans but they must have a US cosigner.

Some lenders require that you borrow a Some lenders require that you borrow a minimum loan amount.minimum loan amount.

How do we determine How do we determine eligibility?eligibility?

How to calculate Alternative loan eligibility:How to calculate Alternative loan eligibility:Priority of packaging:Priority of packaging:1.1. Pell, TAP and ScholarshipsPell, TAP and Scholarships2.2. Institutional grantsInstitutional grants3.3. Stafford Loans and College Work StudyStafford Loans and College Work Study4.4. Unsubsidized and PLUS loans.Unsubsidized and PLUS loans.

Cost of attendanceCost of attendance- - Financial Aid awardedFinancial Aid awarded

Alternative EligibilityAlternative Eligibility

How do we determine How do we determine eligibility? (cont)eligibility? (cont)

Determine Loan periods and disbursement dates.Determine Loan periods and disbursement dates. Students may borrow up to their cost of attendance.Students may borrow up to their cost of attendance.

Lenders will approve a loan for any dollar amount.Lenders will approve a loan for any dollar amount. It is important to remember that the school determines the eligibility.It is important to remember that the school determines the eligibility.

Loans that do not require school certification.Loans that do not require school certification. Alternative loans must be included as "estimated financialAlternative loans must be included as "estimated financial

assistance" ifassistance" if Enrollment is a condition for the loanEnrollment is a condition for the loan Does not matter where loan proceeds are sent orDoes not matter where loan proceeds are sent or Whether or not the school certified enrollmentWhether or not the school certified enrollment May replace EFCMay replace EFC Think about it as an outside scholarshipThink about it as an outside scholarship If the loan exceeds the COA or the EFC, other aid If the loan exceeds the COA or the EFC, other aid mustmust be be

adjusted according to the Department of Education.adjusted according to the Department of Education.

Why should we know Why should we know about them?about them?

Students may borrow alternative loans to Students may borrow alternative loans to cover a past due balance.cover a past due balance.

Parents do not want to be responsible for Parents do not want to be responsible for the PLUS loan repayment.the PLUS loan repayment.

Why is important that we Why is important that we counsel our students?counsel our students?

Students do not look past what they owe Students do not look past what they owe this year.this year.

Students do not look at the repayment Students do not look at the repayment figures.figures.

Students think they will make a 6 figure Students think they will make a 6 figure salary upon graduation.salary upon graduation.

How do students apply?How do students apply?

Students must either call or log online to Students must either call or log online to complete a credit check.complete a credit check. Credit checks are more extensive then the PLUS Credit checks are more extensive then the PLUS

loan.loan. Credit requirements are set by each lender.Credit requirements are set by each lender. Income to debt ratio is considered.Income to debt ratio is considered. Additional information may be required.Additional information may be required.

Income information, etc.Income information, etc.

Once the credit check is complete the student Once the credit check is complete the student will be informed of their approved interest rate.will be informed of their approved interest rate.

QUESTIONQUESTION

A student has only borrowed their Stafford Loan and needs additional

funding. The student is approved on their own credit for an alternative loan. The interest rate, has been set for 10%.

What recommendation would you make to the student?

1. If the student has only borrowed their Stafford Loan, the PLUS should be recommended.

2. Although the student is approved on their own a cosigner should be added. By having an approved cosigner, the interest rate will automatically be reduced.

Cosigner option Cosigner option

Cosigners are equally liable for the loan.Cosigners are equally liable for the loan. Although the loan is in the borrower’s Although the loan is in the borrower’s

name, the loan will still show up on the name, the loan will still show up on the cosigner’s credit report.cosigner’s credit report.

Cosigner release optionCosigner release option Lenders may offer the option to release a Lenders may offer the option to release a

cosigner if a student repays a loan for a cosigner if a student repays a loan for a specific period of time. The terms can vary specific period of time. The terms can vary by lender.by lender.

