# Presentation: 776539

## Slide 1

## Session 10

**Alternative Loans:**
**Filling the Gap**

- Alternative Loans: Filling the Gap

## What are Alternative Loans?

- Alternative loans, also known as private education loans, can be used to bridge the gap between the cost of attendance and the financial aid package offered by the institution.
- Alternative Loans are offered by private lenders and do not require federal forms (e.g., the FASFA).

- Alternative Loans: Filling the Gap

## The History of Alternative Loans

- Alternative Loans have long been a part of the student financial aid equation.
- Alternative loans paved the way for much larger government sponsored-loans in the 1950s and 1960s.
- Over time alternative loans have increased in volume and diversity.

- Alternative Loans: Filling the Gap

## Why The Interest In Alternative Loans?

- Increased alternative loan volume at postsecondary institutions
- Expanding market of private lenders and alternative loan products
- Escalating costs of higher education
- Upcoming HEA reauthorization and discussions of federal loan limits

- Alternative Loans: Filling the Gap

## Loan Volume Growth 1995-96 to 2000-01

- Source:  *The College Board*

- Alternative Loans: Filling the Gap

## Alternative Loan Product Growth September 2001 to September 2002

- Source:  *The Greentree Gazette*

- Alternative Loans: Filling the Gap

## The Alternative Loans Project

- What types of alternative loans exist?
- What are the characteristics of the students who receive them?
- What role do alternative loans play in college student financing?

- The report seeks to answer the following questions:

- Alternative Loans: Filling the Gap

## Sources of Data

**Quantitative Sources**
- NPSAS 2000 (and previous years of NPSAS data)
*The Greentree Gazette*
- Web-based institutional data questionnaire

**Qualitative Sources**
- Regional focus groups with financial aid administrators
- Conference calls within various postsecondary sectors
- Institutional case studies

- Alternative Loans: Filling the Gap

## The Issues Being Raised

- Students’ “blind” borrowing & increased student debt
- Reasons why students are obtaining alternative loans
- The “hot economy and money” are  things of the past
- Risk of increased default rates, particularly on Title IV loans

- Alternative Loans: Filling the Gap

## Issues Cont.

- Parents’ reluctance to take out PLUS loans and a shift in responsibility for financing postsecondary education
- Institutions becoming “ATMs”
- Increased private lender presence
- Alternative loan counseling

- Alternative Loans: Filling the Gap

## Policy Implications

- Should Federal loan limits be increased during the upcoming HEA reauthorization?
- Should the Federal Government take a more active role with regard to alternative student loans?

- Alternative Loans: Filling the Gap

## Contact Information

- I appreciate your feedback and comments.  I can be reached:
- 		Phone: (202) 861-8223
- 		Fax: (202) 861-9307
- 		Email: cwegmann@ihep.org

- Alternative Loans: Filling the Gap

## A Little Bit about Penn State

- 2001-02 Annual Data
- Total Enrollment:		76,166
- Total Aid Recipients: 	57,166 (75%)
- Total Aid Dollars:		$500,000,000.00
- Total Locations: 		23
- Undergrad/Graduate/Medical/Law

- Alternative Loans: Filling the Gap

## How Penn State is Addressing Alternative Lending

- A few years ago, we did not want to mention to students the option of Alternative Lending as a stop gap.
- Now, we feel this is the only choice....

- Alternative Loans: Filling the Gap

## Cost of Attendance

- Prior to 2002-03:
- Tuition increased between 4 to 5%,
- Housing and meals increased between 4 to 5%
- In 2002-03:
- Tuition increased by 13.5%
- Housing and meals increased 8.5%
- In 2003-04, more to come....

- Alternative Loans: Filling the Gap

## First level of defense...

- Encourage the PLUS option:
- 2000-01:
- 5,648 borrowers
- $38,822,302.00
- 2001-02:
- 6,235 borrowers
- $48,625,747.00
- 2002-03 (projected):
- 6,921 borrowers
- $60,782,184.00

- Alternative Loans: Filling the Gap

## Is Bad Credit on the Rise?

- Increase of PLUS Denials for Families:
- 2000-01:	2,173
- 2001-02: 	2,475
- 2002-03: 	2,601

- Alternative Loans: Filling the Gap

## Alternative Lending Volume

- On the Rise:
- 2000-01:
- 1,437 borrowers
- $6,949,169.00
- 2001-02:
- 2,124 borrowers
- $12,770,146.00
- 2002-03 (to-date): 	Projected:
- 4,595 borrowers	-  4,950 borrowers
- $28,219,729.00 	-  $35,000,000.00

- Alternative Loans: Filling the Gap

## Who are these Students?

- A few facts about 2002-03 Alternative Loan borrowers:
- Almost 100% Undergraduate:
- 94% Dependent
-   6% Independent
- 77% Pennsylvania Residents
- Family income of $72,000
- 15% are below a 2.00 Cumulative GPA

- Alternative Loans: Filling the Gap

## What are Solutions?

- Work with your partners:
- Lenders
- Guarantors
- Negotiate terms and conditions
- Use your FFELP as leverage, if you need
- Facilitate a process that works for the school
- Advocate for your students

- Alternative Loans: Filling the Gap

## What does the future hold?

- An increase in Federal Stafford Borrowing limits?
- Probably not....
- An increase in alternative loan borrowing?
- Most likely, yes...
- Will students default on these loans?
- Too early to tell, but....

- Alternative Loans: Filling the Gap

## Contact Us

- We appreciate your feedback and comments.  We can be reached:
- 		Phone: (814) 863-2869
- 		Fax: (814) 863-0322
- 		Email: _[MJK5@psu.edu](mailto:MJK5@psu.edu)_
- Thank You!

- Alternative Loans: Filling the Gap

## Slide 24