Bridging the Gap to Higher Education Financing An Overview of the Private Student Loans

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Bridging the Gap to Higher Education Financing
An Overview of the Private Student Loans

• Tamera Briones, Chief Executive Officer,
  Education Finance Partners

2
Student Loan Landscape
3
Market Dynamics

• Tuition rose 59 in the past decade
• Family income rose 2
• Federal loan limits remain stagnant
• Grants and scholarships are not keeping pace with
  inflation

Source The College Board, 2005
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Market Overview
AY 2005 - 2006
Total Financial Aid Market Size 152 Billion
Student Loans Market Size 86 Billion
Private Loans 19
Federal (FDLP) 17
16.3 B
Other Loans 3 2.3 B
14.8 B
86 B
Student Loans 56
Student Loan Composition
Grants Credits 44
66 B
Federal (FFELP) 61
52.5 B
Other Student Loans Federal Perkins Program
(1.14 B), State Sponsored Loans (1 B), and
other Federal Loans (157 MM) FDLP indicates
loans originated through the Ford Direct Loan
Program FFELP indicates loans
originated through the Federal Family Education
Loan Program Source The College Board Trends
in Student Aid 2006
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The Funding Gap
Total Cost of Education Versus Federal Loan
Limits (2005/06 Academic Year)
105,000
94,843
85,000
65,000
58,264
71,843
45,000
35,264
25,000
Federal Loan Limits (Subsidized Unsubsidized)
23,000
- 3rd - 5th Years - 2nd Year - 1st Year
Private Four-Year
Public Four-Year
Cumulative Loan Limit
Notes Assumes average student enrollment of 4.75
academic years for public and 4.25 years for
private. Estimates are for in-state resident
students and include tuition, room and board,
books and supplies, transportation costs, and
other expenses. Excludes annual grants and
scholarships, estimated at 3300 per student for
public and 9600 for private. Source The
College Board.
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Family Dynamics

• America does not save
• Personal Savings Rate negative 0.51
• 74 aged 45-54 have a retirement plan in place2
• Of those, 57 have saved less than 50K2
• College Savings
• 9 of adults saving for retirement are also
  saving for college2
• Home Equity
• 75.9 own a home
• 150,000 in home equity
• Touch Choice between retirement or education
• 1MM2 needed for retirement
• 62 believe paying for their childrens college
  will significantly impact their retirement

1. US Dept. of Commerce, The Organization of
   Economic Cooperation and Development
2. 2006 Retirement Confidence Survey, Employee
   Benefit Research Institute
3. Undergraduate Students and Credit Cards, Nellie
   Mae, May 2005

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Evolving Financial Aid Landscape
Amount (Billions)
Federal
Private
Stafford subsidized unsubsidized, PLUS and Grad
PLUS.
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Pricing for Risk The Key Difference Between
Federal and Private Loans
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Federal Lending
Lender School
10
Private Lending
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Pricing for Risk
Loan Amount
7,500
7,500
Federal
Private
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Pricing for Risk
Risk Amount
Interest Processing
7,500
225
Federal
Private
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Price Equates to Risk
Consumer Loans Mortgage (5/1 ARM)1 Mortgage (30
year fixed)1 Equity Line of Credit (30,000)1 Car
Loan (60 month, new car)1 Private Education
Loan2 Credit Card (student class)1
Average Interest Rates 5.62 5.80 8.20 6.95 10.
88 18.24

1. Bankrate.com 2/8/07
2. Survey of top 6 private lenders 2/8/07

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Undergraduates Credit Cards

• 76 have credit cards
• 24 use credit cards for tuition
• 56 graduate with four credit cards an average
  total balance of 6,400

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The Gap
Source The College Board, 2005
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Student Debt Meet Frank

• Frank Needs a 10,000 Private Loan
• He Has
• Established Credit
• Parents Willing to Co-Sign
• 850 FICO? Score
• His Rate 7.5 - No Fee
• His Monthly Payment 123.99
• Total Cost Over Life of Loan 22,317.82

Based on an 8000 loan amount deferred for 54
months, interest rate never changes, paid off
over 180 monthly payments.
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Student Debt Meet Sue

• Sue Needs a 10,000 Private Loan
• She Has
• Established Credit
• No Co-Signer
• Minor Flaws on Credit Report
• 665 FICO? Score
• Her Rate 11 Fee of 2
• Her Monthly Payment 173.32
• Total Cost Over Life of Loan 31,197.54

Based on an 8000 loan amount deferred for 54
months, interest rate never changes, paid off
over 180 monthly payments.
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National FICO? Score Distribution
9
9
9
9
9
8
8
8
7
5
5
4
3
2
2
2
1
lt500
500
520
540
560
580
600
620
640
660
680
700
720
740
760
780
gt800
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Student Loan Debt

• 55 - Feel burdened by school debt
• 76 - Loans mean attending the college of choice
• 85 - The benefits are worth it

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