Page 1
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE-GRANTING INSTITUTIONS ONLY. | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTIONConfidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE-GRANTING INSTITUTIONS ONLY. | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Nanette White, Sallie Mae, Director, Business Development
GAP FINANCING OPTIONS: PRIVATE & PLUS LOANSWHAT YOU NEED TO KNOW IN 2015
Updated April 2015
Page 2
2
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Note: Nonfederal loans include loans to students from states and institutions, in addition to private loans issued by financial institutions.SOURCE: College Board Trends in Student Aid 2014
Federal and Private Student Loan Growth
Page 3
3
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Federal Student Aid Programs : A 10 Year View
SOURCE: College Board Trends in Student Aid 2014
Page 4
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE-GRANTING INSTITUTIONS ONLY. | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
4
Understanding the Differences between Private and Federal PLUS Loan Programs
Page 5
5
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Federal Direct Loan Program Rates and Fees
Loans First Disbursed10/1/13 – 6/30/14 7/1/14 – 9/30/14 10/1/14 – 6/30/15
Undergraduate Stafford (subsidized & unsubsidized)
Interest Rate: 3.86% 4.66% 4.66%
Fee: 1.072% 1.072% 1.073%
Graduate Stafford (unsubsidized)
Interest Rate: 5.41% 6.21% 6.21%
Fee: 1.072% 1.072% 1.073%
Parent and Graduate PLUS
Interest Rate: 6.41% 7.21% 7.21%
Fee: 4.288% 4.288% 4.292%
► Federal Loan interest rates based on the 10-year Treasury Note reset annually effective July 1
► Federal Loan fees reset annually effective October 1 based on Sequestration
Sources are provided in Important Information section
Page 6
6
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Application and Responsibility
► Who can apply for the loan?
► Who is responsible for the loan?
Parent PLUS: Parent
Grad PLUS: Graduate/Professional Student
Private Loan: Student or Student with Cosigner
Parent PLUS: Parent
Grad PLUS: Graduate/Professional Student
Private Loan: Student and Cosigner
*Many private lenders offer a cosigner release program. Sources are provided in the Important Information Section
Page 7
7
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Enrollment, Eligibility and FAFSA Requirements
EnrollmentRequirement
ProgramEligibility
FAFSARequirement
Parent PLUS At least half time Degree Seeking YES
Grad PLUS At least half time Degree Seeking YES
Private Loan Varies by lender –less than half
time is available
Varies by lender –many lenders offer loans to non-degree
seeking students
Varies by lender –most do not
require; unless it is the policy of the
school
Sources are provided in the Important Information section
Page 8
8
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Interest Rates for Academic Year 2015-16
Fixed Rate Variable Rate
Parent PLUS 7.21%(APR: 7.31% to 8.15%)
N/A
Grad PLUS 7.21%(APR: 7.73% to 8.15%)
N/A
Private LoanUndergraduate
Varies by lender4.75% to 12.99%
(APR: 4.75% to 12.99%)
Varies by lender2.25% to 10.42%
(APR: 2.25% to 10.42%)
Graduate Varies by lender5.75% to 12.99%
(APR: 4.75% to 12.99%)
Varies by lender2.25% to 10.42%
(APR: 2.25% to 10.42%)
► Effective for loans that first disburse July 1, 2014
Sources are provided in Important Information section
Page 9
9
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Parent PLUS: 0.25% Auto Debit Only
Grad PLUS: 0.25% Auto Debit Only
Private Loan: Most lenders offer 0.25% Auto DebitAdditional benefits vary by lender
Fees and Discounts
► Fees:
► Discounts:
Parent PLUS: 4.292% Origination Fee
Grad PLUS: 4.292% Origination Fee
Private Loan: Varies by lender – most offer 0%
Sources are provided in the Important Information section.
