Comparing College Loan Options

Jonathan Hughes: And I'm also going to go ahead and now start sharing my screen apologize for the clutter desktop there.

So, you should be able to see

this and please let me know in the q amp a if you cannot. I just wanted to mention who I am. First, my name is Jonathan Hughes. I'm the Associate Director of College Planning and Content Creation at MIFA. So I've been at MIFA for over 20 years, helping families to pay for college. I started off just talking about loans and, you know, just in a way that sort of parallels the work that I do.

MIFA

college admissions and, and guidance in general. So that is really sort of the bulk of, of what we do. But at this time of the year, we realize, uh, that folks have received their financial aid offers that made their deposits. And they're probably looking at a bill that's due in August. And they want to get their ducks in a row and know how they can pay this bill.

And probably, you know, as I said, borrowing is probably a part of that. And they want to know what are the best loans and how they can determine that. And that's what I'm going to be talking about today. Before we get into that, just a quick point or two on actually Interacting with the webinar. I see that somebody has already activated the chat.

So if you want to activate the I'm sorry activated the closed captioning. If you need to do that or want to do that you can click the live transcript feature and that should pop up you know live transcript as we're going. The chat feature is disabled so we're going to communicate primarily through the q amp a tonight so if you have a question.

It can be a question that you have. Right off the bat that you want answered, it could be a question about something I said, a question about something I didn't say, please submit it through the Q& A. We can take questions as we go. We're a fairly small group tonight. I may not answer your question right away, um, and if I Don't answer your question right away.

It's probably because I'm going to get to that answer later on in the presentation, or it may be a question that is better answered one on one in detail later on. And if that's the case, um, you know, you will have My direct info. Um, when, when the, um, the recording and the slides get sent to you, you can reach out to us and reach out to me directly.

As I said, we are recording tonight, it will, the recording of the presentation will be sent to you within a day or so, along with the slides. about MIFA. MIFA is the Massachusetts Educational Financing Authority. We were created by the Commonwealth of Massachusetts back in 1982 to help families to plan, save, and pay for college, and we do that in a variety of ways.

As I mentioned earlier, what we were initially created to do was offer a loan, something we still do, but we've added to that savings plans and guidance, and this is a great example of the guidance that we can offer, which is basically We know that there's a lot of loan options out there. We know that it can be very confusing and overwhelming.

We're not telling you who to go with, and we're not telling you to go with us. We're not telling you to go with somebody else. Um, we're just giving you the tools to be able to compare and make those, that decision on your own. Um, so the main, the main point I want you to take away from this is that we are a free resource for you to use.

If you have any questions about, you know. In general, paying for college or specifically using MIPA. So what we're going to talk about today, we're going to talk about loan terminology. This is something that we struggle with all the time because it's second nature to us. We talk about origination fees and loan rates and loan terms and principal and interest and things like that.

And don't really realize that sometimes that this is not everyday language for everybody else, right? So it can be really confusing when you're not used to it to have all these buzzwords thrown at you and not really understand what they mean. So we're going to talk about some loan terminology and the bulk of what we're going to talk about is wise borrowing.

The fact is many or Many, if not most families really are going to have to borrow something to get through four years of college or two years of college or more than four years of college, those graduate school there. Um, you know that in and of itself is not necessarily a problem. A problem comes when people borrow more than they need to borrow and certainly when they borrow more than they Can comfortably pay back.

So a big part of wise borrowing is minimizing debt. It's taking federal direct student loans first. You know, this is something that we recommend that everybody who is borrowing start off by doing take those federal direct subsidized or unsubsidized student loans that were part of your financial aid offer.

If you have one, um, first, and before you borrow anything else, and we'll talk about why in greater detail. We'll talk about loans in some detail. So we'll, you know, go over some of the fees and some of the rates and, and what you can look at from various lenders to try to sort of make an educated decision for yourself.

Loan affordability. We'll also close by talking about some trusted resources. We're not quite closed rather, but this is something that we always like to do is talk about. some resources that are available for you should you have questions as most people do throughout this process at one point, and then loan timing.

So here we are in the middle of July, people might want to know, as they do at this time of year, am I too late? Am I too early? When do I need to get this going before my son or daughter can, uh, can move in? So, um, we're going to be talking about that. And once again, please, uh, put your questions in the Q and a.

In fact, if you wanted to just pop into the Q and a and, uh, I'm assuming that you can hear me because I don't have people telling me that you can't or you can't see the screen. But he just wanted to let me know that everything's going well and you can see and hear me and look at the slides all the stuff that would be appreciated.

Thank you. Okay, so talking about loan terms, the first thing that we're going to talk about because they're usually the first thing on people's minds is the interest rate. And so, you know, when I was just out of school, even, even though I had federal student loans. I really didn't know what the interest rate was or even what an interest rate is or how to factor into borrowing.

