Private Loans:

You’ve Got the Power!!

Agenda

• Meet the Presenters…• Wise (and Not-So-Wise) Financing Options• PLUS “and” Private Loan Comparisons• Federal & Private Loan Trending• Federal Reserve Study of 2009…

• Is it Still Relevant Today?• Considering Private Loan Options?• Prime and LIBOR Rates:

– Information & Trending• Keeping It All Compliant: HEOA “Cheat-Sheet”• Questions??

Carnegie Mellon University

• Carnegie Mellon University: Private (Non-Profit) Research University

• Degrees Offered:  Bachelor’s, Master’s, Doctor’s Research/Scholarship

• Enrollment:  6281 Undergraduate; 5777 Graduate students

• Multiple Branch Campuses:  Pittsburgh PA Main Location; (The Heinz College and The Tepper School of Business are located at the Main Campus but are separate graduate degree schools),

• Carnegie Mellon University in Qatar; Carnegie Mellon University in Silicon Valley California.  • All Branch campuses locations have been established as  eligible  for federal aid.• Multiple Additional Locations: Australia, Portugal, Rwanda, Japan, California, New York.

• Institutional Undergraduate Aid FY12:  $74 M to 3285 students.• FY12 Federal Pell Grants: $3,485,495; 844 students.• University Direct Stafford  Loan Volume: $56,805,695.

• FY12 Undergraduate Private Loan Volume: $5.6M; 291 students.

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Kutztown University

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• Kutztown University: public university

• Degrees Offered: bachelor’s, master’s

• 2011-12 Enrollment: 9,486 undergraduates, 797 graduates

• FY2012 Institutional Undergraduate Aid: 1,724 students received 3,970,681 (excluding work study)

• FY12 Pell Grants: 3,136 students received 11,704,113

• FY12 Stafford Loans: 7,218 students received 47,971,848

• FY12 PLUS: 1,211 students received $13,229,803

• FY12 Private Loans: 1,420 students received 14,840,918

Session Disclaimer Alert!!!

• Before applying for Private Student Loans, borrowers are advised to maximize ALL federal, state and institutional aid!

(Not to mention your Aunt Peggy’s generous offer to help!!)

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• Some wise…some not so wise??

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Education Financing Options:

Education Loan Resource Continuum

Direct Loan

Perkins

PLUS

Institutional

Educational Private Loans

Credit Cards

Insurance

Retirement Accounts

Hold Out Until Your Kid Gets to the 11th Grade then Start

Up a 529 Plan

Powerball Lottery 1

in 146,107,962

Google

PLUS and Private Loan Options

PLUS Private

Primary Borrower Parent/Grad Student

Loan Transfer Available No Yes, conditions apply

FAFSA Required Yes No, always recommended

Repayment Terms 10+ years depending on repay options

10+ years depending on lender

In-School Deferments Available

Yes Yes

Fees Charged 4% Lender dependent; Usually “0”…

Disbursement Funds sent to school

Yes Yes

Rates Fixed Fixed and Variable

Consolidation Option Yes Yes

Funding Trends (10yr)

Source: The College BoardConfidential

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Survey Said…!!!

Federal Reserve Findings:

Source: Federal Reserve Research and Testing, 2009Confidential

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Survey Said…??!!

– General Research Findings:• Parents play the central-strong advisory role• Confusion surrounding funding options• Most will choose the first loan offered• Financial aid counselors seen as credible/valuable

source of information…(personal counseling preferred over internet searches)

• Interest Rates matter: Listed as the “primary” criterion for comparing loan options.

• Reasons given why choosing private loans?– Easier/Less time consuming– Cannot meet the full COA

Feral Reserve Research and Testing, 2009Confidential

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Considering Private Loans??

• Borrower Benefits?– Electronic Funds Transfer Discounts

– Discount incentives

• Repayment Options?– Immediate Repayment

– Interest Only Payments

– In-School Deferment

• Repayment Terms– 10-15-20 years?

• Co-signer Release Options?– When available?

– What are the requirements?

Confidential

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LIBOR and Prime Rates

• Interest Rates– LIBOR: (Current 1 month = .22%...Current 3 month .36%)

LIBOR is the interest rate that banks charge each other for one-month, three-month, six-month and one-year loans. LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is charged by London banks, and is then published and used as the benchmark for bank rates all over the world.

– Prime Rate: (Current Prime Rate: 3.25%)

The term prime rate refers to the interest rate that banks charge their preferred customers, or those with the highest credit ratings. It is used to determine borrowing costs on many short-term loan products.

Source: Bankrate.comConfidential

LIBOR and Prime trends

PLA: What It Is…

Confidential

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PLA: What it “Ain’t”…

Confidential

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PLA: Still“Ain’t”…

Confidential

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BUT!!…(There’s always a “BUT”…)

From a presentation by the Department of Education

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Heoa/PLA “Cheat-sheet”…

Section 601 Compliant

Code of Conduct

Distribute Code of

Conduct to Staff Once Per Year

Truth In Lending Act

(TILA) Disclosures

Title IV Disclosures

Annual Report

Provide no private loan information but participate in Title IV

Required Not Required Not Required Not RequiredNot

Required

Provide “ANY” private loan information, including 3-5 year “historical” list

Required Required Required Required

“On hold”??Custom PLL Required Required Required Required

Refer to “Third Party” lists

Required Required Required Required

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Read all about it…

http://trends.collegeboard.org/?excmpid=MTG1-PR-1-pr

http://www.projectonstudentdebt.org/files/pub/private_loan_facts_trends_09.pdf

http://www.finaid.org/loans/privateloan.phtml

http://www.finaid.org/loans/loantradeoffs.phtml

http://www.ted.com/index.php/talks/barry_schwartz_on_the_paradox_of_choice.html

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090311a8.pdf