MINNEAPOLIS, MN OCTOBER 18-21 MASFAA: TIME TO REFOCUS Midwest Association of Student Financial Aid Administrators How to Help Borrowers Tackle Their New

MINNEAPOLIS, MN OCTOBER 18-21

MASFAA: TIME TO REFOCUS

Midwest Association of Student Midwest Association of Student Financial Aid AdministratorsFinancial Aid Administrators

How to Help Borrowers Tackle How to Help Borrowers Tackle Their New ChallengesTheir New Challenges

Presented by:

Beth EricksonBeth Erickson

Ronald HoppeRonald Hoppe



OverviewOverviewOverviewOverview



What Will We Discuss?The new challenges that student

loan borrowers are facing.Why students are borrowing and

support for those who are.Assistance and options that are

available for those struggling to repay.



The EconomyThe EconomyThe EconomyThe Economy



Unemployment

8.0%

6.8%

9.5%

8.8%

10.0%

15.2%

9.9%

10.8%

9.0%



What College Students are Saying

Recent Edison Media Research◦22% of students worry about having

enough cash to get through a typical week.

◦11% of those whose parents lost a job veered away from grad school because they couldn’t afford it.27% of students with job loses in their family considered dropping out.

◦32% said financial worries have a lot of impact on the stress they’re under.



Student Loan Student Loan DebtDebt

Student Loan Student Loan DebtDebt



Increases in Student Loan DebtIn 2008, 67% of students

graduating from a four year program had student loan debt.

That represents 1.4 million students graduating with debt, up 27% from 1.1 million students in 2004.



Breaking it Down62% of graduates from public

universities had student loans.72% of graduates from private

nonprofit universities had student loans.

96% of graduates from private for-profit universities had student loan debts.◦A major increase from 2004, when 85% of

those graduates had student loans.



Average Debt Levels are Increasing The average debt level for

graduating seniors with student loans rose considerably in 2008.◦In 2004 the average was $18,650.◦In 2008 the average was $23,200.

An increase of 24% in just four years.



Breaking it DownAt public universities the average

debt was $20,200.(20% higher than 2004’s $16,850).

Private nonprofit universities the average debt was $27,650.(29% higher than 2004’s $21,500).

Private for-profit universities the average debt was $33050.(23% higher than 2004’s $26,850).



Average Student Debt by State $19,241

64%$24,16972%

$26,20873%

$18,92865%

$18,58456%

$22,05360%

$19,01868%

$21,28360%

$21,95267%

*percentages in blue are average of graduates with student loan debt



Reasons Why Reasons Why Students BorrowStudents Borrow

Reasons Why Reasons Why Students BorrowStudents Borrow



Freshman Finance: Tips on Managing Your Money

Today Show Video



Personal ExperienceLack of overall knowledgeJaded understanding of future

implicationsUnwilling to accept undesired

alternatives



What Determines the Amount What Determines the Amount Students Borrow? Revisiting the Students Borrow? Revisiting the Crisis-Convenience Debate.Crisis-Convenience Debate. Journal of Student Financial Aid

◦ Volume 38, Number 1◦ Natala Hart and Shoumi Mustafa

“Students borrow to bridge the gap between total cost of attendance and the sum of grants, scholarships, and tuition discounts. One would expect the amount of loan to depend on the size of this gap, levels of family resources, and additionally, the cost of borrowing (p. 35).”



What Determines… (cont.)

Hart and Mustafa found for students from families in the lowest SES, net costs and the availability of family resources were more significant determinants than the overall costs of borrowing or aid eligibility.

For students from middle- to upper-income families, increased low interest loan eligibility was the greater determinant.



What Determines… (cont.)

Before the increase in Stafford loans federally (and Perkins loans at some institutions), high interest alternative loans were the only option.

After the increase, because additional low interest loan options were available, overall borrowing increased, at percentages higher than those of net costs.



School Support of School Support of Students and Students and

FamiliesFamilies

School Support of School Support of Students and Students and

FamiliesFamilies



What Support Is There for Borrowers?

Eliminating Federal Student Aid?University Aid CalculatorsThe Project on Student DebtStrategies to avoid debtTactics to help students and

families understand options for financial aid and expected future debt



Eliminating Federal Eliminating Federal Student Aid?Student Aid?Some argue that ending federal

student aid programs would force colleges/universities to lower tuition rates and hold them accountable for how they are spending their money.