Page 10
10
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Repayment Terms
In-School Deferment
Standard Repayment Term
Parent PLUS Immediate repayment after final disbursement; may request in-school deferment while the student on whose behalf a parent borrowed is enrolled in
school at least half time and for 6 months after enrollment
10 years
Grad PLUS Immediate repayment after final disbursement; but automatically deferredwhile the student borrower is enrolled at
least half time and for 6 months after enrollment, unless requested otherwise
10 years
Private Loan Most programs offer deferred payments while in school with an additional grace
period; interest payments while in school are also offered by most lenders
Varies by lender –typically 5-15 year terms are offered
Sources are provided in the Important Information section.
Page 11
11
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Loan Forgiveness, Death/Disability Coverage, Servicing
► Is Loan Forgiveness Available?
► Is there Death & Disability Coverage?
► Who Services the Loan?
Parent PLUS: YES
Grad PLUS: YES
Private Loan: NO
Parent PLUS: U.S. Dept of Education contracted servicers
Grad PLUS: U.S. Dept of Education contracted servicers
Private Loan: Lender or Loan Servicer
Parent PLUS: YES
Grad PLUS: YES
Private Loan: Varies by lender – many offer this feature
Sources are provided in the Important Information section.
Page 12
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE-GRANTING INSTITUTIONS ONLY. | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
12
Encouraging Responsible Borrowing
Page 13
13
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
► Families should consider their financial situation and the student’s future earning potential in his/her chosen field
► How much is too much?– Only borrow what they think they can afford to pay back later
– Guidance from the College Board® suggests that a new graduate’s monthly student loan payments should be no more than 10% to 15% of his or her starting monthly salary.
To help estimate future income potential, students can visit the US Department of Labor at www.bls.gov/oco/
How Much Should They Borrow?
Page 14
14
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
► Due to accrued and capitalized interest, the amount families will have to repay is more than the amount borrowed
► The total interest a borrower pays depends on:– Interest Rate
– Origination or Disbursement Fees
– Repayment Term
– Postponement of Payments
– Benefits
– Interest Capitalization
How Much Will It Cost?
Page 15
15
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
► Fixed Interest Rates– Interest rate is determined at time of loan approval and does not
change for the life of the loan
– The interest rate is based on credit worthiness as well as the market rates
► Variable Interest Rates– Interest rate is determined at time of loan approval and will
fluctuate over time
– The interest rate is based on two components: a market index that is publicly available plus a credit-based margin (determined by lender)
Starting rate on a variable rate loan is usually lower than the rate on a fixed rate loan.
Understanding Fixed and Variable Interest Rates
Page 16
16
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
► Index:– Index rate will vary over time based on economic conditions
– Common indices used for student loans:• LIBOR (London Interbank Offered Rate)
• WSJ Prime Rate (Wall Street Journal Prime Rate)
► Margin:– Margin is set by lender
– Is locked in at the time of credit approval based on the applicants creditworthiness
► Consumer concerns with variable interest rates:– Fear of interest rates rising
– Lack of predictability
How Variable Interest Rates Work
Page 17
17
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
History of Libor Rate
SOURCE:http://www.moneycafe.com/personal-finance/1-month-libor/
Page 18
18
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
History of Prime Rate
SOURCE:http://www.moneycafe.com/personal-finance/prime-rate/
Page 19
19
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
► No payments: Payments are deferred while in school
► Paying the interest: Monthly interest payments are made while in school
Impact of In-School Payments
Repayment Options While In-School
In-School Plan
In-School Monthly Payment
Post-School Payment
Post-School Payment Terms
(months)
Total Amount Paid
No Payment $0 $141.90 144 $20,405.41
Pay Interest $56.88 $156.68 84 $15,651.13
Example is for a $10,500 loan with variable rate ranging from 6.5% to 7.5% for a freshmen borrower, the interest rate may change as the index changes
Page 20
20
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
► Term: Amount of time allotted to pay back the loan after the student graduates
Impact of Longer Terms
Repayment Terms After Graduation
Loan Amount
Repayment Term
Monthly Payment
Total InterestPaid
Total Amount Paid
$10,00010 years
(120 months)$121 $4,560 $14,560
$10,00015 years
(180 months)$96 $7,203 $17,203
Examples are based on a $10,000 loan with two disbursements and an interest rate of 8%.
