Private Loans 101 Code of Conduct and PPA What is a private loan, and what isn t? The three disclosures, and self certification Private loans that are

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1 Private Loans 101 Melet Leafgreen Assistant Director of Financial Aid Texas Christian University 1 Private Loans 101 Melet Leafgreen Assistant Director of Loan Programs Texas Christian University m.leafgreen@tcu.edu edu 2 1

2 Private Loans 101 Code of Conduct and PPA What is a private loan, and what isn t? The three disclosures, and self certification Private loans that aren t really private Preferred Lender List What is it, do I need it, and how do I get it? What is required if I have one? 3 Private Loans 101 Comparison: Private loans, CAL, and PLUS Terms, borrowers, and risks APR Private loan consolidation Recent news and coming up 4 2

3 Private Loans 101 Handouts Code of Conduct and PPA What is a private loan, and what isn t? The three disclosures, and self certification Private loans that aren t really private 5 Private Loans 101 Agenda Preferred Lender List What is it, do I need it, and how do I get it? What is required if I have one? Comparison: Private loans, CAL, and PLUS Terms, borrowers, and risks APR Private Loan Consolidation Recent news and coming up 6 3

4 Any arrangement between a lender and a covered institution or an institution affiliated organization of such covered institution () (a) under which h a lender provides or otherwise issues education loans to students attending such institution or the students families and (b) that relates to such covered institution or such institution affiliated organization recommending, promoting, or endorsing the education loan products of the lender. 7 Exemptions Institutional loans whereloan is funded from institution s (or IAO s) own funds Made under Title VII or Title VIII of the Public Health Services Act Made under a state funded financial aid program, if loan includes public service loan forgiveness component 8 4

5 When you have a list that is not a PLA: If you provide a neutral, comprehensive list of lenders that have made loans to students at your school within a specified period of time, such as 3 5 years, and that provides a clear statement that a borrower can select any lender. [DCL GEN 08 06] 06] 9 First, you must disclose that you have a PLA to your students and families before they borrow at leastannually: annually: compile, maintain, and makeavailable available a list of the specific lenders you recommend, promote, or endorse On the Preferred Lender List, schools must provide: The Application/Solicitation Disclosure for every loan listed A description of the process, method, and criteriausedto to determine who made the list; reasons for selecting each lender, particularly with respect to loan terms/ conditions favorable to borrower Not less than two unaffiliated lenders 10 5

6 11 First, you must disclose that you have a PLA to your students and families before they borrow at leastannually: annually: compile, maintain, and makeavailable available a list of the specific lenders you recommend, promote, or endorse On the Preferred Lender List, schools must provide: The App/Solic. Disclosure for every loan listed A description of the process, method, and criteriausedto to determine who made the list; reasons for selecting each lender, particularly with respect to loan terms/ conditions favorable to borrower Not less than two unaffiliated lenders 12 6

7 13 First, you must disclose that you have a PLA to your students and families before they borrow at leastannually: annually: compile, maintain, and makeavailable available a list of the specific lenders you recommend, promote, or endorse On the Preferred Lender List, schools must provide: The App/Solic. Disclosure for every loan listed A description of the process, method, and criteriausedto to determine who made the list; reasons for selecting each lender, particularly with respect to loan terms/ conditions favorable to borrower Not less than two unaffiliated lenders 14 7

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9 School must compile the list without prejudice and for the sole benefit of students and families Sh School must not deny, impede, or unnecessarily delay loan certification for borrowers who choose a lender not included on the list School cannot agree to use of school s name, emblem, mascot, logo, colors, etc. by lenders which might imply loan is offered by the school (cobranding) School must ensure lender name is displayed on all information and documentation related to the loan 17 Annual report to ED detailing method and criteria used to select: must include why terms and conditions of selected loans are beneficial to borrowers This report has to be made available to the public and to current and prospective students 18 9

10 What is scary cumbersome irritating too much work risky about having a Preferred Lender List? If you don t have one, why don t you? If you do have one, why do you?

