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Financing OptionsFinancial Aid 101

Mary Dyer, Default Prevention SpecialistOctober 10, 2008

Agenda

• Choices that impact college costs

• Ways to reduce expenses

• Financing options available to students & families:

- Tuition Payment Plans

- Federal PLUS Loans

- Private Alternative Loans

Answer:

How Can Students & Families Reduce College Costs?

Choices!!!

Choices Include

• School selection• Choice of major• Enrollment level• Work or play?• Housing options• Drive or walk?• Optional expenses

School Choice

School Choice

• Consider community college

• In-state school vs. out-of-state – What can the family afford for travel

expense?

• State schools may cost less

School Choice (con’t)

• Important that students compare award packages when selecting a school

• What types of loans are included in the package?

• Apply on time EVERY YEAR to ensure the best package possible

Choice of Major

• Choice of major can impact the number of schools available

• Consider earning potential upon graduation

• Major can also impact the amount of financial aid received

• Consider loan forgiveness options

Enrollment Level

• Is tuition charged based on “per credit hour” basis or enrollment level (i.e. full time vs. half time)?

• Reducing course load may save money, but consider length of time needed to complete school

• Impact of attending school year round

Work or Play?

• Students should be working and SAVING for college expenses.

• At a minimum, students should save enough to pay for books and miscellaneous expenses (cell phone, late night pizza, entertainment, etc.)

Work or Play?, cont.

• Summer employment can result in significant savings

• The more students work, the less they borrow

• Myth: “If I work, they will take away my financial aid”

Housing Options

• On campus vs. off campus– is one option cheaper than the other?

• Need to consider cost of rent, transportation and food

• If on campus, type of room can impact cost – singles typically cost more than doubles and “suites” tend to cost more than standard rooms

Housing Options (cont.)

• If off campus, is the student willing to share with several people?

• Living at home can often save the student thousands of dollars

Drive or Walk?

• If the student is living on or near campus, consider leaving the car at home

– Gas, insurance, parking passes & tickets

– Unexpected repairs and maintenance can be costly

– Students often have access to public transit

Reduce Expenses

You mean my cell phone is optional???

• Computer purchase/laptop– Many colleges have invested

in expensive computer labs

• Cable/Internet– use college provided resources

• Cell phones– choose a prepaid plan

Reduce Expense, cont.

• Textbooks– buy early and USED!!!

• Clothes

• Vacations– spring break or working break???

• Entertainment– campus events are often FREE!!

A Word About Credit Cards…

• These can be deadly…

– Consider a debit card – Have credit card available only for

emergencies and have limit on it– Student need to better understand the

cost of credit and how expensive it is

Financing Options

- Tuition Payment Plans

- Federal PLUS Loans

- Private Alternative Loans

Financing options available to students &

families:

Tuition Payment Plans

• Most colleges offer some type of tuition payment plan

• Plans are short-term (usually 12 months)

• These plans allow students & families to make monthly payments on tuition and room & board

Tuition Payment Plans, cont.

• Can spread the payments out over the course of a semester or year

• Plans are interest-free

• Nominal fee (usually $50-$100) is charged

• IMPORTANT: Can utilize a payment plan in combination with student and parent loans

Tuition Payment Plans, cont.

• Many offer an auto-debit option

• Payment plan counselors assist families in calculating their remaining bill

• Common plans include AMS Tuition Pay, FACTS Tuition Management and Advantage School Tuition Payment Program

Federal PLUS Loans

• Borrower is the parent of a dependent undergraduate student, or graduate/professional student

• Direct PLUS Loan funded through the federal government – borrower repays the feds

• FFEL PLUS Loan is funded through private lending institutions – borrower repays private lender

Federal PLUS Loans• Borrowers must:

pass a credit check be citizens or eligible non citizens not in default on federal student loan not owe a refund on any federal student aid

program (nor can the student)

• PLUS Loans can fill need and/or replace EFC

• Undergraduate students are NOT required to file a FAFSA in order for the parents to borrow a PLUS Loan, but graduate students ARE required

PLUS Loan - Amounts

Student’s cost of attendance

- Other aid student receives

= Maximum loan amount

No aggregate maximum

PLUS Loans – Interest Rate

• The interest rate on FFELP PLUS Loans first disbursed after July 1, 2006 is fixed at 8.5%; for Direct PLUS Loans the rate is fixed at 7.9%.

• A few lenders reduce the interest rate under certain circumstances as a borrower benefit

PLUS Loans – Interest Rate & Fees

• PLUS Loan charges loan fees of up to 4%, deducted evenly from each disbursement

• While in deferment, interest accrues

PLUS Loans - Repayment

• Repayment begins 60 days after the funds are fully disbursed

• The repayment term is up to 10 years

• NEW!! Graduate students and parents can defer while student and/or parent is enrolled at least half-time, as well as during a six-month grace period.

• IMPORTANT - Interest that accrues on PLUS loans during deferment or grace period can be capitalized no more frequently than quarterly.

PLUS Loans – Application Process and Promissory Note

• Check with financial aid office to determine application process

• After credit check, borrower will be notified of approval or denial

• Master Promissory Note required – good for 10 years – tied to individual student

Alternative Loans

• Student is the borrower• Often require co-signer with good

credit history and debt to income ratio

• Do not need to complete the FAFSA• Funded through private lenders• Not federally regulated

Alternative Loans – Amounts

Student’s cost of attendance

-Other aid student receives

= Maximum loan amount

Aggregate maximum – varies by lender

Alternative Loans – Interest Rate and Fees

• Interest rates and fees vary by lender

• Most interest rates are variable and set based on the Wall Street Journal prime rate or the LIBOR rate

• Often interest rates and fees are structured so that they are less for those with better credit and debt to income ratio

Alternative Loans-Repayment

• Repayment varies from one lender to another

• Typically principal is deferred while student is in school, but interest accrues

• Many loans do have a grace period

• Repayment period varies depending on lender and amount borrowed

Alternative Loans – Application Process and Promissory Note

• Contact financial aid office

• Often, next step will be to apply directly through lender (phone/web site)

• If approved, lender will have student sign promissory note and then will send information to school

• School will “certify” the loan

• Some schools will require loan counseling

Responsible Borrowing

• Borrowing a loan is a given for most students

• Varies tremendously from one school to the next… not necessarily tied to the cost of the school

• Individual choices have a huge impact on the amount eventually borrowed

In Closing…

• Choices made early on can impact college costs and loan debt

• Options do exist

• Reach out to your financial aid office or FAME.

Questions?