1 © 2006 Federal Association of Financial Services. All Rights Reserved. AMERICAN FINANCIAL AID Student Loan – The American Borrower Module.

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© 2006 Federal Association of Financial Services. All Rights Reserved.

AMERICAN FINANCIAL AID

Student Loan – The American Borrower Module

2© © 2006 Federal Association of Financial Services. All Rights Reserved.

The College Justificator

https://www.mygreatlakes.com/borrower/staticForward.do?staticpath=/borrower/play_college_justificator.htm


Activity on “College Justificator”

Categorize the following jobs according to educational attainment. Identify which jobs generate more income and compare them to those which give less.


An Overview

For 40 years, the Federal Family Education Loan (FFEL) program has helped make higher education possible for more than 50 million American students.


FFELP Share

In 2004, 83% of schools use the FFELP exclusively to provide their student loans.


FFELP Fast Facts

• Total financial aid, including grants and loans, increased from $55 billion in 1993-94 to $122 billion in 2003-04 measured in constant dollars – a 122 percent increase.

• The Class of 2008 will be the largest high school class in U.S. history, with nearly 3.2 million graduates. Just between 2005 and 2008, the number of high school graduates will increase by almost 5 percent.


Fast Facts…Continuation

• Enrollment in higher education is expected to increase by 15 percent between 2003 and 2014. In comparison, higher education enrollment increased 13 percent between 1992 and 2003.

• Full-time enrollment is expected to increase 16 percent between 2003 and 2014. Part-time enrollment is expected to increase 12 percent during the same period.

• By 2014, undergraduate enrollment in four year colleges is expected to increase by 16 percent, while enrollment in two year colleges is expected to increase by 14 percent.


What really is the FFEL Program?

The FFEL (Federal Family Education Loan) program is public-private partnership in which lenders make federally guaranteed student loans to students and their families in partnership with school financial aid offices.

Since its creation in 1965, the FFEL program has helped make a college education possible for more than 50 million Americans at thousands of colleges and universities.


Loans Made under the FFEL Program

In 2004, FFEL program lenders provided 5.4 million students and their families with $39 billion in loans, accounting for 74 percent of all student loans.

Subsidized Federal Stafford Loans

Unsubsidized Federal Stafford Loans

Federal PLUS Loans

Federal Consolidation Loans


Subsidized Federal Stafford Loans

The federal government pays all interest costs for subsidized Stafford borrowers while borrowers are in school, and during grace and deferment periods.

The interest rate on these loans changes annually but is capped at a maximum rate of 8.25 percent.

This is the largest component of the FFEL program, with aggregate borrowing limited to $23,000 for undergraduate students and $65,500 for graduate students.

In the 2004 fiscal year, almost $17.6 billion in subsidized Stafford Loans were made.


Unsubsidized Federal Stafford Loans

Although borrowers may defer payment of interest during school, grace, and deferment periods, they are responsible for all interest that accrues.

The interest rate on these loans also changes annually and is capped at a maximum rate of 8.25 percent. During the 2004 fiscal year, $16.5 billion in unsubsidized Stafford Loans were made.


Federal PLUS Loans

Parents may borrow up to the cost of attendance per child, minus financial aid from other sources.

The interest rate on PLUS Loans is variable, with a maximum rate of 9 percent.

During the 2004 fiscal year, $5.1 billion in PLUS Loans were made.


Federal Consolidation Loans

These loans help borrowers manage repayment of multiple loans by combining all eligible loans into a single, new guaranteed FFEL program loan with the option of a longer repayment term, resulting in a smaller total monthly payment.

Because of extended repayment periods associated with consolidation loans, total payments made by consolidation borrowers over the life of their consolidation loan are generally greater than those made by borrowers with standard repayment periods.

As a result of record-low interest rates, during fiscal year 2004 nearly $36 billion in FFEL program consolidation loans were made.


Interest Rates on Federal Student Loans

Thanks to federal subsidies, federal student loans are made to any eligible borrower at below market interest rates. As a result, federal student loans are the best option available in the consumer marketplace for education borrowers. Interest rates on FFEL student loans are set by the statute as follows:


Life Cycle of a Federal Student Loan

The Beginning: Completing the FAFSA

Once Accepted into School: Getting a Loan

While in School: Loan Costs and Subsidies

Once Graduated: Repayment Options

Defaults and Collections


The Beginning: Completing the FAFSA

A student begins the process of obtaining a federal student loan by submitting the Free Application for Federal Student Aid (FAFSA) to the Department of Education.

The information supplied on the FAFSA is analyzed to estimate what a family’s expected contribution is toward higher education costs.

School financial aid professionals compare this expected family contribution to the total cost of attendance for the particular school and fashion a financial aid package that typically includes grants, loans and work-study programs.

You may also go to http://www.fafsa.ed.gov


Once Accepted into School: Getting a Loan

If the student accepts a financial aid award package that includes a Stafford Loan, the student, with help from the school’s financial aid office, selects a lender.

Federal student loans are made irrespective of a student’s employment status, credit history or collateral because a state or nonprofit guaranty agency stands behind the loan.

The federal government, in turn, partially reinsures the guaranty agency.

If the student is eligible for the amount sought, the funds are disbursed to the student’s school, which applies the funds to tuition, fees, and other expenses.

Any remaining balance is provided to the student for other expenses.