Page 21
21
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Federal Loan Repayment Plans
Repayment Plans After Graduation
Sources are provided in the Important Information section.
Parent PLUS: Standard, Graduated, Income Sensitive (FFELP only), Extended, Consolidation
Grad PLUS: Standard, Graduated, Income Sensitive (FFELP only), Income Based, Income Contingent, Extended, Pay as You Earn, Consolidation
Private Loan: Varies by Lender
PlanInitial Monthly
PaymentLong-term Monthly
PaymentTotal Interest
PaidYears in
Repayment
Standard $292.00 292.00 $6,855.00 10
Graduated $165.00 $494.00 $8,589.00 10
Extended - Fixed n/a n/a n/a n/a
Extended- Graduated n/a n/a n/a n/a
Income Based $281.00 $292.00 $6,939.54 10.1
Income Contingent $221.00 $273.00 $9,209.00 12.8
Income Sensitive $105.00 $292.14 $8,080.10 11
Pay as You Earn $187.00 $292.00 $8,966.06 11.8
Consolidation $178.03 $178.03 $14,793.40 20
Page 22
22
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Gap Financing Options for Parents to Consider
PLUS Loan for Parents Private Student Loans
Variable Interest Rate N/A 2.25% - 10.42% APR
Fixed Interest Rate7.21% for Academic Year 2014-15
Note: AY 2015-16 rates will be announced on or after June 1, 2015.
4.75% -12.99% APR
Origination Fees 4.292% through September 30, 2015 Varies by lender - most offer 0%
Responsibility to Pay Parent Student and cosigner (if applicable)
Cosigner RequirementsNo, the parent will need to pass a credit check and if they fail, may qualify with a
creditworthy endorser
No, but students with little or no credit history may have difficulty qualifying for a loan without
a cosigner. Having a cosigner can also help the student qualify and obtain a better rate.
Cosigner Release N/A
Yes. Many lenders provide a cosigner release option where the student can apply to release
the cosigner after they graduate, make a specified number or on-time payments and
meet underwriting requirements.
Enrollment Status At least half timeVaries by lender but offer loans to borrowers
who are less than half time
Standard Repayment Term 10 – 25 years Varies by lender – typically 5-15 year terms
Benefits0.25 percentage point interest rate
reduction for automatic debit enrollment3
Most lenders offer a 0.25 percentage point interest rate reduction for automatic debit
enrollment. Additional benefits vary by lender.
Sources are provided in the Important Information section.
Page 23
23
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Top three reasons parents choose private student loans
Parents did not want the loan in their name (61%)
Better interest rates, especially with good credit (23%)
More choices and features
(13%)
Why Parents Choose Private Student Loans
Features of private student loans that parents prefer
More repayment flexibility
More convenient application process
Easier account management
SOURCE: Sallie Mae customer research studies 2012/2013.
Page 24
24
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Gap Financing Options for Graduate Students to Consider
PLUS Loan for Grad Students Private Student Loans
Variable Interest Rate N/A 2.25% - 10.42% APR
Fixed Interest Rate7.21% for Academic Year 2014-15
Note: AY 2015-16 rates will be announced on or after June 1, 2015.
4.75% - 12.99% APR
Origination Fees 4.292% through September 30, 2015 Varies by lender - most offer 0%
Responsibility to Pay Student Student and cosigner (if applicable)
Cosigner RequirementsNo, the student will need to pass a credit check and if they fail, may qualify with a
creditworthy endorser
No, but students with little or no credit history may have difficulty qualifying for a loan without
a cosigner. Having a cosigner can also help the student qualify and obtain a better rate.
