Private Education Loans Module Script
Slide 1: Title Slide
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Slide 2: Private Education Loans: Preparing for Financial Success
Ever daydream about joining the circus? Living a life of adventure as a lion tamer, juggler, or trapeze artist?
Now that you’re in college, you may feel closer to that life than you expected. Today’s college experience can feel a lot like walking a high wire, requiring a balancing act between improving your earning prospects on one hand and dealing with soaring college costs on the other.
A college degree is still the best investment you can make to boost your earning potential. To pay for it, however, you may decide that you need to borrow more than federal student loan programs provide, in the form of a private education loan.
What impact might borrowing a private education loan have on your financial future? [Click]
Slide 3: Agenda
This presentation is designed to give you the information you need to manage your private loan successfully.
To accomplish this, we will:
• Compare private loans and federal loans, to get a clear sense of the differences in benefits and obligations;
• Identify the specific terms of your private education loan
• Work through interactive exercises to give you a better picture of your financial situation; • Examine the consequences of defaulting on your private loan;
• Discuss steps you can take to improve your financial situation. [Click]
Slide 4: Essential Documents
To help you get the most out this session, you should have the following documents with you:
• The final disclosure statement for your private education loan. Your lender should have provided this to you after you agreed to take out the loan
• The billing statement(s) from your school for the current semester (including tuition, fees, books, and room and board)
• Summary of all federal loans. This listing can be obtained from National Student Loan Data System (NSLDS) at www.nslds.ed.gov
If you don’t have these documents, you can provide estimates on the exercises or fill in the information after the session.
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Slide 5: Federal Student Loans
So how do federal student loans work, and how are private education loans different?
Federal student loans are one component of the financial aid made available through the U.S. Department of Education and are disbursed by your school’s financial aid office. These loans are designed with favorable terms and obligations to help college students like you pay for educational costs. Examples include federal Direct student loans, PLUS loans for parents and graduate students, and Consolidation loans.
Hopefully, you’ve already applied for financial aid by filling out the Free Application for Federal Student Aid, or FAFSA, and have received an award letter from your school detailing your financial aid package. Hopefully, you maximized the amount of federal student loans you are eligible to borrow before considering a private loan, as federal loans generally have better terms and benefits.
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Slide 6: Private Education Loans
Even if you’ve taken full advantage of the financial aid offered through your school, you may still find that it’s not enough to cover all your expenses. While a private education loan may be a good option to help with these expenses, it’s essential to understand the terms and conditions of the loan, as well as your obligations as a borrower.
Private education loans are offered by nongovernmental agencies such as banks and other financial institutions to help students and/or parents pay for college expenses. With a private education loan, the financial institution solely decides the loan’s terms and conditions, such as interest rate, fees, and length of the repayment period, among others. For this reason, the terms of private loans may differ from one bank to another.
Slide 7: Private Loans: How They Compare
Understanding the differences between your federal loans and your private loans can help you better manage repayment of all your debt and, more importantly, can keep you from becoming delinquent on your payments.
Let’s get a more detailed look at some of the key differences between federal and private loans. [Click]
• Private education loans may not offer the same repayment benefits as those offered by federal student loans. Unlike some private education loans, federal student loan repayment benefits include the option to defer payments in cases of unemployment, economic hardship, military service, or other circumstances. Private education loans also offer fewer repayment plan options than federal student loans. Federal loan borrowers have an array of repayment options, including plans tied to the borrower’s income level.
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• More than 90% of private education loans require a cosigner. Federal student loans, on the other hand, can be obtained without having to commit parents or others to your loan obligation.
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• Private education loans cannot be consolidated into a federal Consolidation loan. Federal student loans, however, can be combined through federal loan consolidation, allowing you to make a single combined payment to your loan holder.
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• Interest rates on private education loans are not subsidized, meaning that you will be responsible for the accruing interest while you’re in school. Some federal student loans offer subsidized interest to qualifying undergraduate students while they’re enrolled.
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• Private education loans mostly lack forgiveness provisions, while a federal loan may give you the opportunity to have part of your loan forgiven if, for example, you work in public service or teach in certain underserved areas.
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• Most private loans are not dischargeable. Unlike private loans, there are options to discharge federal loans in cases of death and total and permanent disability.
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Slide 8: Exercise A
Now that you’ve learned some of the key differences between private education loans and federal student loans, take some time to familiarize yourself with the terms and conditions of your private loan. Complete Exercise A in the workbook to explore the obligations associated with the particular private loan you applied for and will soon receive.
