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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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Cost of a College Education
3
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Students Value a College Education
Considering the money and time involved in getting a college
degree, 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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)
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
How America Paysfor College
9
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• Families are making decisions to reduce cost:– Lower-cost school
choices – Living at home– Reducing personal
spending
Managing College Costs
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2011
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
$25,760
Average Amount Paid for College, Year-over-Year, by Income Level
Total families Low-income families
Middle-income families High-income families
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• Average Percent of Total Cost of Attendance Paid from Each SourceAcademic Year 2010-2011
How the Typical Family Pays for College
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2011
15%
7%
30%
11%
4%
33%
Student Borrow-ing
Parent Borrow-ing
Parent Income & Savings
Student Income & Savings
Friends & Rela-tives
Grants & Scholar-ships
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• College savings reach new high in 2011
College Savings
Source: College Board 2010 Trends in Student Aid and Financial Research Corp., data as of June 2011
Total Assetsin State-Sponsored Section 529 Savings Plans ($ 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
1-2-3 Approach for Funding Education
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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.
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Sallie Mae’s free scholarship search provides more than
3 million scholarships worth More than $16 billion• SallieMae.com/ScholarshipSearch
FastWeb.com features over
1.5 million scholarships• Fastweb.com/College-Scholarships
Scholarship America• ScholarshipAmerica.org
Scholarship Tools
Private Scholarship
Resources► KFC Scholarship ► Coca-Cola Scholarship ► Ronald McDonald Scholarship ► Scholarships for Women► WalMart Scholarship ► African American Scholarships ► Target Scholarship Application
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2011
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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
$105,334
Loan
Ori
gina
tions
($M
M)
Source:College Board 2010 Trendsin Student Aid
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Questions
Questions
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
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 study
related to the subject matter and the specific factual circumstances
being considered or evaluated. Nothing in this presentation
constitutes or is designed to constitute legal advice.