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Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
Jill Gosse, Senior Account Executive
HOW AMERICA PAYS FOR COLLEGE
SPRING 2014
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
2
This presentation is an overview of trends in the industry and how families are paying for college
► Total Cost of Education
► Is it Worth It?
► How America Pays for College
► Best Practices for Counseling Families
Agenda
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Total Cost of Education
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
4
College Costs Continue to Increase
SOURCE: College Board Trends in College Pricing 2012.
Average Published Charges for Undergraduates, AY 2012-13
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5
► 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► Changes to PLUS loan eligibility► Limited number of providers
Trends Likely to Shape Student Aid
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6
► Higher Education Act (HEA) up for reauthorization– No official action expected– Extended on year-by-year basis– 2013 hearings and proposals
► Sequestration– Increase in fees on Stafford Loans to 1.072% and PLUS Loans to
4.288%– Reduced funding for other higher education programs funded from non-
exempt accounts, including federal work-study, SEOG, TRIO, GEAR UP, and other smaller programs.
► Federal loan interest rates– Rates reduced July 1, 2013, looks like over 1% increase in ‘14
► Pell Grant shortfall– FY 2014 appropriations must find $6B to $9B to fund– Pell Grants at current levels for AY 14-15– 10-year shortfall is nearly $80B
Legislative / Regulatory Issues
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Total Education Spend
*Sources: Department of Education, College Board, McKinsey & Company team analysis, MeasureOne, National Student Clearinghouse
1) Total education spend includes “all-in” cost of attendance (e.g., in AY09-10, total spend of $387B was comprised of $203B in tuition and fees, $122B in room and board, $17B in books and supplies, and $45B in transportation/other costs). 2) Grants include federal, state, institutional, and private/employer. 3) Includes private loans based on MeasureOne data. 4) Fall enrollment – degree granting - AY1213 estimated.
$88 $102 $108 $110 $103
$77$98
$111 $113 $116$12
$17$20 $21 $21
$168
$167
$175 $180 $191$10.3
$6.8
$6.0 $6.4 $7.2
19.1
20.421.0 21.0 20.6
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
08-09 09-10 10-11 11-12 *12-13
Tota
l Fal
l Enr
ollm
ent (
$MM
)
Tota
l Edu
catio
n Sp
end
($B)
Total Postsecondary Education Spend
State/ Federal Loans Grants Ed. Tax Benefit/ Work Study Family Contribution Private Student Loans Enrollment
$430$420$438
$355
$391
1
2 3 4
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8
Proportion using Federal and Private Student Loans
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013
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Average Individual Indebtedness
Source: Federal Reserve Bank of New York
Average outstanding student loan balance per borrower = $23,300. Median balance = $12,800
10% owe more than $ 54,000 3% owe more than $100,000
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
10
The Pell Grant Shortfall
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11
Is it Worth It?
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
12
Education Pays
Source: Bureau of Labor Statistics, Current Population Survey 2012Data is for age 25 and over, earnings are for full-time wage and salary workers
31% of the total population ages 25 and older held a Bachelor’s degree or higher, 43% had a high school degree or less
The unemployment rate for individuals 25 and older with at least a bachelor’s degree averaged 4.0%, compared with an average unemployment rate of 6.8% for all individuals 25 and older.
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Recent Research Reinforces Value of College Degree:College Degree Recipients Weather Recession Better Than Less Educated
Source: Georgetown Public Policy Institute, Center on Education and the Workforce , “The College Advantage: Weathering the Economic Storm,”
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0%10%20%30%40%50%60%70%80%90%
100%
2008
2009
2010
2011
2012
2013
2008
2009
2010
2011
2012
2013
2008
2009
2010
2011
2012
2013
2008
*20
09*
2010
2011
2012
2013
Willing to StretchFinancially
Rather BorrowThan Not Go
An Investment inThe Future
Degree More Important Now
Strongly Agree Somewhat Agree *Not asked in 2008 or 2009
Agreement with Value of College, Year-Over-Year
Source: “How America Pays for College,” August 2013
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15
Recent Graduates & The Great Recession
Sources: The John J. Heldrich Center for Workforce Development Chasing the American Dream: Recent College Graduates and the Great Recession, May 2012
Progress Students Have MadePaying Off Debt
Confidence in the Next 10 Years That…
Of those who graduated between 2006 -2011
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How Well Do Students Correlate Amount Borrowed and Repayment? The Future?