RepaymentRepayment

Begins 6 months after the student graduates or their Begins 6 months after the student graduates or their last date of attendance.last date of attendance. Interest will accrue on the loan from the time of disbursement Interest will accrue on the loan from the time of disbursement

but will be capitalized.but will be capitalized.

Students have from ten to twenty years to repay the Students have from ten to twenty years to repay the loan.loan.

Exit CounselingExit Counseling Not required for alternative loans.Not required for alternative loans. Keep in mind that NSLDS will only include Federal loans, not Keep in mind that NSLDS will only include Federal loans, not

alternative.alternative.

QuestionsQuestions

A student applies for an alternative loan with their A student applies for an alternative loan with their parent as the cosigner. The cosigner has been parent as the cosigner. The cosigner has been

denied credit. What recommendations should you denied credit. What recommendations should you make to the student?make to the student?

If the parent has been denied credit as a cosigner, check to see if they processed a credit check for the PLUS.

If denied a PLUS, the student will be eligible for an Unsubsidized loan. If approved they now have the option of a lower interest loan.

A few notes…A few notes…

Stafford loans should always be Stafford loans should always be encouraged.encouraged.

Credit criteria is different for every lender.Credit criteria is different for every lender. Even if a student is denied credit from one Even if a student is denied credit from one

lender, it is possible to be approved with lender, it is possible to be approved with another.another.

Thank Thank you!!you!!

Understanding Understanding Prime & LIBORPrime & LIBOR

Region VI - Presentation and Panel DiscussionRegion VI - Presentation and Panel Discussion

Mary Torres-EricksonMary Torres-Erickson

M&T BankM&T Bank

Understanding Prime and LIBORUnderstanding Prime and LIBOR

Interest RatesInterest Rates LIBORLIBOR PrimePrime MarginMargin Prime or LIBOR?Prime or LIBOR? Where can I find these rates?Where can I find these rates? ResourcesResources

Interest RatesInterest Rates

Interest Rate: Interest Rate: A rate which is charged or paid for the use of A rate which is charged or paid for the use of money.money.

Banks/lenders generally use one of two types of Banks/lenders generally use one of two types of interest rate indexes plus a margin when charging interest rate indexes plus a margin when charging borrowers to use their money. borrowers to use their money.

LIBORLIBOR PrimePrime

(Borrowing money is not free. We would love that for (Borrowing money is not free. We would love that for our students; free money is grant money)our students; free money is grant money)

LIBORLIBOR

LIBOR rate: LIBOR rate: LLondonondon IInternterbbank ank OOffered ffered RRate. ate.

It's the rate of interest at which banks offer to lend It's the rate of interest at which banks offer to lend money to one another in the wholesale money money to one another in the wholesale money markets in London. It is a standard financial index markets in London. It is a standard financial index used in U.S. capital markets and can be found in used in U.S. capital markets and can be found in the Wall Street Journal. the Wall Street Journal.

In general, its changes have been smaller than In general, its changes have been smaller than changes in the prime rate. It's an index that is used changes in the prime rate. It's an index that is used to set the cost of various variable-rate loans, to set the cost of various variable-rate loans, including credit cards and adjustable-rate including credit cards and adjustable-rate mortgages. (Definition: www.mortgages. (Definition: www.bankrate.combankrate.com))

LIBORLIBOR (con’t)(con’t)

The average of 8 banks out of 16. The average of 8 banks out of 16.

Basically, interest rate indexes of 16 lenders are Basically, interest rate indexes of 16 lenders are compared. The 4 highest and 4 lowest rates are compared. The 4 highest and 4 lowest rates are omitted and the remaining 8 determine the LIBOR omitted and the remaining 8 determine the LIBOR for that period.for that period.

