Confidential and proprietary information © 1995-2012 Sallie Mae, Inc. All rights reserved. 1 TRENDS...

Confidential and proprietary information © 1995-2012 Sallie Mae, Inc. All rights reserved.

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TRENDS IN EDUCATION FINANCE

Karen Foust, Managing DirectorSallie Mae



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This presentation is an overview of trends in the industry and how families are paying for college

► Total Cost of Education

► How America Pays for College

► Best Practices for Counseling Families

Agenda


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Confidential and proprietary information ©1995- 2012 Sallie Mae, Inc. All rights reserved.

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Total Cost of Education


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College Costs Continue to Increase

SOURCE: College Board, Trends in College Pricing 2011.

Average Published Charges for Undergraduates, AY 2011-12


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College Costs Continue to Increase (cont.)

SOURCES: The College Board, Annual Survey of Colleges; NCES, Integrated Postsecondary Education Data System (IPEDS).


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Student Loans: Growth of Federal & Private Loans

SOURCE: College Board, Trends in Student Aid 2011.


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► Trends likely to shape Federal Student Aid Rising cost of attendance Decline in availability of non-federal sources of

funding• Decline in family contribution• Decline in state and institutional funding due to budget

constraints

Increase in enrollment Expanded role of the federal government in student

aid As borrowers increase the FSA continues to increase

its budget

Federal Student Aid: 2011-15 Plan

SOURCE: FSA Strategic Plan FY 2011-15.


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Media Bylines on College Costs & Value

► US News “College Tuition Growth Rate Is Biggest Bubble of Them All” 9.28.11

► CNN Money “Surging College Costs Price Out Middle Class” 06.13.11

► Plain Dealer “Is a College Education Worth the Price?” 9.03.11

VS

► New York Times Blog “College Students Don’t View Debt as Burden” 6.15.11

► Los Angeles Times “College Research Shows That It Could Easily Be The Best Investment You Ever Make” 8.15.11

► TIME Magazine “Actually College Is Very Much Worth It” 5.19.11


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A College Education Continues to Have Value

► Estimated Cumulative Earnings Net of Loan Repayment for Tuition and Fees, by Education Level

SOURCES: College Board, Education Pays 2010, Figure 1.3; U.S. Census Bureau, 2009; The College Board, 2009; calculations by the authors.


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Students Value a College Education

Considering the money and time involved in getting a collegedegree, do you think getting a college degree today is worth it?

SOURCE: College Board (by Hart Research Associates): One Year Out, Findings from a National Survey Among Members of the High School Graduating Class of 2010


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Students Value a College Education (cont.)

Investment in Future - Students

Investment in Future - Parents72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

92%

84%

80%

78%

83%84%

81%

90%

83%

2008 2009 2010 2011

► Majority of enrolledundergraduates andParents strongly agree that, “College is an investment in the student’s future.” In 2011, student Strong agreement rose to 90%.

SOURCE: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2011


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► The biggest challenge faced in transition to college was financial

Students’ Challenges Going to College

SOURCE: College Board (by Hart Research Associates): One Year Out, Findings from a National Survey Among Members of the High School Graduating Class of 2010.


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How America Pays for College


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College Savings

College savings reach new high in 2011

SOURCE: College Board Trends in Student Aid 2011 and Financial Research Corp., data as of June 2011.

Total Assets in State-Sponsored Section 529 Savings Plans ($ Billions)


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► 97% of families took at least one cost-saving measure including:

Student lived at home Student added roommates Students reduced personal

spending Families taking income tax

credits or deductions

Cost-saving Measures

RESEARCH

2010 2011 20120%

10%

20%

30%

40%

50%

60% 57%

45%

50%49%47%

53%

24%

37%

47%

Undergraduates Living at Home

Low income Mid income High incomeSOURCE: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2012


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Families’ Attitude Toward College

RESEARCH

Willin

g to

Stret

ch Fin

ancial

ly

Rathe

r Bor

row T

han

Not G

o

Inve

stm

ent i

n Fu

ture

Degre

e Mor

e Im

portan

t Now

*

Attend

for E

xper

ienc

e Des

pite

Fut

ure

Earn

ings

*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012


Willin

g to

Stret

ch Fin

ancial

ly

Rathe

r Bor

row T

han

Not G

o

Inve

stm

ent i

n Fu

ture

Degre

e Mor

e Im

portan

t Now

*

Attend

for E

xper

ienc

e Des

pite

Fut

ure

Earn

ings

*

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009 2010 2011 2012

Students Parents


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Percent of Total Costs Paid From Each Source, AY 2011-12

RESEARCH



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Best Practices for Counseling Families


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Scholarship Search - Best Practices

► Families Should Look for Resources that Offer:

► FREE, easy-to-use database

► Calendar listing scholarships by deadline

► Filtering capabilities By name

By deadline

By award amount

► Rating of scholarships

► Adjustable settings


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Scholarship Tools

► Sallie Mae’s free scholarship search provides access to more than 3 million scholarships SallieMae.com/ScholarshipSearch

