Seminar: Financing Your Education

Financing a

College EducationMay 27th, 2014

Presented By: Shonna Prickette –

Training & Development Manager

INTRO

Handouts are yoursSources are sitedResources used are

cataloged on several slides at the end

Ask questions!Goal of today is to

prevent this feeling…

INTRO

WHY GO TO COLLEGE?

Source: Bureau of Labor Statistics; Current Population Survey, unpublished tables, 2012

WHY GO TO COLLEGE?

Source: Carnevale, Anthony P., Jayasundera, Tamara, and Cheah, Ban. (2012). The College Advantage: Weathering the Economic Storm. Georgetown University: The Center on Education and the

Workforce.

HOW WILL YOU PAY FOR IT?

$$ SAVED MONEY $$

$$ FREE MONEY $$Scholarships & Grants

$$ BORROWED MONEY $$Federal or Private Loans

HOW AMERICA PAYS; 2013

SAVED = 38% BORROWED = 27% FREE = 35%

Source: Sallie Mae; Go to: http://news.salliemae.com/research-tools/america-pays-2013 for this study & more information on how America pays for college.

PREPAREAPPLY

RECEIVEREPAY

THE FOUR STEPS

SAVED MONEY

PREPARE – Start early, save whatever you can It’s not too late to start now Keep saving as long as you can Change your spending habits GET ADVICE ON HOW TO SAVE*

APPLY – RECEIVE – REPAY -

No Need! It’s already yours!No need!

SAVED MONEY

$100 = Initial Deposit+ $50 = Monthly DepositX .15% = Interest Rate X 18 = Years of contribution

$11,050 Balance ($150 gain)

SAVED MONEY

$100 = Initial Deposit+ $50 = Monthly DepositX 3% = Interest Rate X 18 = Years of contribution

$14,470 Balance ($3800 gain)

PRIVATE

INSTITUTIONALSTATE FUNDED

FREE MONEY: Scholarships

PREPARE – Do your best in school SAT/ACT scores are important Begin research early – spring junior year Look everywhere & keep looking

Local businessesState college funding programsOn-line Databases

FREE MONEY: Scholarships

FREE MONEY: Scholarships

PREPARE –Utilize your resources

Guidance CounselorOn-line Databases contain info on millions of

scholarships worth BILLIONS of dollars Salliemae.com/scholarships Studentaid.ed.gov/scholarship Careerinfonet.org/scholarshipsearch

College Financial Aid Office

FREE MONEY: Scholarships

APPLY – Fill out as many as you can Don’t miss the deadlines

RECEIVE – Based on terms of the scholarship

REPAY - No need! (the best part)

FREE MONEY:Federal Grants

Federal Pell GrantUndergrad, up to $5,730 (2014-2015 award year)

Fed Supplemental Ed Opportunity Grant (FSEOG)Undergrads with exceptional financial need, up to $4,000

TEACH GrantElementary or secondary school teacher Must teach full-time in a designated teacher shortage area4 year commitment, up to $16,000

Iraq & Afghanistan Service GrantParent passed away as a result of military service after 9/11

FREE MONEY:Work Study

Guaranteed employment while you’re in schoolOn campus – usually work for your schoolOff-Campus – usually private non-profit or public agency

You will earn at least minimum wageEmployer must pay you at least once a month, directlyImportant considerations:

Will work interfere with studies or sports commitments?Do I want to work while in school?Could I get a higher paying part-time job elsewhere?

BORROWED MONEY: Federal Student LoansWhat is a federal student loan?

Money from the government that’s repaid WITH INTEREST Helps you pay for educations expenses at an eligible

college, tech school, vocational school, or grad schoolWho gets aid?

Every student, regardless of age or family income Must meet some basic eligibility requirements 14 MILLION students currently receive aid

How much aid is available? More than $150 BILLION is available every year

BORROWED MONEY: Federal Student LoansWHY FEDERAL STUDENT LOANS?

Lower interest rates Flexible repayment options Longer repayment terms Tax-deduction of interest paid

When considering your options to borrow for a college education, it’s recommended that you

exhaust federal funds before private loans!