11 21 1. Figure out what is important to your population. 2. Invite lenders to answer questions about it. 3. Document tth their answers. 4. Select lenders who are the best fit for your students and families based on their answers. Keep the documentation forever. Guiding Questions 1. Do my borrowers benefit? 2. Can I prove it? (Is it documentable?) 22 11

12 1. Figure out what is important to your students and families. How do you do that? Survey students Survey parents Survey financial aid staff (and other offices) Ask other schools for best practices Possible tools from guarantor, servicers, etc. Associations (NASFAA, TASFAA, SWASFAA, etc.) 24 12

13 2. Invite lenders to answer questions about it. 3. Document their answers. RFI, RFP, questionnaire, survey Evaluate lenders for their ability/willingness to respond to the needs of students and schools, so you can Provide students and families with the options that will benefit them the most, and be able to Document and disclose both the process and the outcome Select lenders who are the best fit for your students and families based on their answers Make sure you would be able to justify the choices you make by logic, scores, and comments. Always use the same basic criteria for all participants. The goal is to make sure than anyone who wants to know (your VP, a student orparent,anattorney an attorney general) can tell easilyfrom your documentation how you conducted the process and how your decisions were made. A bonus: this makes it easier to explain to a nonlisted lender why their shop didn t make the cut

14 Private Loans 101 Agenda Preferred Lender List What is it, do I need it, and how do I get it? What is required if I have one? Comparison: Private Loans, CAL, and PLUS Terms, borrowers, and risks APR Private loan consolidation Recent news and coming up 27 Questions to ask: Who is the borrower? Who is the lender? Do I have a choice? Is there a yearly/aggregate loan limit? Do I need a cosigner or endorser? Can this cosigner/endorser be released? What s the interest rate and fee? When is interest capitalized? 28 14

15 Questions to ask: How long does the application process take? What are the credit requirements? Can I consolidate this loan? What type of repayment plans are available? Could I postpone my payments if I need to? Is there any way to have this loan forgiven? 29 Calculate a simple APR different than interest t rate because it hl helps you tk take into account any up front fees Example: $10,000 loan, 120 month repayment 5.25% fixed rate 8% fixed rate 5% fee 0% fee APR = 6.38% APR = 8% 30 15

16 APR calculator Note: Most simple online APR calculators are made for use with a fixed rate loan. 31 Another comparison: $10, loan, 120 month repayment term 5.25% fixed rate 5% fee APR = 6.38% 8% fixed rate 0% fee APR = 8% 7.9% fixed rate 4% fee APR = 8.88% 32 16

17 College Access Loan (CAL) Have an Experian VantageScore of 700 or higher Not have public records such as tax liens or bankruptcy proceedings Have a minimum of 5 credit trade lines, excluding student loans or authorized user accounts Not have defaulted on any federal or private education loans 33 Parent PLUS Loan adverse credit history includes: Bankruptcy (Chapters 711 7,11, or 12), voluntary surrender, repossession, foreclosure, wage garnishment, county/state/federal tax lien within the past five years Foreclosure proceedings started, or deed in lieu of foreclosure. Accounts currently 90 days or more delinquent (unpaid collection accounts, charge offs/ write offs) Defaulted loan that has been claim paid Lease or contract terminated by default 34 17

18 Who is the borrower? What arethe available repayment options? What if something terrible happens? Which has cosigner release? When is interest capitalized? What are the lender s credit criteria? i (And do I get a better rate if my credit is awesome?) What are consolidation options? 35 Discussion question: Are there some types of education loans that are always better than others? 36 18

19 Discussion question: Does it make more sense for the education loans to be in a parent s name or in the student s name? Why? 37 Discussion question: Is it more important to get the lowest interest rate possible, even if it s variable, or to get a rate that is fixed (will not change)? g) 38 19

20 Discussion question: What else is different about private (or state) loans versus federal loans? Consolidation Repayment options Postponement of payments Loan forgiveness/discharge/cancellation 39 A private loan consolidation is just a refinancing of education loans Main benefit would be for someone with multiple lenders to simplify repayment, or someone who has much better credit now than when they initially took out private debt Possibly could reduce monthly payment when term is reset (a new 10 years, for example) of course this makes the loan more expensive over time Credit or cosigner is required. New loan has new terms and conditions 40 20

21 Many of the same questions apply: Interest rate (fixed or variable), fees, prepayment penalties Cosigner release? Credit requirements Maximum/minimum limits Repayment options Forbearance/payment postponements 41 Consumer Financial Protection Bureau (CFPB) established by Title X ofthe Dodd Frank Wall Street Reform and Consumer Protection Act (2010) Operates within Federal Reserve system Established student loan ombudsman position to address private loan complaints 42 21

22 Consumer Financial Protection Bureau (CFPB) established by Title X of the Dodd Frank Wall Street Reform and Consumer Protection Act (2010) Submitted report to Congress in late August on private student loans recommending: Changes to the bankruptcy law to allow private student loans to be dischargeable in bankruptcy like other consumer debt Excluding DHHS loans from TILA requirements Requirement for all private education loans to be certified by a school Setting up a database similar to NSLDS for private student loan borrowers to help them track and repay 43 Private Loans 101 Melet Leafgreen Assistant Director of Financial Aid Texas Christian University m.leafgreen@tcu.edu 44 22