► Fastweb.com features over 1.5 million scholarships Fastweb.com/College-Scholarships

► Private Scholarship Resources KFC Scholarship

Coca-Cola Scholarship

Ronald McDonald Scholarship

Scholarships for Women

WalMart Scholarship

African American Scholarships

Target Scholarship Application

Scholarship America

ScholarshipAmerica.org


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More Families Completed the FAFSA

RESEARCH

Total Freshman Sophomore Junior Senior0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

74%

65%

74%

82%

78%76% 75% 76%

73%75%

72%

80%

74%71%

61%

80%

91%

77%

83%

72%

81%83%

78%

88%

81%

2008 2009 2010 2011 2012


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Federal Grants

SOURCE: College Board, Trends in Student Aid 2011.


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► Parents are key contributors to college education, paying 37% of the overall cost 75% of parents believe paying for college should be a shared

responsibility 13% say parents should be entirely responsible for costs 94% of parents intend to pay some of the costs of college for their child 72% planning to pay half or more of the cost

► Parents use various sources to fund the gap: Parent’s current income 529 plans 401k loans and withdrawals Other savings & investments

Parents Want Shared Responsibility

Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2011

PLUS loans Private loans Home equity loans Credit cards


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Gap Financing Tips

► Families should understand the total cost of funding and should consider a package of gap financing options and not limit themselves to just one

Cash, Tuition Payment Plans and Private Loans

► Families should only borrow what they need

► Responsible borrowing: A creditworthy borrower has good or excellent credit, an ability to repay the loan and the capacity to take on the debt

The Ability to Pay: A comparison of the applicant’s total debt to their total income and a review of their outstanding student loan indebtedness

Stability: How long they have been at their current address, job stability, and established credit history

Willingness to Pay: Credit score and payment history on other types of credit


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Commonly Used Gap Financing Tools

Financing Tool Advantages/Motivation Disadvantages

401(k) Withdrawal or Loan

• No credit check• No lengthy application process• Parent wants to help pay for college

• Tax penalties• Lost investment growth• Can severely reduce retirement income

Home Equity Loan/Line of Credit

• Parent wants to help pay for college and control use of funds• Tax benefits

• Equity may not be available in this economy • Closing costs • Foreclosure risk in financial emergency

Credit Cards• Easy, quick access to funds• Parent wants to help pay for college

• Most expensive choice • Limited funds (determined by credit limit)

Long-term investments (Mutual Funds, Stocks, Bonds…)

• Not borrowed; does not have to be repaid• Parent controls funds

• Lost investment growth• May sell investments at a loss in current economy• May involve penalties for withdrawing funds

Cosign a Private Student Loan

• Parents willing to help out• Can borrow up to the full cost of attendance • Option to defer if needed• Pricing lower than PLUS for well-qualified families (See next slide)

• Loan in student’s name, some parents may want to give the gift of a college• Terms and cost can widely vary between Lenders• Cosigner is responsible for paying the loan if the

student defaults


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Parents: PLUS vs. Cosigning a Private Loan

Direct PLUS Loan Private Student Loan*

Responsibility to repay

ParentParent and student on cosigned loan

(most students need a cosigner)

Can responsibility be transferred?

No Yes, with cosigner release

Interest rate 7.9% fixedLIBOR +2.0% to +9.875%

or5.75% to 12.875% fixed

Fee 4% 0%

Benefits 0.25% ACH0.25% ACH

Other benefits may be available as well

Repayment term 10 – 25 years 5-15 years

Enrollment status At least half-time Includes less than half-time

Consumer safeguards

Death & disability loan forgivenessDeath & disability loan forgiveness

Tuition insurance

► Parents want shared responsibility – and they have the option to take on some of the cost by borrowing a Direct PLUS Loan in their own name

► Cosigning a private student loan is another form of sharing the financial responsibility – most private loans offer a cosigner release

* Private Student Loan column is based on the Sallie Mae Smart Option Student Loan.


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Tuition Payment Plans

► Most colleges and universities offer tuition payment plans

► 26% of families report using a tuition payment plan in AY 2010-11 to pay for undergraduate education

► Tuition payment plans help attract and retain students by giving them an additional interest free funding solution


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Private Loan Trends

► Death and disability discharge

► Families are becoming concerned about using 401K to pay for their child’s education

► Peer to Peer lenders

► Credit unions

► AY 2012-13 trends Embedded Benefits: Tuition Insurance

Fixed vs. Variable Interest Rates


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Questions


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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 studyrelated to the subject matter and the specific factual circumstances

being considered or evaluated. Nothing in this presentationconstitutes or is designed to constitute legal advice.

Confidential and proprietary information © 1995-2012 Sallie Mae, Inc. All rights reserved. 1 TRENDS...

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Transcript of Confidential and proprietary information © 1995-2012 Sallie Mae, Inc. All rights reserved. 1 TRENDS...