Tools for Financing Education Presented by Keri Neidig and Claudine Murphy Sallie Mae

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

Tools for Financing Education

Presented by Keri Neidig and Claudine Murphy Sallie Mae


• Cost of a College Education• How America Pays for College• 1 – 2 – 3 Approach to Funding Education

– Free Money– Federal Loans– Gap Funding Options

What We Will Cover


Cost of a College Education

3


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


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


• Estimates for academic year 2010/2011 indicate that 20 million students enrolled in higher education and incurred costs of over $410 billion.

College Cost Continues to Increase


• Assuming Federal Loans and Grants remain constant – a 4% increase in the cost of education would result in $15 billion incremental funding requirement for students and families.

College Cost Continues to Increase (Cont)


• 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


How America Paysfor College

9


• Families are making decisions to reduce cost:– Lower-cost school

choices – Living at home– Reducing personal

spending

Managing College Costs


AY 2007-2008 AY 2008-2009 AY 2009-2010 AY 2010-2011 $-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$17,200 $19,435

$24,097 $21,889

$15,130 $16,955 $17,404

$19,888 $16,910

$17,383

$22,628 $21,347 $21,040

$23,817

$31,245

$25,760

Average Amount Paid for College, Year-over-Year, by Income Level

Total families Low-income familiesMiddle-income families High-income families


• Average Percent of Total Cost of Attendance Paid from Each SourceAcademic Year 2010-2011

How the Typical Family Pays for College


15%

7%

30%

11%

4%

33%

Student Borrow-ing

Parent Borrow-ing

Parent Income & Savings

Student Income & Savings

Friends & Rela-tives

Grants & Scholar-ships


• College savings reach new high in 2011

College Savings

Source: College Board 2010 Trends in Student Aid and Financial Research Corp., data as of June 2011

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

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 $-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

$160.0

$7.4 $11.5 $18.4

$32.0

$53.5

$73.2

$90.4

$112.9

$133.3

$107.7

$133.2 $135.2

$149.8


1-2-3 Approach for Funding Education


1-2-3 Approach to Paying for College

Step 1. Use Free Money

Grants Scholarships Work-study 529 Savings Account Tuition Payment Plans Step 2. Explore Federal Loans

Federal loans – some available regardless of need – offer options for both students and parents Stafford PLUS

Step 3. Fill Any Gaps

After free money and federal loans, private education loans may be the best alternative to cover the rest of the education costs.


Federal Grants

$13,564 $15,173$17,907

$28,213$3,487

$3,594

$4,096

$9,470

$1,268$1,286

$1,388

$1,478

$1,831$1,860

$1,790

$2,160

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

AY 2006-07 AY 2007-08 AY 2008-09 AY 2009-10

Federal Grant Aid ($MM)

Pell Grants Veterans Military Other Grants

$20,150$21,913

$25,182

$41,321

>$5(B)

~$10(B)

Distribution

Military 6% 6% 6% 4%Other 9% 8% 7% 5%

Pell Grants 67% 69% 71% 68%Veterans 17% 16% 16% 23%

Combined Federal Grant Volume up $15 Billion Source: College Board 2010 Trends in Student Aid


Sallie Mae’s free scholarship search provides more than3 million scholarships worth More than $16 billion• SallieMae.com/ScholarshipSearch

FastWeb.com features over1.5 million scholarships• Fastweb.com/College-Scholarships

Scholarship America• ScholarshipAmerica.org

Scholarship Tools

Private ScholarshipResources► KFC Scholarship ► Coca-Cola Scholarship ► Ronald McDonald Scholarship ► Scholarships for Women► WalMart Scholarship ► African American Scholarships ► Target Scholarship Application


• FREE Easy-to-use database• Calendar listing scholarships by deadline• Filtering capabilities

– By name– By deadline– By award amount

• Rating of scholarships• Adjustable settings

Scholarship Search - Best Practices


• Most colleges and universities offer tuition payment plans

• 26% of families report using a tuition payment plan in academic year 2010-2011 to pay for undergraduate education

• Tuition Payment Plans help attract and retain students by giving them an additional funding solution

Tuition Payment Plans


• FAFSA completion is growing

• Freshman rates continue to increase

• Reasons for not completing the FAFSA:– Didn’t need aid– Didn’t believe their family

would qualify – Weren’t aware of FAFSA

Rate of FAFSA Completions,Year-over-Year

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%

2008 2009 2010 2011



Student Loans: Federal & Private

$26,471 $30,083 $32,380 $36,741

$25,767$28,317

$39,682

$44,689$10,817

$11,138

$11,761

$14,165

$3,362

$3,009

$1,949

$2,039

$20,110

$21,810

$10,080

$7,700

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

AY 2006-07 AY 2007-08 AY 2008-09 AY 2009-10

Federal & Private Student Loan Originations ($MM)

Subsidized Stafford Unsubsidized Stafford PLUS State/ Perkins/ Other Private Student Loans

$10(B)Growth

$86,526

$94,358 $95,852

$105,334

Loan

Orig

inati

ons (

$MM

)

Source:College Board 2010 Trendsin Student Aid


TRENDS LIKELY TO SHAPE FEDERAL STUDENT AID• Rising cost of attendance• Decline in availability of nonfederal 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


• 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


– PLUS loans – Private loans – Home equity loans – Credit cards


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


PLUS vs. Cosigning a Private Loan

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

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


PLUS vs. Cosigning a Private Loan (Cont)

PLUS Private Student Loan*

Responsibility to repay Parent Parent and student on cosigned loan (most students need a cosigner)

Can responsibility be transferred? No Yes, with cosigner release

Interest rate 7.9% fixed LIBOR +2.0% to +9.875%; variable

Fee 4% - 1.5% is rebated if the first 12 payments are made on time 0%

Benefits 0.25% ACH 0.25% ACH2% Smart Reward

Repayment term 10 – 25 years 5-15 years

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

Consumer safeguards Death & disability loan forgiveness Death & disability loan forgivenessTuition insurance


• Fixed interest rates appeal to consumers and seem to convey a sense of stability

• Consumers should be educated and gain an understanding that while a variable rate can go up,it can also go down. Over time, a customer will see movement in both directions, and the net effect over time may be fairly small

• Many families view gap funding through private loans as a short-term financing– Fixed rate loans are most beneficial for loans with a long lifetime– Variable rates, especially for well-qualified families, are more beneficial in a low

interest rate environment• Fixed rate loans can come at a premium to borrowers with good

credit. We encourage schools and borrowers to evaluate both fixed and variable rate loan options

Fixed vs. Variable Rate Private Loans


Questions

Questions


The information contained in this presentation is not comprehensive,is subject to constant change, and therefore should serve only asgeneral, background information for further investigation and studyrelated to the subject matter and the specific factual circumstancesbeing considered or evaluated. Nothing in this presentationconstitutes or is designed to constitute legal advice.

Tools for Financing Education Presented by Keri Neidig and Claudine Murphy Sallie Mae

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