LIBOR (3LIBOR (3rdrd Quarter 7/1/2007 – 9/30/2007) = 5.32 Quarter 7/1/2007 – 9/30/2007) = 5.32

LIBOR LIBOR trendtrend is = 5.12 is = 5.12

PrimePrime

A common benchmark for consumer and business A common benchmark for consumer and business loans set by banks, usually at a level 3 percentage loans set by banks, usually at a level 3 percentage points higher than the Federal Funds rate. The rate points higher than the Federal Funds rate. The rate given to consumers on their loans is often given to consumers on their loans is often determined as the prime rate plus a certain determined as the prime rate plus a certain percentage (margin), which represents the lender's percentage (margin), which represents the lender's assessment of the risk in lending, plus its profit assessment of the risk in lending, plus its profit margin. (Definition: www.margin. (Definition: www.bankrate.combankrate.com))

Most banks will establish their own prime rates. Most banks will establish their own prime rates. Certain lenders will use the Wall Street Journal Certain lenders will use the Wall Street Journal

Prime Rate Prime Rate

PrimePrime

Federal Reserve BoardFederal Reserve Board Founded by Congress in 1913Founded by Congress in 1913 In order to achieve a flexible and stable economyIn order to achieve a flexible and stable economy..

Current Prime = 8.25%Current Prime = 8.25% Trend = 7.75% (after Federal Reserve change 9/17/2007)Trend = 7.75% (after Federal Reserve change 9/17/2007)

Wall Street Journal Prime RateWall Street Journal Prime Rate

(WSJ Prime) The Wall Street Journal, which surveys (WSJ Prime) The Wall Street Journal, which surveys large banks and publishes the consensus prime large banks and publishes the consensus prime rate. The Journal surveys the 30 largest banks, and rate. The Journal surveys the 30 largest banks, and when three-quarters of them (23) change, the when three-quarters of them (23) change, the Journal changes its rate; effective on the day the Journal changes its rate; effective on the day the Journal publishes the new rate. It's the most widely Journal publishes the new rate. It's the most widely quoted measure of the prime rate, which is the rate quoted measure of the prime rate, which is the rate at which banks will lend money to their most-at which banks will lend money to their most-favored customers. The prime rate will move up or favored customers. The prime rate will move up or down in lock step with changes by the Federal down in lock step with changes by the Federal Reserve Board.Reserve Board.

MarginMargin

The percentage that the lender The percentage that the lender adds/subtracts from the index rate.adds/subtracts from the index rate.

Index + (-) Margin = Total Interest*Index + (-) Margin = Total Interest*

Margins vary based on overall credit Margins vary based on overall credit rating/history of borrower and/or co-rating/history of borrower and/or co-borrower.borrower.

*New York State Usury Law caps the interest *New York State Usury Law caps the interest rate charged for unsecured personal loans rate charged for unsecured personal loans at 25%. at 25%. ((http://www.banking.state.ny.us/legal/lo060613.htmhttp://www.banking.state.ny.us/legal/lo060613.htm))

MarginMargin

Base Interest Base Interest Index Index

Margin Margin

(Credit (Credit Criteria)Criteria)

Final Interest Final Interest RateRate

LIBOR - 5.13%LIBOR - 5.13% 2.5% - 6%2.5% - 6% 7.63% - 11.13%7.63% - 11.13%

Prime - 7.75%Prime - 7.75% 0 – 10%0 – 10% 7.75% - 17.75%7.75% - 17.75%

LIBOR or Prime?LIBOR or Prime?

There is no “right or wrong” interest rate. There is no “right or wrong” interest rate. Every bank/lender will charge interest on Every bank/lender will charge interest on money borrowed (interest rate). money borrowed (interest rate).

Whether a bank decides to use Prime Whether a bank decides to use Prime and/or LIBOR may vary on the investment and/or LIBOR may vary on the investment strategies of the bank/lender.strategies of the bank/lender.

LIBOR or Prime?LIBOR or Prime?

Where can I find these rates?Where can I find these rates?