While in School: Loan Costs and Subsidies

A student enrolled at least half time is not required to make any loan payments while they are in school.

If the student has a subsidized Stafford Loan, the federal government pays the interest that accrues while the student is in school.

If the student has an unsubsidized Stafford Loan, he or she is responsible for any interest that accrues while in school.

All federal student loans are subsidized by taxpayers so that borrowers pay below-market interest rates.

Federal loan guarantees also lower the cost of borrowing for higher education by making federal student loans available to nearly all students who apply.


Once Graduated: Repayment Options

Repayment generally begins six months after a student leaves school.

FFEL program borrowers have several repayment options, including equal monthly installments, payments that gradually rise over the loan term and payment amounts linked to a borrower’s income.

FFEL program borrowers may also consolidate student loans into a single monthly payment with a single lender and, depending on their outstanding loan balance, extend their repayment period from the standard ten-year time frame to as long as 30 years.

Borrowers who encounter temporary financial problems may apply to defer or reduce their loan payments for a designated period of time.

Borrowers who return to school can also defer their loans while in school.


Once Graduated: Repayment Options…Continuation

Some lenders manage the repayment process for their borrowers in-house, while others contract this work out to third party loan servicers who receive payments, track balances and keep in contact with the borrowers.

Some lenders sell their student loans to investors through a student loan secondary market and then use the proceeds to make more student loans.

Secondary markets ensure that there is always a ready supply of capital available to assist other students.


Defaults and Collections

The overwhelming majority of student loan borrowers make regular payments on their student loans.

In fact, in recent years, default rates for student loans dropped nearly 75 percent, from a high of 22.4 percent in 1990 to 5.2 percent in 2002, the most recent year for which data is available.

If a student loan borrower begins to miss or make late payments, their lender or third party servicer will make repeated attempts to contact them to help keep them on-time and in repayment.

If a borrower falls two or more months behind in payments, the lender notifies the borrower’s guaranty agency and together they begin efforts to prevent the borrower from defaulting on the loan.


Sources of Financial Aid

According to the College Board, student financial aid for higher education reached more than $120 billion in 2003-2004. Over the past decade, total financial aid has increased by 133 percent in constant dollars.


Sources of Financial Aid – Fast Facts

• Total financial aid increased from $55 billion in 1993-94 to $122 billion in 2003-04 in constant dollars, a 122 percent increase.

• In 1993-94, federal student loans were 52 percent of all financial aid. In 2003-04, they had declined to 47 percent.

• Non-federal student loans, which hardly existed in 1993- 04, now account for $11 billion – 9 percent of total financial aid in 2003-04.

• Education Tax Credits – which were enacted by Congress in the 1990’s – now represent 5 percent of all financial aid.

• Pell Grants have declined slightly – from 13 percent to 10 percent of financial aid – between 1993-94 and 2003-04. The other sources of financial aid remain relatively unchanged as a percentage of total financial aid.


Need for Financial Aid

Both short-term and long-term demographic trends point to an increase in college attendance.


Projection: High School Graduates


Fast Facts – Need for Financial Aid

• The Class of 2008 will be the largest high school class in U.S. history, with nearly 3.2 million graduates. Just between 2005 and 2008, the number of high school graduates will increase by almost 5 percent.

• In 2005, minority students account for 34 percent of high school graduates. By 2013, minority students will account for 41 percent of high school graduates.

• Between 2005 and 2013, the number of Hispanic students graduating from high school will increase by 41 percent.

• By 2013, Hispanic students will account for 20 percent of all high school graduates.


Increasing College Enrollment

As more students pursue postsecondary education, demand for student loans will continue to increase. Between 2005 and 2015, the number of college-age young adults is projected to grow 15 percent, or more than five million young adults, to nearly 18 million young adults. Of the five million young adults, 80 percent will be minority and 50 percent Hispanic.


Projected Enrollment: Four Year and Two Year Colleges


Fast Facts – Projected Enrollment

• Enrollment in higher education is expected to increase by 15 percent between 2003 and 2014. In comparison, higher education enrollment increased 13 percent between 1992 and 2003.

• Full-time enrollment is expected to increase 16 percent between 2003 and 2014. Part-time enrollment is expected to increase 12 percent during the same period.

• By 2014, undergraduate enrollment in four year colleges is expected to increase by 16 percent, while enrollment in two year colleges is expected to increase by14 percent.


Increasing Costs of Higher Education


Trends in the Student Loan Program


Expansion of Consolidation Loans and Other Nonfederal Loans:


why go to college


four-year public college


two-year public college


federal student aid


Student Aid Report (SAR)


Course Objectives

We will be able to:

> Understand buyers and adapt to different types of buyer-customer behaviors

> View selling as the art of understanding needs and presenting product or service against them

> Understand the relevance of sales and start to apply them in context

> Recognize the basics of qualification and importance of interpersonal skills

> Effectively demonstrate one’s capabilities and create an overall positive customer experience, that includes developing a “customer-oriented environment” in which the customer becomes the provider’s number one priority


Course Outline

Lessons:

> Understanding Selling> Understanding Buyers> Establishing Customer Trust

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© 2006 Federal Association of Financial Services. All Rights Reserved.

Lesson 1

Understanding Selling

1 © 2006 Federal Association of Financial Services. All Rights Reserved. AMERICAN FINANCIAL AID Student Loan – The American Borrower Module.

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