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Slide 9: Reviewing Your Financial Resources
As we’ve said, borrowing to pay for school can be a solid investment in your professional and financial future. But it’s also important to make prudent financial decisions during school to avoid putting that investment at risk.
You should avoid borrowing more money than you need to pay for school. [Click]
Slide 10: Exercise B
Exercise B will help you determine if you are making wise borrowing decisions. Let’s complete the exercise and then review the discussion questions to see if you’re on the right track.
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So how did it go? Are you borrowing the right amount to cover your education-related expenses? If not, consider these tips:
1. Continue to search for scholarships if you need more money to cover your educational costs. Also, check with your financial aid office to find out if you are eligible for additional federal student aid. 2. Consider reducing or returning part of your student loan if your financial aid exceeds your education-related expenses. Financial aid is not designed to cover expenses that are not required for your
education.
3. Be careful not to overcommit yourself to working long hours to cover non-education-related expenses. While a part-time job is great way to make some extra money, you should not work more hours if it causes your academic performance to suffer. Studies show that students who work more than 15 hours per week are less likely to succeed academically and more likely to drop out of college. Consider reducing expenses rather than increasing your work hours.
Slide 11: Steps to a Better Financial Future
Now that you’ve taken a look at your financial resources to get a sense of how much is the right amount to borrow for your education, what else can you do to put yourself on firm financial ground?
Here are some other steps you can take to improve your financial situation while in school. [Click]
Fill out the FAFSA every academic year. Even if you don’t think you’ll qualify for free money, you must
complete this form for other types of aid like federal student and parent loans. Just as important, you won’t know what you qualify for until you submit the form.
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Maximize all federal, state, and institutional financial aid resources before requesting a private education loan. Don’t overlook more favorable types of aid that are funded specifically by your college
or state. Private education loans should be researched thoroughly and used only as a last resort. [Click]
Pay interest on your loan(s) while you’re in school. Even though you may not be required to pay
interest on your loan while you are in school, consider doing so. Making interest payments will only take a fraction of your income while potentially making a big difference in the amount you pay over the life of the loan. For instance, interest payments on a $5,500 loan at 6.8% are only about $31 per month. [Click]
Make payments on your loan while you’re in school. As with making interest payments, making loan
payments sooner rather than later will reduce the ultimate cost of the loan. Putting gift or bonus money you receive toward your student loan is a great way to reduce your loan debt while you are in school.
Factor your potential salary into borrowing decisions. Find out what the starting salary for your
program of study is and try to keep your total debt in accordance with your expected earnings. You can go to the U.S. Department of Labor’s Occupational Outlook Handbook for expected earnings for many occupations at www.bls.gov/ooh/home.htm
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Avoid credit cards for tuition payments. The terms on a credit card are typically not favorable. Many of
them carry high interest rates and stiff penalties for not paying on time. You should avoid using credit cards as a long-term resource to pay for tuition or unnecessary expenses. More favorable forms of financial aid (including tuition installment plans) are available to help you pay for your education. [Click]
Graduate. Earning good grades and finishing your program of study may be the most important things
you can do to shore up your financial future. Studies show that students who complete a college degree experience less unemployment than those who do not. If you’re employed, you’re much more likely to be able to afford your student loan payments and avoid defaulting on your loan.
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Slide 12: Consequences of Default
While we’ve reviewed your private loan obligations and assessed your financial needs, we haven’t mentioned what can happen if you don’t pay back your loan, or even if you don’t make payments in a timely manner. Not honoring your debts can lead to painful consequences that can severely hinder your opportunities for a better life. The following section outlines some negative repercussions of not paying back your private education loan.
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Damaged relationship with your cosigner. When you become delinquent on your loan, the bank will
pursue your cosigner and demand payment from him or her. Your negligence will not only place undue hardship on your cosigner but also risk your relationship and personal credibility with this individual. [Click]
Reduced credit score. Lenders and servicers will report your delinquency and/or default to the credit
bureaus. Whenever you try to buy a car, obtain utilities for your apartment or house, or make any major future purchases on credit, your damaged credit history could result in higher deposit fees or a denial of credit altogether.
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Denied job offers. Potential employers may check your credit history and may avoid making a job offer,
or even rescind an existing job offer, if your credit history shows a pattern of late payments and default. [Click]
Higher interest rates. While in some cases you may still be able to obtain credit for major purchases,
your cost of credit will be much higher. The interest rates will be greater for individuals with low, poor credit scores.
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Slide 13: Resources
For more information about private education loans, contact your school’s financial aid office, or take a look at TG’s private loans page at www.TG.org/borrowers/PrivateLoans
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