And essentially the interest rate is just the percentage of the amount borrowed that the lender charges for the use of its money. So, you know, a lower interest rate is better because it's going to cost you less when you're borrowing. Um, now, So when you're looking for loans and looking at comparing different loans, you obviously want to look at a lower interest rate and a lower interest rate is always going to be better for you.

Easier to pay back more of your payment goes against the principle that you borrowed rather than your interest. Um, there are two general kinds of interest rates. The first one is fixed and the second one is variable. I think most people when they come to this process know which one they want and and for most folks they want a fixed interest rate but some don't and so the difference between these two are the fixed interest rate it was always going to stay the same.

So you're going to have this loan and let's say it's at seven percent. You always know that your interest rate is going to be seven percent. So your monthly payment is going to be the same. It's going to be fixed until the loan is completely paid in full. So just so you know, every loan that MIFA offers has a fixed interest rate.

Some lenders offer a fixed interest rate or the other type, which is variable, they may have for might offer both. And a variable interest rate, as you might think, is a loan on which the interest rate changes, um, depending on what's going on with the market. And so how often that loan rate changes and what it's based on is going to depend on each loan.

So some loans might have a variable rate that changes every three months. Some might have an interest rate that changes once a year. Some might have an interest rate that changes every month. It really depends on the program, and that's something that we're going to look at when we look at different disclosure statements.

You'll be able to check and see how often these change. Now, in times, certain environments, Sometimes a variable rate can be lower than the fixed interest rate. Sometimes it's been a good deal lower and maybe that's why some folks want to take a variable interest rate loan because it is at the moment lower and they think it's going to stay lower.

Um, as I said, some people, and I think it's probably a more popular choice, not saying it's the right choice, but it tends to be more popular choice that folks would want a fixed interest rate. Because that gives them that stability and they always know what their interest rate is and what their payment amount is going to be.

One thing that is, um, important when you're looking at variable interest rates. Um, is there a cap on an interest rate? And that is, you know, you might have a variable interest rate that changes, let's say every three months, let's say now it's at 7%, but it might in three months go up to 8%. Is there a cap on how high that can go?

And some have a cap of 25%. That can be quite high, some have lower caps, um, but that is something that you want to check out if you are interested in a variable interest rate, which is how much can this fluctuate? Is there an overall cap? And then how much, uh, might it fluctuate throughout at one time?

Like it can, can it go way up to 25 percent over the course of one month or over the course of three, uh, over the course of one change, essentially. So that's something that you can find out. Um, one thing that I think is safe to say throughout the landscape of educational loans and that is the kind of loan that we're talking about is educational loans.

Um, most interest rates are going to be based on the credit score of the person applying or the co applicant applying for these loans, that is, the higher your credit score is. the lower your interest rate is going to be. Uh, that's not true with every loan necessarily, but it is very common to have that happen.

So you might see language advertised as rates as low as, et cetera. That is the lowest rate available to The people with the highest credit scores, and that's something you want to check on the spread right what is the interest spread rate, it might be from as low as 5%, but as high as 15%. And where, where you fall in that rate spread depends upon the strength of your credit.

So that's something that we'll talk about and we'll see again on those disclosure statements, how that can make a big difference. Um, The interest rate may be tied to your chosen repayment option. So I can tell you with MEFA loans, we have five different loan options, and they can kind of be broken down into two categories.

Ones that you start repaying on right away when the child is in college, and ones on which the repayment is deferred, and that is you don't start making payments until after the student. graduates or leaves the program. Um, and those have different interest rates spreads depending on, for me, you know, the lowest ones that we have are the ones that the lowest interest rates are the ones in which you start repaying immediately.

Uh, and then as you defer the costs, the rates get higher. So you want to be on the lookout for that as well. And as I mentioned, pay attention to the full range of potential interest rates. not just the advertised rate. Um, again, just be aware of rates as low as, et cetera. Um, it often happens to be the case that people don't always have the best idea of their credit score.

They have some idea. They have some idea, but, um, different credit agencies use different Spreads and different metrics. So people might not have as clear an idea of their score and they think that their score is better than it is and think, well, I'm going to get the highest rate when you may or may not do so.

So oftentimes you don't know your rate until you do the application and then you're presented with your rate and you can make a decision from there. So oftentimes you just don't know until you apply.

Another way to be able to compare loans is annual percentage rate or APR. This is probably something that you've, you've heard APR. Um, it's essentially another, almost a more exact kind of way to compare loans for the interest rates because what it does, it is the, it assesses the annual cost of the loan.

including the fees, and this is also expressed as a percentage. So, um, you know, the APR might be different than the interest because the APR includes whatever fees might be associated with a loan and how much that affects how much principal you're paying throughout. Um, it's often described as a good way to compare loans.

Uh, that is, you know, ones that do sort of, um, charge fees versus ones that don't, and ones that have different repayment schedules. Um, so that, that is a PR repayment term is another one. Repayment term is the length you take to repay the loan. Um, and it has a direct impact on the total cost. 'cause the longer you take to repay a loan, the l the more.