BORROWED MONEY: Federal Student LoansPREPARE –

KNOW YOUR COLLEGE KNOW YOUR EMPLOYMENT OUTLOOK UNDERSTAND THE FINANCIAL AID OPTIONS KNOW YOUR FINANCIAL AID OUTLOOK

PREP: Know your college…

COLLEGE AFFORDABILITY & TRANSPARENCY CNTR US Department of Education www.collegecost.ed.gov

1. College Scorecard2. College Navigator3. Net Price Calculator

PREP: Know your college…

COLLEGE SCORECARD Basic, quick comparison Enter the name of the college to see:

Typical CostGraduation Rate Loan Default RateMedian Borrowing

PREP: Know your college…

COLLEGE NAVIGATOR In-depth analysis Enter the name of the college to see:

Tuition, fees, net price, & financial aidFaculty & enrollment numbers

Ethnicity & genderPrograms, majors, varsity athletic teamsCrime stats

PREP: Know your college…

NET PRICE CALCULATOR CENTER Links to Net Price Calculator on college site Enter the following info for personalized analysis of

your cost & an estimated financial aid package:ACT/SAT scores, GPA, & high school rankStudent Tax infoParents Tax infoFamily Assets

PREP: Employment outlook…

OCCUPATIONAL OUTLOOK HANDBOOK Bureau of Labor Statistics Guide to career info on hundreds of occupations At Bls.gov/oco, search by:

Highest median pay for 2012Projected # of new jobsProjected growth rate Job Category

PREP: Key Terms…

HOW DOES A LOAN WORK? A loan is a borrowing agreement made between two

parties, where one party lends money to another party who agrees to repay the borrowed money on specific terms, with interest.

A loan is made up of 2 components: PRINCIPAL = Original amount borrowed INTEREST /FEES = Expenses paid by the borrower

Interest is calculated (compounded) monthly. With student loans, the interest can be paid right away, or CAPITALIZED (added to the unpaid principal).

PREP: Key Terms…

WHAT IS A “SUBSIDIZED” STUDENT LOAN? Subsidized =

US Dept of Ed. pays the interest while:o You’re in school ½ timeo During your grace periodo During periods of deferment

Unsubsidized = You pay the interest during ALL periods:

o Interest accrues as soon as the loan is disbursedo You can choose to pay the interest while in schoolo You can choose to capitalize the interest

PREP: Key Terms…

WHAT IS A “LOAN ORIGINATION FEE”? Basically, a processing fee Some federal loans have origination fees Fee is subtracted from the loan amount before

disbursemento Your loan is $1,000 with a 1% origination feeo $1000 (amount borrowed) - $10 (1%

origination fee) = $990o $1000 is the amount you pay back

PREP: Key Terms…

$5000 Principal- $0 Origination Fee $5000 Value of LoanX $0 Interest rate of 5% (Subsidized)

$5,000 Need to repay, starting Jan, 2019

Loan = No Origination Fee, 5% Interest Rate, Subsidized

PREP: Key Terms…

$5000 Principal

- $50 1% Origination Fee (you get $4950)

$5000 Value of loan

$21.21 Monthly Interest @ 5% (Unsubsidized)

X 54 Number of mths in school & grace period

$1145 What you’ve paid by Jan, 2019

$5,000 Need to repay, starting Jan, 2019

Loan = 1% Origination Fee, Unsubsidized, Interest only payments @ 5%

PREP: Key Terms…

$5000 Principal

- $50 1% Origination Fee (you get $4950)

$5000 Value of loan

$1258 Total of 5% Interest compounded monthly; capitalized to the principal for 54 months

$0 What you’ve paid by Jan, 2019

$6,258 Need to repay, starting Jan, 2019

Loan = 1% Origination Fee, Unsubsidized, Capitalized interest @ 5%

PREP: Federal Aid Options…

HOW MUCH CAN A STUDENT BORROW? How much you get depends on:

Financial Need Cost of Attendance Enrollment Status (F/T vs. P/T)

There are limits: Annual (per year) Aggregate (total)

The limits depend on: Year in school Dependant Status

PREP: Loan Options

FEDERAL PERKINS LOAN: Awarded for exceptional financial need

5% Fixed Annual Interest RateNo Origination Fee$5,500 per year limit ($27,500 maximum)

