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.
What We Will Cover
• Cost of a College Education
• How America Pays for College
• 1 – 2 – 3 Approach to Funding Education
– Free Money
– Federal Loans
– Gap Funding Options
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)
92%
90%
•
Majority of enrolled
undergraduates and
Parents strongly agree
that, “College is an
investment in the
student’s future.” In
2011, student Strong
agreement rose to 90%.
90%
88%
86%
84%
84%
84%
83%
82%
83%
81%
80%
80%
78%
78%
76%
74%
72%
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.
Investment in Future - Students
2008
2009
Investment in Future - Parents
2010
2011
College Cost Continues to Increase
•
Estimates for
academic year
2010/2011 indicate
that 20 million
students enrolled in
higher education and
incurred costs of over
$410 billion.
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
College Cost Continues to Increase (Cont)
•
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.
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Students’ Challenges Going to College
• The biggest challenge faced in transition to college
was financial
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 Pays
for College
9
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Managing College Costs
Average Amount Paid for College, Year-over-Year, by Income Level
$35,000
$31,245
•
Families are making
decisions to reduce
cost:
–
–
–
Lower-cost school
choices
Living at home
Reducing personal
spending
$30,000
$25,760
$23,817
$25,000
$24,097
$21,889
$21,040
$19,435
$20,000
$22,628
$21,347
$17,200
$19,888
$17,383
$16,910
$16,955
$17,404
AY 2008-2009
AY 2009-2010
$15,000
$15,130
$10,000
$5,000
$Source: Sallie Mae (with Ipsos
Public Affairs); How America Pays
for College, 2011
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
AY 2007-2008
Total families
Low-income families
Middle-income families
High-income families
AY 2010-2011
How the Typical Family Pays for College
•
Average Percent of Total Cost of Attendance Paid from Each Source
Academic Year 2010-2011
Student
Borrowing
Grants &
Scholarships
15%
33%
Friends &
Relatives
7%
30%
4%
11%
Student Income &
Savings
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Parent
Borrowing
Parent Income &
Savings
Source: Sallie Mae (with Ipsos
Public Affairs); How America Pays
for College, 2011
College Savings
•
College savings reach new high in 2011
Total Assets
in StateSponsored
Section 529
Savings Plans ($
Billions)
$160.0
$149.8
$135.2
$133.2
$140.0
$133.3
$120.0
$112.9
$107.7
$100.0
$90.4
$80.0
$73.2
$60.0
$53.5
$40.0
$32.0
$18.4
$20.0
Source: College Board 2010
Trends in Student Aid and
Financial Research Corp., data
as of June 2011
$7.4
$11.5
$1999
2000
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
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
Combined Federal Grant Volume up $15 Billion
Source: College
Board 2010 Trends in
Student Aid
Federal Grant Aid ($MM)
$45,000
$41,321
$2,160
$1,478
$40,000
$35,000
$9,470
$30,000
$25,182
$25,000
$20,150
$20,000
$15,000
$1,831
$1,268
$21,913
$1,790
$1,388
$1,860
$1,286
$4,096
>$5(B)
$3,594
$3,487
~$10(B)
$10,000
$17,907
$15,173
$13,564
$28,213
$5,000
$0
AY 2006-07
AY 2007-08
Pell Grants
Distribution
Pell Grants
Veterans
Military
Other
67%
17%
6%
9%
AY 2008-09
Veterans
69%
16%
6%
8%
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Military
AY 2009-10
Other Grants
71%
16%
6%
7%
68%
23%
4%
5%
Scholarship Tools
Sallie Mae’s free scholarship search provides more than
3 million scholarships worth More than $16 billion
•
SallieMae.com/ScholarshipSearch
FastWeb.com features over
1.5 million scholarships
•
Fastweb.com/College-Scholarships
Private Scholarship
Resources
►
►
►
Scholarship America
►
•
►
ScholarshipAmerica.org
►
►
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
KFC Scholarship
Coca-Cola Scholarship
Ronald McDonald Scholarship
Scholarships for Women
WalMart Scholarship
African American Scholarships
Target Scholarship Application
Scholarship Search - Best Practices
• FREE Easy-to-use database
• Calendar listing scholarships by deadline
• Filtering capabilities
– By name
– By deadline
– By award amount
• Rating of scholarships
• Adjustable settings
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Tuition Payment Plans
• Most colleges and universities offer tuition payment plans
• 26% of families report using a tuition payment plan
in academic year 2010-2011 to pay for undergraduate
education
• Tuition Payment Plans help attract and retain students by
giving them an additional funding solution
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Rate of FAFSA Completions,
Year-over-Year
100%
• FAFSA completion is
growing
• Freshman rates continue
to increase
• Reasons for not
completing the FAFSA:
– Didn’t need aid
– Didn’t believe their family
would qualify
– Weren’t aware of FAFSA
91%
90%
80%
80%
76%
74%
72%
70%
80%
75%
82%
76% 77%
74% 74%
83%
73%
71%
78%
75%
72%
65%
61%
60%
50%
40%
30%
20%
10%
Source: Sallie Mae (with Ipsos
Public Affairs); How America Pays
for College, 2011
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
0%
Total
Freshman
2008
Sophomore
2009
2010
Junior
2011
Senior
Student Loans: Federal & Private
Federal & Private Student Loan Originations ($MM)
$120,000
$105,334
$95,852
$94,358
$100,000
Loan Originations ($MM)
$86,526
$10,080
$14,165
$1,949
$21,810
$80,000
$7,700
$2,039
$11,761
$20,110
$3,009
$3,362
$60,000
$11,138
$44,689
$10,817
$39,682
$10(B)
Growth
$28,317
$40,000
$25,767
$20,000
Source:
College Board
2010 Trends
in Student Aid
$26,471
$30,083
$32,380
AY 2006-07
AY 2007-08
AY 2008-09
$36,741
$0
Subsidized Stafford
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Unsubsidized Stafford
PLUS
State/ Perkins/ Other
AY 2009-10
Private Student Loans
Federal Student Aid: 2011-15 Plan
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
Source: FSA Strategic Plan FY 2011-15
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Parents Want Shared Responsibility
• 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
–
–
–
–
PLUS loans
Private loans
Home equity loans
Credit cards
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.
Commonly Used Gap Financing Tools
Financing Tool
Advantages/Motivation
Disadvantages
• No credit check
• No lengthy application process
• Parent wants to help pay for college
• Tax penalties
• Lost investment growth
• Can severely reduce retirement income
• Parent wants to help pay for college and
• 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
401(k) Withdrawal or
Loan
Home Equity Loan/Line of
control use of funds
Credit
• Parents willing to help out
• Can borrow up to the full cost of attendance
Cosign a Private Student
• Option to defer if needed
Loan
• Pricing lower than PLUS for well-qualified families (See
next slide)
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
• 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
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% ACH
2% 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 forgiveness
Tuition insurance
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.
Fixed vs. Variable Rate Private Loans
•
•
•
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 shortterm 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
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.
Confidential and proprietary information ©1995-2012 Sallie Mae, Inc. All rights reserved.