Wall Street Journal Wall Street Journal Markets Data Center Markets Data Center (updated daily):(updated daily):

http://online.wsj.com/mdc/http://online.wsj.com/mdc/public/page/2_3020-monepublic/page/2_3020-moneyrate.htmlyrate.html

ResourcesResources

Banking.state.ny.us/legal/lo060613.htmBanking.state.ny.us/legal/lo060613.htm Bankrate.comBankrate.com Briefing.comBriefing.com Federalreserve.govFederalreserve.gov Investorwords.comInvestorwords.com NYTimes.comNYTimes.com WSJ.comWSJ.com

Grace PeriodsGrace Periods

Grace PeriodsGrace Periods

Grace PeriodGrace Period

The period of time before you start making The period of time before you start making payments; however, the interest is still payments; however, the interest is still accumulating.accumulating.

Grace Periods and Alternative LoansGrace Periods and Alternative Loans

Grace periods are most common Grace periods are most common with student loan borrowing. with student loan borrowing.

Student Alternative Loans are the Student Alternative Loans are the only loans that banks are extending only loans that banks are extending grace for 6 months and or longer.grace for 6 months and or longer.

Grace periods are extended Grace periods are extended depending on the alterative loan depending on the alterative loan borrowed. These periods are borrowed. These periods are limited.limited.

Grace Periods and Alternative LoansGrace Periods and Alternative Loans

Other grace periodsOther grace periods Credit CardsCredit Cards MortgagesMortgages Insurance PremiumsInsurance Premiums

These are usually applied for 30 days (one month) These are usually applied for 30 days (one month)

Length of Grace PeriodsLength of Grace Periods

6 months after leaving school/less than 6 months after leaving school/less than half time status half time status

Grace is not unlimitedGrace is not unlimited May extend up to 5 years depending on in school May extend up to 5 years depending on in school

status and curriculum. Check with your lender status and curriculum. Check with your lender for specific grace period limits.for specific grace period limits.

Grace Periods and APRGrace Periods and APR

Grace periods will (Grace periods will (and doand do) increase the borrowers ) increase the borrowers APR. The longer the length of the loan the more the APR. The longer the length of the loan the more the student will pay. student will pay.

When is interest capitalized?When is interest capitalized?

Once at repaymentOnce at repayment After additional deferments and/or forbearancesAfter additional deferments and/or forbearances

Student actions directly impact the APRStudent actions directly impact the APR Length of enrollmentLength of enrollment Payment historyPayment history DelinquenciesDelinquencies Extended repayment optionsExtended repayment options

Grace Periods and APRGrace Periods and APR

Decrease APRDecrease APR Encourage students to make at least interest Encourage students to make at least interest

paymentspayments Best option – immediate repayBest option – immediate repay

Look for lender incentives for immediate repay Look for lender incentives for immediate repay optionsoptions

Origination Fee reductionsOrigination Fee reductions Interest Rate reductionsInterest Rate reductions ACH options usually lower interest by 0.25%ACH options usually lower interest by 0.25%



Presented by Angelica Esparza and David LynchPresented by Angelica Esparza and David Lynch

Academic Finance CorporationAcademic Finance Corporation

PanelistsPanelistsAngelica Esparza, AFCAngelica Esparza, AFC

David Lynch, AFCDavid Lynch, AFC

Credit TieringCredit Tiering

Lender or AgentLender or Agent

Types of FeesTypes of Fees

DisclosureDisclosure

Credit TiersCredit Tiers

Why Are The Loans Tiered ?Why Are The Loans Tiered ?

What Are The Credit Score Cut-offs ?What Are The Credit Score Cut-offs ?

Who Qualifies ?Who Qualifies ?

Lender or AgentLender or Agent

What Is The Difference ?What Is The Difference ?

Advantages & DisadvantagesAdvantages & Disadvantages

How Do I Know ?How Do I Know ?