Unsubsidized You pay all the interest

Student is the borrowerLoan is in student’s name

College is the lender

FEDERAL STAFFORD LOAN (DIRECT): Largest Student Loan Program

3.86% Fixed Annual Interest Rate1.072% Origination Fee

Student is the borrowerLoan is in student’s name –

School determines how muchyou can borrow

US Dept of Education is the lender

PREP: Loan Options

PREP: Loan Options

SUBSIDIZED STAFFORD LOAN: Slightly better terms:

Available to undergrad students Must demonstrate financial need US DOE pays the interest while in school

UNSUBSIDIZED STAFFORD LOAN: Available to undergrad & grad students No need to demonstrate financial needYou pay the interest during all periods

PREP: Loan Options

SUBSIDIZED & UNSUBSIDIZED STAFFORD LOANS: BORROWING LIMITS:

YEAR 1 = $5,500 ($3,500 Subsidized) YEAR 2 = $6,500 ($4,500 Subsidized) YEAR 3 = $7,500 ($5,500 Subsidized) BEYOND = $7,500 ($5,500 Subsidized)

TOTAL LIMITS = $31,000 ($23,000 Subsidized)

PREP: Loan Options

WHAT ABOUT THE REST? $12,000 = Annual Net Cost of Attendance- $2,000 = Perkins Loan- $4,500 = Stafford Loan- $1,000 = Private Scholarships- $1,000 = Work-Study= $3,500 = REMAINING BALANCE

PREP: Loan Options

FEDERAL DIRECT PLUS LOAN: Used to borrow the remainder of cost Parent is the borrower

Approval based on credit history No need to demonstrate financial need

6.41% Fixed Annual Interest Rate4.288% Origination FeeBorrow up to 100% of cost of attendance No aggregate limits

Unsubsidized US Dept of Education is the lender Loan cannot be transferred to student

PREP: Loan Options

SALLIE MAE SMART OPTION STUDENT LOAN: Used to borrow the remainder of cost Student/Co-Signor is borrower

Approval based on credit history No need to demonstrate financial need

5.75-12.88% Fixed Annual Interest Rate2.25-9.88% Variable Annual Interest RateNO Origination FeeBorrow up to 100% of cost of attendance – No limits

Unsubsidized Sallie Mae is the lender Co-Signor release = Loan can be transferred to student

PREP: Know your financial aid outlook…

How much federal aid will we receive? Must complete Free Application for Federal Student

Aid (FAFSA) for official eligibility Fafsa4caster.ed.gov

Early eligibility indicatorFor anyone not ready to file an official FAFSAProvides an estimate

BORROWED MONEY: Federal Student Loans

APPLY – COMPLETE THE FAFSA… The FAFSA determines your eligibility for federal

loans, grants, work-study, & some state & institutional aid. It’s the ONLY way to apply for federal student aid It’s REQUIRED if you want federal financial aid Completed online at fafsa.gov Complete ASAP after Jan. 1 of the year you’ll start school

b/c aid might be awarded as first-come, first-served

BORROWED MONEY: Federal Student Loans

APPLY – GET YOUR SAR… The Student Aid Report (SAR) summarizes the info

you provided on the FAFSA & will contain your Expected Family Contribution (EFC). SAR is returned 3-10 days after FAFSA is submitted Review the SAR carefully to make sure it’s correct Colleges listed on your FAFSA will also receive your SAR From this point, stay in contact with your college’s aid

office as they will put together your aid package

BORROWED MONEY: Federal Student Loans

APPLY – SEE YOUR EFC…Expected Family Contribution (EFC) is calculated

based on the info you reported on the FAFSA, according to a legal formula. EFC will appear on your SAR Income, assets, family size, & # attending college are

considered in the formula EFC is used to determine need for federal student aid

• Cost of attendance – EFC = Financial Need

BORROWED MONEY: Federal Student LoansAPPLY –

EVALUATE YOUR AWARD After admissions letter arrives (April), college will put

together an award package & send an award letter. Award letter shows COMPLETE aid package

Grants, scholarships, work-study from all souces Not obligated to accept all aid offered Evaluate the award, your need, & compare it to other

colleges. Then decide which to accept.

