Bridging the Gap to Higher Education Financing

Bridging the Gap to Higher Education Financing

An Overview of the Private Student Loans

Tamera Briones, Chief Executive Officer, Education Finance Partners

Student Loan Landscape

3©2007 Education Finance Partners, Inc. Proprietary and Confidential: Do not copy or distribute. Bridging the gap. Increasing access.®

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


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 ProgramSource: The College Board – Trends in Student Aid 2006

Market Overview

Private Loans19%

Grants & Credits

44%

StudentLoans56%

Total Financial Aid

Market Size: $152 Billion

$86 B

$66 B

Federal(FDLP)

17%

Federal (FFELP)

61%

StudentLoan

Composition

$14.8 B

$16.3 B

$52.5 B

Student Loans

Market Size: $86 Billion

Other Loans3%

$2.3 B

AY 2005 - 2006


Total Cost of Education Versus Federal Loan Limits (2005/06 Academic Year)

- 3rd - 5th Years- 2nd Year- 1st Year

$105,000

$85,000

$65,000

$45,000

$25,000

$35,264$35,264

$71,843$71,843

$94,843

Private Four-Year

Public Four-Year

CumulativeLoan Limit

Federal Loan Limits(Subsidized & Unsubsidized)

$23,000

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.

The Funding Gap

$58,264


Family Dynamics• America does not save

• Personal Savings Rate negative 0.5%1 • 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 children’s 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


Evolving Financial Aid Landscape

$0

$100

$200

$300

$400

99-00 04-05 14-15 19-20

Federal

Private

$ A

mou

nt

(Bill

ions

)

Stafford subsidized & unsubsidized, PLUS and Grad PLUS.

Pricing for Risk The Key Difference Between Federal and

Private Loans


Federal Lending

Lender& School


Private Lending


$7,500$7,500

Pricing for Risk

Federal Private

Loan Amount


$7,500

$225

Pricing for Risk

Risk Amount

Interest &Processing

Federal Private


1. Bankrate.com 2/8/072. Survey of top 6 private lenders 2/8/07

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%


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


The GapFederal Loan Aid

Grants andScholarships

Employment andWork/Study

25%

20%

35%

20%

FundingGap

Source: The College Board, 2005


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.


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.


<500 500 520 540 560 580 600 620 640 660 680 700 720 740 760 780 >800

2%

1%

2 % 2%

3%

4%

5%

7%

8%

9% 9% 9% 9% 9%

8% 8%

5%

National FICO Score Distribution


Student Loan Debt• 55% - Feel burdened by school debt

• 76% - Loans mean attending the college of choice

• 85% - The benefits are worth it

Documents

Bridging the Gap to Higher Education Financing