0 20000 40000 60000 80000 100000 1200000
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Total Expected Borrowed Amount
Ex
pe
cte
d M
on
thly
Pa
ym
en
t
Student Estimates of Monthly Loan Repayment
Actual Monthly Cost
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How America Pays for College
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College Savings
College savings reach new high in 2012
Total Assets in State-Sponsored Section 529 Savings Plans ($ Billions)
Note: Values for 1999 through 2011 are as of December 31. Value for 2012 is as of June 30.
SOURCE: College Board Trends in Student Aid 2012. Data provided by College Savings Plans Network (www.collegesavings.org).
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► 17% of families used parent savings from dedicated college savings plans/529s
► 5% used retirement savings
► 11% used parent savings from other types of investments
► 27% of families used student savings
Role of Savings
Saving for
Col-lege50%
Not Saving
for Col-lege50%
Parents of Children Under 18 Saving for College
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Differences in Affordable Actions Taken by School Type
Live at home Roommate Transfer Part time Accelerate Change major0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
41%
32%
7%10%
23%
14%
48%
34%
10%12%
24%
16%
83%
47%
23%25%
34%
26%
4-yr private 4-yr public 2-yr publicSOURCE: Sallie Mae (with Ipsos Public Affairs): How America Pays for College, 2013.
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Affordable Actions
Military
Transfer to Less Expensive School*
Part Time
Changed Majors
Parent Work More
Early Loan Payments
Accelerate
Add Roommate**
Tax Credits/ Deduc.
Student Work More
Parent Reduced Spending
Living At Home
Student Reduced Spending
0% 10% 20% 30% 40% 50% 60% 70%
4%
13%
15%
19%
20%
22%
27%
35%
41%
47%
48%
57%
60%
**Among students not living at home*Among non-freshmen
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Cumulative Elimination of Colleges Based on Cost, Year-Over-Year
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Completion of FAFSA by grade level, 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%
81% 83%78%
88%
81%82%
86%82%
80%78%
2008 2009 2010 2011 2012 2013Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013
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► 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
FAFSA Trends
SOURCE: Sallie Mae (with Ipsos Public Affairs): How America Pays for College,
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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How the Typical Family Pays for College, Funding Source Share
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013
Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.
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Use of Grants and Scholarships, by School Type
2-yr public 4-yr public 4-yr private0%
10%
20%
30%
40%
50%
60%
70%
48%
40%
52%
26%
38%
64%
Grants Scholarships
Per
cent
usi
ng s
ourc
e
2-yr public 4-yr public 4-yr private $-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$3,766
$5,696
$11,786
$5,450 $5,903
$13,709
Grants Scholarships
Ave
rage
am
ount
use
d am
ong
stud
ents
with
sou
rce
Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013
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Best Practices for Counseling Families
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► 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
Scholarship Search – Best Practices
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► 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– Wal-Mart Scholarship
Scholarship Tools
– African American Scholarships– Target Scholarship Application– Scholarship America– ScholarshipAmerica.org
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► Parents are key contributors to college education, paying 36% of the overall cost:– 73% of parents believe paying for college should be a shared
responsibility– 13% say parents should be entirely responsible for costs– 42% of parents do not want the loan in their name
► The College Savings Foundation’s 2011 Survey of Parents found that:– 94% of parents intend to pay some of the costs of college for their child– 72% are planning to pay half or more of the cost
► Parents use various sources to fund the gap:– Parent’s current income– 529 plans– 401(k) loans and withdrawals– Other savings & investments
Parents Want Shared Responsibility
SOURCES: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2012; College Savings Foundation 2012 Survey of Parents; Rockbridge 2012.
– PLUS Loans– Private Loans– Home Equity Loans– Credit Cards
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► 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, PLUS Loans 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
Gap Financing Tips
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► Most colleges and universities offer tuition payment plans
► 52% of families report using parents’ current income to pay for college – many of them are using a tuition payment plan
► Allows parents and students to pay their tuition in manageable monthly payments using their income
► Tuition payment plans help attract and retain students by giving them an additional funding solution
► Provides an interest free funding option
Tuition Payment Plans
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► Some lenders are offering fixed rates as good or better than PLUS loans to highly qualified graduate students
► Schools are becoming concerned about debt in the student’s name
► Death and disability discharge
► Families are becoming concerned about using 401K to pay for their child’s education
► Some lenders have programs available for cohorts of students not eligible for federal programs– LTHT students– Prior balances
Private Loan Trends
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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 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.
For school use only. Not to be distributed to students.
MKT8043