BORROWED MONEY: Federal Student Loans WHAT CAN YOU USE STUDENT LOAN MONEY FOR?

To pay for education expenses at the school that awarded your loan. Contact the financial aid office with questions. Tuition Room & Board Supplies & Equipment Child care expenses Transportation Personal PC

BORROWED MONEY: Federal Student Loans ACCEPT YOUR AID PACKAGE

Sign the award letter and return it to the school for processing.

The financial aid office at your college will guide you thru the paperwork which includes signing a promissory note, (you PROMISE to repay your loans according to the terms)

College is required to provide entrance counseling

BORROWED MONEY: Federal Student Loans

RECEIVE – DISBURSEMENT

Most student loan funds will go directly to the college or come directly from the college

You will be paid thru the college in at least 2 installments (semesters)

College will use aid money first to pay for tuition, fees, room, board, and other expenses on your student account. If any aid money remains, you will receive the funds by check

BORROWED MONEY: Federal Student Loans

RECEIVE – CANCELLATION

Before loan money is disbursed, you may cancel all or part of your loan by notifying the school.

After the loan is disbursed, you may cancel all or part of the loan within certain time frames

Promissory note will explain procedures for cancelling loans

BORROWED MONEY: Federal Student LoansREPAY – WHEN TO START?

MOST STUDENT LOANS HAVE GRACE PERIODS Not REQUIRED to make payments while enrolled in school Grace periods allow you to get financially settled:

• Perkins = 9 months• Stafford = 6 months• PLUS = No grace period

REMEMBER: Unsubsidized loans start to accrue interest as soon as the loan is disbursed which will be capitalized onto the principal,

unless you choose to pay the interest charges while in school!

BORROWED MONEY: Federal Student Loans

REPAY– IT’S SERIOUS!Student loans are LEGAL obligations!

Student loans are borrowed money (in your name) that MUST be repaid just like car loans & home mortgages. You

MUST repay a student loan ever if your circumstances become difficult.

Non-payment of student loans has serious consequences (legal default on a loan) and will negatively affect your

credit rating.

BORROWED MONEY: Federal Student Loans

REPAYMENT PLANS Standard

Fixed monthly payment, $50 minimum, 10-year term Graduated

Monthly payment starts low & increases, 10-year term Extended

Fixed or graduated paymentsMust have more than $30,000 in Direct Loans25-year term

Income Sensitive or ContingentIncome-based repayment options

BORROWED MONEY: Federal Student Loans

REPAY– LOAN SERVICER Loan servicer will give you a repayment schedule:

When first payment is dueNumber & Frequency of paymentsAmount of each payment

You will be notified if your servicer changes The loan is YOUR responsibility!

Make payments regardless of receiving billing noticesYou must pay even if you aren’t getting remindersNotify your loan servicer when you change your address

BORROWED MONEY: Federal Student Loans

REPAY– KEEP TRACK National Student Loan Data System:

www.nslds.ed.govDept of Ed’s central database for student aidAccess & retrieve your student loan data

Repayment Estimatorwww.studentloans.gov

QUESTIONS?

FINANCIAL AID PROCESS INFOGRAPHIC studentaid.ed.gov/prepare-for-college/checklists/#checklists

“FUNDING YOUR EDUCATION – Guide to Federal Student Aid” Document Studentaid.ed.gov/resources

Checklists to begin preparing from Elementary school to 12th grade Studentaid.gov/prepare-for-college/checklists

HELPFUL RESOURCES: The Entire Process

Scholarship Opportunities:– Careerinfonet.org/scholarshipsearch– Salliemae.com/scholarships– Studentaid.ed.gov/scholarship

College Scorecard, College Navigator, and Net Price Calculator– Collegecost.ed.gov

Labor Statistics Occupational Outlook Hndbk– Bls.gov/oco

HELPFUL RESOURCES: Prepare

Free Application for Federal Student Aid– Fafsa4caster.gov– FAFSA.gov

Sallie Mae Smart Option Student Loan– Contact your financial institution

National Student Loan Data System– nslds.ed.gov

Repayment Estimator– studentloans.gov

HELPFUL RESOURCES: Apply & Repay