# Presentation: 056781

## Helping Financial Aid Professionals and 

**Students Navigate the **
**Alternative Loan Dilemma**

- Brian Cox, First Marblehead/TERI
- Melissa Kunes, Penn State

**Session 26**

## School Overview

- PLUS vs. Alternative Loan comparison
- Schools need to evaluate their needs for a private loan
- Questions that students and schools need to ask the lender...research tools
- Payment comparison – approach and tools

## PLUS vs. Alternative Loan Comparison

| Federal PLUS Loans | Private Alternative Loans |
| --- | --- |
| Loan Terms and Conditions |  |
| Variable interest rate, set annually on July 1. | Variable interest rate, changes monthly or quarterly. |
| Interest rate capped at 9%. | Interest rate may become as high as 21%. |
| Lender may offer delayed payment options for up to four years through forbearance.    | Payments may be deferred while the student is enrolled at least half-time. |
| Parent may borrow up to the total cost of  attendance less other aid. | Student may borrow up to the total cost of attendance less other aid. |
| Credit check based on federal standards, no debt-to-income ratios or credit-scoring.  A parent may have a better chance of being approved as a borrower on a PLUS Loan than as a co-signer on an alternative loan. | Borrowers must pass a comprehensive credit review process including credit scoring and proof of income requirements. |

**PLUS vs. Alternative Loan Comparison**

## PLUS vs. Alternative Loan Comparison

| Federal PLUS Loans | Private Alternative Loans |
| --- | --- |
| Repayment |  |
| Parent is responsible for repayment. | Student is responsible for repayment. Please note: A co-signer is equally liable and the loan appears on their credit report.  Parent can help build the credit rating of the student. |
| Accrued interest capitalizes once at final repayment. | Accrued interest may be capitalized monthly, quarterly, or once at repayment. |
| Federally insured against death and disability for both the parent and the student. | Not federally insured against death and disability. |
| Opportunities available to consolidate PLUS Loans, interest rate capped at 8.25%. | Consolidation options becoming more available |

## Evaluate the School’s Loan Needs

- What populations of students do you need to serve?
- Undergraduate or Graduate
-  Degree or non-degree
-  Full time or part time
- Traditional/Continuing Education/           Distance Learning courses
-  Making academic progress/or not

## Evaluate the School’s Loan Needs

- “Off the Shelf” or “Custom Built”?
- Relationships with current lenders
- Understand process flow with each lender
- Certify or Not Certify – What to know about DTC loans

## Questions to “Ask the Lender”

- Borrower Eligibility
- Loan Application Process
- Interest Rates and OTHER Fees
- Repayment Terms and Conditions

## Questions to “Ask the Lender”

- Borrower Benefits
- Service from the Lender
- Greentree Gazette – Student Loan Buying Guide – Sept 2005
- Loan Comparison Worksheets:  petersons.com and finaid.org

## Borrower Eligibility

- What are minimum and maximum loan amounts available?
- Will this loan meet long term educational borrowing needs and immediate short term needs?
- How will my credit rating affect my loan?  Great resources:  myfico.com, mycreditedge.com

## Borrower Eligibility

- Is co-signer required? If so, under what circumstances?
- Is there an option to release co-signer at later date?

## Loan Application Process

- How do I apply? Through paper, web, phone application?
- How does my co-signer apply? Through paper, web, phone application?
- Do I have the option of a wet signature or an electronic signature?

## Loan Application Process

- Does my co-signer have the same options?
- Is there an expedited return borrower process?

## Interest Rates and OTHER Fees

- What is the current interest rate?
- Is there an interest cap?
- What additional fees, interest reductions, or other incentives are offered during the life of the loan? Do any of these conditions vary based on credit rating or availability of a co-signer?

## Interest Rates and OTHER Fees

- When are late charges assessed, and how much are they?
- How is my loan capitalized, annually or at repayment?

## Repayment Terms and Conditions

- What are the minimum and maximum terms and payment amounts?
- When do payments begin?
- Can interest only payment be made while in school?

## Repayment Terms and Conditions

- Is there a penalty for paying off the loan early?
- Does the lender offer combined billing of alternative and federal loans?
- Are grace periods, deferments, or forbearance offered? If so, what are the conditions and how is interest capitalized during these periods?

## Borrower Benefits

- Does the lender offer any other borrower benefits? If so, what are the eligibility requirements?
- If the borrower does not qualify for a benefit, is there an appeal process?

## Service from the Lender

- What is the turnaround time for credit decisions?
- When and how will my loan be disbursed?
- How are problems resolved? Via phone, written email or other correspondence?

## Service from the Lender

- Is there 24/7 access to loan information via the web and phone?
- What is the lender’s policy on selling the loan to other lenders after the loan has been disbursed?

## Alternative Loan Repayment

| Repayment Option  | Option 1 Immediate Repayment  | Option 2 Interest-Only Repayment  | Option 3Deferred Repayment  |
| --- | --- | --- | --- |
| Amount Requested | $10,000 | $10,000 | $10,000 |
| Origination Fee | (5.00%)$526.32 | (5.00%)$526.32 | (6.50%)$695.19 |
| Principal Amount at Loan Disbursement | $10,526.32 | $10,526.32 | $10,695.19 |
| Deferment Period  | 0 months | 48 months | 48 months |
| Monthly Interest Payment (while in school)  | (included below) | $58.68 | (deferred) |
| Principal Amount of Loan at Repayment | $10,526.32 | $10,526.32 | $13,948.35 |
| Monthly Principal & Interest Payment (after deferral period, if any) | $79.66 | $79.66 | $104.99 |
| Repayment Period | 240 months | 240 months | 240 months |
| APR | 7.35% | 7.24% | 7.26% |
| Total Finance Charge | $9118.40 | $11,935.04 | $15,197.60 |
| Total Repayment Amount | $19,118.40 | $21,935.04 | $25,197.60 |

**Alternative Loan Repayment**

## How to Compare Pricing

**How to Compare Pricing**

## What Schools Can Do

- Determine your Alternative Loan needs
- Research lenders/programs available
- Publish information: web, handouts, preferred process

## What Schools Can Do

- Sample information:
- PLUS vs. Alternative comparison
- Side by side lender comparisons
- Ways students can educate themselves, questions to ask, and online resources; youcandealwithit.com, collegeanswer.com

## Contact Information

- Melissa Kunes
-  Phone: (814) 863-2869
-  Fax: (814) 863-0322
-  Email:mjk5@psu.edu

- Brian Cox
-  Phone: (617) 638-2023
-  Fax: (888) 454-7630
-  Email:  bcox@fmd.com

**Contact Information**