Types Of FeesTypes Of Fees

Guarantee FeeGuarantee Fee

Origination FeeOrigination Fee

Repayment FeeRepayment Fee

CapitalizationCapitalization

Hidden Costs (Fees)Hidden Costs (Fees)



Presented by Mike TaylorPresented by Mike Taylor

Key BankKey Bank

Interest Rates and APR’sInterest Rates and APR’s

Why it is so difficult to compare APR’s?Why it is so difficult to compare APR’s? What impact do the various fees have on What impact do the various fees have on

the APR? the APR? How can students obtain the estimated How can students obtain the estimated

APR for their loan?APR for their loan? Considerations (credit score/history/co-Considerations (credit score/history/co-

borrower)borrower) Weighted average interest rateWeighted average interest rate In-school vs. out of school ratesIn-school vs. out of school rates



Presented by Mark GoldsteinPresented by Mark Goldstein

NelnetNelnet

What students should know What students should know about private loan about private loan consolidation?consolidation?

Benefits of private loan consolidationBenefits of private loan consolidation

Reduce interest rateReduce interest rate Lock in a low fixed rateLock in a low fixed rate Reduce monthly paymentsReduce monthly payments Manage monthly payments with one lenderManage monthly payments with one lender


Possible consequences of private loan Possible consequences of private loan consolidationconsolidation Rate reduction may be short termRate reduction may be short term

Be careful of intro rates (low rates upfront with Be careful of intro rates (low rates upfront with higher rates for the remainder of the loan term)higher rates for the remainder of the loan term)

Longer terms equal higher finance costsLonger terms equal higher finance costs

Possible loss of existing borrower benefitsPossible loss of existing borrower benefits


Finance cost increase due to longer term (1)

Loss of borrower benefits (1)

(1) Assumes loan paid over full term

Loan Amount 10,000$ 10,000$ 10,000$

Term (years) 20 25 30Interest rate 8.25% 8.25% 8.25%

Monthly payment $85.21 $78.85 $75.13

Finance costs 20,450$ 23,654$ 27,046$

Finance cost increase due to longer term 3,203.93$ 6,596.02$

Loan Amount 10,000$ 10,000$ Term (years) 20 20Interest rate 8.25% 7.75%

Monthly payment $85.21 $82.09

Finance costs 20,450$ 19,703$

Loss of 50 bps ACH reduction 746.81$

What students should know What students should know about disclosures?about disclosures?

Marketing collateral & website Marketing collateral & website promotionspromotions Trigger TermsTrigger Terms APR DisclosuresAPR Disclosures

Average rateAverage rate Range of ratesRange of rates All ratesAll rates Lowest ratesLowest rates

Rates and Terms must be obtainableRates and Terms must be obtainable


Disclosures on the Application and Disclosures on the Application and Promissory NotePromissory Note Identify the funding lenderIdentify the funding lender Identify the actual rates and terms availableIdentify the actual rates and terms available

State-specific disclosuresState-specific disclosures Disclosures to cosignersDisclosures to cosigners

Consumers often must certify that they Consumers often must certify that they UNDERSTAND the loan termsUNDERSTAND the loan terms


Truth-In-Lending DisclosureTruth-In-Lending Disclosure Closed-end Credit Vs. Open-end CreditClosed-end Credit Vs. Open-end Credit FormatFormat

Interim (2-box or Initial)Interim (2-box or Initial) Repayment/Full-term (4-box)Repayment/Full-term (4-box) ConspicuousConspicuous

TimingTiming ConsummationConsummation

What students should What students should know about disclosures?know about disclosures?

What does the What does the future hold for future hold for disclosures?disclosures? School disclosuresSchool disclosures Lender disclosuresLender disclosures Federal lawsFederal laws State lawsState laws

What students should know What students should know about borrower benefits?about borrower benefits?