New Perkins Loan Legislation



University Aid CalculatorsUniversity of Illinois at Urbana-Ch

ampaign Financial Aid Calculator

Purdue University Net Price Calculator

Williams College Net Price Calculator



Project on Student Debthttp://projectonstudentdebt.org/Mission: For Americans of all socio-economic

backgrounds, borrowing has become a primary way to pay for higher education. The Project on Student Debt works to increase public understanding of this trend and the implications for our families, economy, and society. Recognizing that loans play a critical role in making college possible, the Project's goal is to identify cost-effective solutions that expand educational opportunity, protect family financial security, and advance economic competitiveness.



Project on Student DebtNews UpdatesPublicationsRecent Data and ResearchAdvice for BorrowersTell Your StoryPolicy Initiatives



Strategies to Avoid DebtUnderstand It

◦ Focus on paying the most expensive (those with the highest interest rate) debts first.

Keep Your Credit Score High◦ Protect your credit report and credit score.

Know Where to go for Help◦ Call your creditors and let them know what is

happening.◦ National Foundation of Credit Counselors or the

Independent Association or Credit Counselors.



Tactics to Help Students and Tactics to Help Students and Families Understand Families Understand Options for Financial Aid Options for Financial Aid and Expected and Expected FutureFuture DebtDebt

Entrance/Exit Counseling Pre-College AwarenessMoney Smart Program

Collaborations



Entrance/Exit CounselingAre current Entrance/Exit

Counseling requirements sufficient enough?

Should private lenders be required to create entrance/exit counseling sessions for their borrowers?



Pre-College Awareness The Institute for College Access

and Success – 10/2008Financial Aid is most effective when

students and families learn about it early enough to make the right choices and plans about high school coursework, family savings, work and earnings, and college options.



Pre-College Awareness (cont.) Generally, parents’ ability to estimate

college costs accurately is positively correlated with income.

A survey of 1,090 parents of 18- to 24-year olds and 811 young adults age 18 to 24 conducted by The Sallie Mae Fund in 2002 found that 62% did not name grants as sources of financial aid, 58% did not name scholarships, and 64% did not name loans.



Pre-College Awareness (cont.)The average age at which a

student first receives financial aid info is 14 years for families with household incomes over $75,000 and 16 years for families with household incomes under $25,000.

Financial Aid CalendarThe ABC's of Early Awareness



Money Smart CollaborationsStarted in Chicago but currently

taking place in cities in 5 states (IL, IN, IA, MI, and WI)

Six days of free presentations by community groups, financial institutions, government agencies, educational organizations, and financial experts, all designed to help consumers learn to better manage their personal finances

www.moneysmartweek.org



Repayment Repayment SolutionsSolutions

Repayment Repayment SolutionsSolutions



Student Loan DefaultsAccording to the U. S.

Department of Education 6.7% of student loans for fiscal year 2007 defaulted.

This involved more than 225,000 borrowers.



Why Borrowers are Not Able to PayUnemployment/

UnderemploymentForeclosurePrioritization of

paying billsBehind on billsRising cost of livingSingle Parent

Monthly payments are too high

Excessive Student Loan Debt

Holidays – paying for gifts

Job security concerns



Overcoming ObjectionsBorrowers are telling us…

◦“I’m struggling to pay all my bills right now due to the economy”.

One of our best WIIFMs…◦“The present state of the economy

can definitely makes things stressful. That’s why I would like to help you get rid of at least this one worry by finding a solution for this account”.



Finding the Best SolutionCan you pay that today?

How much can you pay today?

Ask if a payment can be made by the 5th business day

PAYDAYS

Reason for Delinquency

Program Options

Sources of Income

When can you pay?



Borrower RavesSarah had been laid off since January and was feeling really depressed about being behind on her bills. She was nervous about talking to us, but said that Joe’s friendly and personable nature made it easier for to talk about her predicament. She said that Joe was extremely helpful. Sarah was pleased to know that Great Lakes had such solid policies and procedures to assist borrowers and was staffed with such excellent employees like Joe who could carry them out so exceptionally well.