Cosigner Release N/A
Yes. Many lenders provide a cosigner release option where the student can apply to release
the cosigner after they graduate, make a specified number or on-time payments and
meet underwriting requirements.
Enrollment Status At least half timeVaries by lender but offer loans to borrowers
who are less than half time
Standard Repayment Term 10 – 25 years Varies by lender – typically 5-15 year terms
Benefits0.25 percentage point interest rate
reduction for automatic debit enrollment
Most lenders offer a 0.25 percentage point interest rate reduction for automatic debit
enrollment. Additional benefits vary by lender.
Sources are provided in the Important Information section.
Page 25
25
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Why Some Graduate Students Don’t Choose PLUS Loans
SOURCE: Sallie Mae customer research studies 2012/2013.
Interest ratetoo high (17%)
Alternatives offer more choices and features
(15%)
High fees (12%)
Payments too high (10%)
Page 26
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE-GRANTING INSTITUTIONS ONLY. | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
26
What You Can Do to Help Educate Families
Page 27
27
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
► Prepare youself and your staff to discuss gap financing options that include both Private and PLUS– Understand the different loan programs– Understand the factors that impact the total loan cost
• Interest rates• Repayment option selected (in school and after graduation)
– Understand the associated fees, such as origination and disbursement fees
► Consider adding language to award letter or website to encourage families to be better informed of their choices
When applying for a private loan, you will be presented with an interest rate based on your (or your cosigner’s) creditworthiness. You are encouraged to apply (there’s no cost or obligation) and compare the rates on the private loans to the rate offered on the PLUS loan and choose which is right for you.
► If you offer students and families a lender list, make sure the information is up-to-date and the links are accurate
Next Steps
Page 28
28
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Page 29
29
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
Sources:Federal student loan information gathered on April 8, 2015 from http://studentaid.ed.gov and http://www.direct.ed.gov/check those pages for the most up-to -date information about federal student loans. Rates, fees, and availability of federal student loans are subject to change by the Federal Government.
Private Student Loan information based on an April 8, 2015 review of national school-certified private loan programs offered by publicly-traded companies or subsidiaries thereof. Private student loans that have variable rates may go up or down based on the changes of an underlying interest rate index.
EXPLORE FEDERAL LOANS AND COMPARE TO ENSURE YOU UNDERSTAND THE TERMS AND FEATURES. PRIVATE STUDENT LOANS THAT HAVE VARIABLE RATES CAN GO UP AFTER CONSUMMATION. FEDERAL STUDENT LOANS ARE REQUIRED BY LAW TO PROVE A RANGE OF FLEXIBLE REPAYMENT OPTIONS, INCLUDING, BUT NOT LIMITED TO, GRADUATED AND EXTENDED REPAYMENT PLANS, AND LOAN FORGIVENESS AND DEFERMENT BENEFITS, WHICH OTHER STUDENT LOANS ARE NOT REQUIRED TO PROVIDE. FEDERAL LOANS GENERALLY HAVE ORIGINATION FEES, BUT ARE AVAILABLE TO STUDENTS REGARDLESS OF INCOME.
©2015 Sallie Mae Bank. All rights reserved. Sallie Mae and the Sallie Mae logo are service marks or registered service marks of Sallie Mae Bank or its subsidiaries. SLM Corporation and its subsidiaries, including Sallie Mae Bank, are not sponsored by or agencies of the United States of America.
Important Information
Page 30
30
Confidential and proprietary information © 2015 Sallie Mae Bank. All rights reserved. FOR DEGREE GRANTING INSTITUTIONS ONLY | FOR SCHOOL USE ONLY – NOT FOR DISTRIBUTION
The information contained in this presentation is not comprehensive, is subject to constant change, and
therefore should serve only as general, background information for further investigation and study related to the subject matter and the specific factual circumstances being
considered of evaluated. Nothing in this presentation constitutes or is designed to constitute legal advise.
MKT10854