Type of benefits Type of benefits FrontendFrontend

On-time payment / ACH rate reductionOn-time payment / ACH rate reduction Graduation rate or principal reductionGraduation rate or principal reduction

BackendBackend Skip last six paymentsSkip last six payments

Impact of benefitsImpact of benefits Eligibility for benefitsEligibility for benefits


25 bps rate reductionLoan Amount 10,000$ 10,000$ Term (years) 20 20Interest rate 8.25% 8.00%



25 bps ACH or rate reduction 375.01$

Skip last six paymentsLoan Amount 10,000$ 10,000$ Term (years) 20 20Interest rate 8.25% 8.25%

Monthly payment $85.21 $85.21Finance costs 20,450$ 19,938$

Skip last six payments 511.24$

2% principal reduction at time of graduationLoan Amount 10,000$ 10,000$ Term (years) 20 20Interest rate 8.25% 8.25%



2% principal reduction at time of graduation 608.99$

Impact of benefitsImpact of benefits


QualificationQualification Know all requirements to receive full benefitsKnow all requirements to receive full benefits Ask % of customers who qualify for benefitsAsk % of customers who qualify for benefits Does lender post your specific qualification Does lender post your specific qualification

informationinformation

Counseling Your Students About Counseling Your Students About Alternative LoansAlternative Loans


Jim CirilloJim Cirillo

Fordham UniversityFordham University

Recent attempts to discredit the FAO has Recent attempts to discredit the FAO has encouraged the Direct to Consumer (DTC) encouraged the Direct to Consumer (DTC) market. market.

Students are bombarded with DTC marketing.Students are bombarded with DTC marketing.

Students many times pay a higher interest rate Students many times pay a higher interest rate by borrowing a DTC loan.by borrowing a DTC loan.



Why fill out all of those forms when we can give Why fill out all of those forms when we can give you a rate “as low as X.X%” and you don’t you a rate “as low as X.X%” and you don’t have to start paying until after graduation?have to start paying until after graduation?

We will even send the check directly to you!We will even send the check directly to you!


Loan Comparison web sites try to “empower Loan Comparison web sites try to “empower the students” but can be misleading.the students” but can be misleading.

Who really gets these low interest rates?Who really gets these low interest rates?


You have the student’s best interest at You have the student’s best interest at heart and can point them in the right heart and can point them in the right direction.direction.

Do your research!Do your research!


Questions For LendersQuestions For Lenders

What is your weighted average interest rate?What is your weighted average interest rate? What are the interest rates and fees associated with What are the interest rates and fees associated with

each credit tier?each credit tier? What percentage and how many of our students fall What percentage and how many of our students fall

into each tier?into each tier? What is your approval rate?What is your approval rate?


More Questions for LendersMore Questions for Lenders

When is interest capitalized?When is interest capitalized? Is there a co-borrower option?Is there a co-borrower option? Do you offer a sponsor loan?Do you offer a sponsor loan? Can we certify and have loans disbursed Can we certify and have loans disbursed

electronically?electronically? Can you discontinue DTC marketing to our students? Can you discontinue DTC marketing to our students?

If not, will you direct any inquiries from our students to If not, will you direct any inquiries from our students to the FAO?the FAO?


Counsel your students to:Counsel your students to:

make sure they use their federal eligibility first.make sure they use their federal eligibility first. pull their credit report as well as their cosigner’s.pull their credit report as well as their cosigner’s. dispute negative entries on their credit report.dispute negative entries on their credit report. select the best loan option for them based on their needs and their select the best loan option for them based on their needs and their

credit history.credit history. choose a lender who has the same servicer as their Stafford Loan choose a lender who has the same servicer as their Stafford Loan

provider for combined billing.provider for combined billing.


Having the right information about Having the right information about lenders can help you truly empower your lenders can help you truly empower your students so they can make the right students so they can make the right decision for themselves.decision for themselves.


Thank You!Thank You!

Question & Answer Question & Answer PeriodPeriod

thursday, september 27, 2007 region vi - presentation and panel discussion presented by christina...

Documents

alternative loan eligibility

alternative loans slide

alternative eligibility

loan periods

minimum loan

loan proceeds

eligibility eligibility

plus loan repayment