Borrower RavesNaomi said that she has been spending her day off work trying to figure out a plan for her student loans. She spent 4 hours on the phone calling various lenders. Unfortunately she was left confused and frustrated.

She called Great Lakes and first got a hold of Ron in the afternoon, and then later talked to Jermaine in the evening. She raved about how much better she felt about her student loans after talking to both of them.

She said that out of all the companies that she has ever dealt with that Great Lakes definitely provides the best customer service. Naomi said that “Ron and Jermaine have restored my faith in humankind.”



Tools You Can Tools You Can UseUse

Tools You Can Tools You Can UseUse



Tools That Can HelpDitch the Debt Gremlin

◦www.IBRinfo.orgGreat Lakes Website

◦Phone Counseling Support◦Deferment Form Instructions◦Borrowers at Risk Report◦Delinquency Letter Tool



Phone Counseling Support



Deferment Form Instructions



Borrowers at Risk Report



Delinquency Letter Tools



Repayment & Repayment & Monthly Payment Monthly Payment

OptionsOptions

Repayment & Repayment & Monthly Payment Monthly Payment

OptionsOptions



Payment PlansGraduated Repayment – a plan

that allows the monthly payment amount to increase over the repayment period. This option can help with a need for temporarily lowered payments.



Extended Repayments – a plan that extends the life of a loan in order to allow borrowers more time to pay it back. Must have a current minimum of $30,000 in principle and interest and no outstanding student loan balance as of 10/07/98 to qualify.

Payment Plans



Income-sensitive repayment – A plan that allows the monthly payment to be lowered if the loan holder determines that the borrowers total monthly income is insufficient to allow them to make their standard monthly payments.

Payment Plans



Income Based Repayment (IBR) – A plan where the monthly payments are determined by income and family size. Monthly payments cannot exceed 15% of the borrower's income. Any remaining balance is forgiven after 25 years and 300 qualifying payments.

Payment Plans



Non-Repayment Non-Repayment OptionsOptions

Non-Repayment Non-Repayment OptionsOptions



Options For Those That Can’t PayDeferments – borrowers can

suspend their payments due to Economic Hardship, Unemployment or while in school.

Forbearances – another method of payment suspension, based on income or up to the discretion of the lender.



IBR (zero payment) – in some cases borrowers are not required to make payments based on their income.

Options For Those That Can’t Pay



Promises Obtained

July 2008 - June 2009

10%

20%

30%

40%

50%

JulyAug

SeptOct

NovDec

Jan FebMar

AprMay

June

Payments

Deferments

Forbearances



Tools for Tools for Delinquent Delinquent BorrowersBorrowers

Tools for Tools for Delinquent Delinquent BorrowersBorrowers



Tools For Delinquent BorrowersIncome Based Repayment

◦IBR Calculator www.IBRinfo.org

National Student Loan Data System ◦Student Access to Loan Data

www.nslds.ed.govGreat Lakes Web-site

◦Trouble making payments tool www.mygreatlakes.org



The Split The Split BorrowerBorrowerThe Split The Split BorrowerBorrower



Who are you and what did you do with my lender?Growth of Split Servicing

◦Students use multiple lender/guarantor options to take advantage of benefits.

◦Students consolidated while in school

◦PUT program



Who are you and what did you do with my lender?How do we help the Split

borrower from communication overload and sheer confusion◦National Student Loan Data System

(www.nslds.ed.gov) doesn’t provide any private loan info



The MissionThe MissionThe MissionThe Mission



Things We Can All Do to Assist Our Student BorrowersArm your students with the

knowledge they need.Encourage them to keep track of

where their loans are. Encourage them to contact their

lender.Let them know that options are

available during difficult times.



Questions?



Midwest Association of Student Midwest Association of Student Financial Aid AdministratorsFinancial Aid Administrators

How to Help Borrowers Tackle How to Help Borrowers Tackle Their New ChallengesTheir New Challenges

Presented by:

Beth EricksonBeth Erickson

Ronald HoppeRonald Hoppe

Documents

MINNEAPOLIS, MN OCTOBER 18-21 MASFAA: TIME TO REFOCUS Midwest Association of Student Financial Aid Administrators How to Help Borrowers Tackle Their New