Um, money you're going to be spending on paying the more interest you're paying in the higher the cost is. Now I see a question coming in here I just want to make sure

I will address this because I think it's important. Somebody wants to know, is there, are there any penalties or fees added for early repayment would any extra payments go towards principal or the interest. I am not, this is going to vary theoretically depending on the lender. Um, I don't, I'm not aware of any educational loans that have early penalty fees or prepayment penalty fees.

Um, MIFA certainly doesn't. All the ones that I'm aware of do not. So you can make prepayments. It's a good idea to do that if you're able to. Um, because you're going to be paying less if you're paying more principal and you're paying off early. That's going to be less interest. Kind of ties into exactly what we're saying.

Any extra payments. Now this is where it gets a little tricky because extra payments might the practice that might change a little bit from lender to lender. Um, and I can tell you that any extra any payment that is going to be received. And this is the case with me if and I imagine with every, and with every other educational loan.

Um, I'd imagine any. payment received goes first towards paying any outstanding interest and then the remaining amount is going to be assessed against the principal. I have seen it before where if you'll say you send two monthly payments in, a lender might or a servicer who is the company that handles the repayment for the lender, they might say oh they want to pay this month and next month so they might

They might apply that payment towards the current monthly bill and then keep the second the overage amount and then apply it in the following month. That has obvious drawbacks, of course, because you're accruing interest while they're holding on to the money to apply for the next payment due date. If you want, I would just say, the reason I mentioned that is Because if you want the extra amount to go to the principal, you can just say, apply the overage to the principal and that they will do that.

Um, but that's a good thing to check with your lender how they would actually handle, um, getting more in a monthly payment. But generally speaking, I think it's much more common for, um, whatever is received in excess to go against the principal.

Somebody wants to know why a lender would take a student's credit into account when a parent is taking out the loan. Um, they may or may not do so. And we will talk a little bit more about co applicants. And that also is going to depend on the lender, who is actually on the loan and who's responsible. Um, I'm going to wait on graduate loans until after.

I hope you don't mind. But thank you for the questions and I hope those are answer to your satisfaction. If not, let me know. Um, let me go back to repayment term. So it is the length of time that you take to repay the loan. And again, the longer you're taking to repay. the higher your overall cost will be, provides flexibility as families consider their monthly budget.

And what this means is these loans, because this is a common question, people think sometimes that you have to take out a loan and pay it off in full before the next year. MIFA loans have lives or repayment terms of 10 to 15 years. Most other educational loans are the same. So you're taking out these loans and the repayment term is between 10 or 15 years.

Those federal student loans, there are options that could push that out to 25 years or so. Um, and then, you know, you could have a 10 year monthly payment. I mean, sorry, you could have a 10 year term. If you want a lower monthly payment, maybe you could see if you could take a 15 year term instead to get that monthly payment lower.

Means a higher overall cost if you're not paying early, um, but it provides some flexibility while the student is in college to keep that monthly payment, the amount that you have to pay every month, lower. Um, yes, and most lenders as MIFA does offer different repayment terms to choose from. So the way it works with MIFA is you would actually do the application, we would run the credit and get back to you with all of the options that you were approved for and the rates and you would pick the one that, that you wanted from that.

Application and solicitation disclosures. These are federally mandated forms, essentially, that every private loan lender. has to display. Um, and it should give you some information, pertinent information about how much this loan is going to cost you. This is not specific to your loan, your loan amount, etc.

This is A much more generalized form and we'll look at the examples on the MIFA site here, but they can be found on every lender websites they should be easily accessible, because once again this is it is federally mandated that these. application and solicitation disclosures have to be out there so that folks understand.

So let me go ahead and just click through to MIFA and hopefully you can see that. Let me try that again. All right. I am going to stop sharing. And I, um, because I think it's important that you see this. So I'm going to go ahead and, and try to get to, uh, to MIFA's application and solicitation disclosure so we can go through it.

Now I'm going to start sharing again in just a moment.

Apologize for that.

Okay, if we go to MIFA loans, this is on MIFA. org by the way, then we can scroll down here.

Sorry, MIFA loans, undergraduate loans. Apologize.

And we go down these tabs here, we see our rates. details, eligibility, repayment, next steps, disclosures right here. And so here is MIFA's undergraduate loan application and solicitation disclosure form. And so what this does is it gives you the full spread of the interest rates available. So for MIFA, our rates Start as low as 5.

35 percent and the highest. This is across all the programs is 7. 95%. And so every application and solicitation disclosure agreement, supposes, just to give you an example, a loan amount of 10, 000. And so the first thing here is it will say your interest rate upon approval, your interest rate during the life of the loan, your rate is fixed.

It'll spell out the loan fees. You see application fee, non origination fee, non late charge, non return check charge, non end fee. So there's no fees associated with MEVA loan program. Um, and now these are all of our different options here. So we have immediate repayment, with a 10 year, we have a loan term here.

So this is the amount and this is the interest rate. Now you can see this defaults to the highest possible interest rate within that program. And so it will tell you your loan repayment term. So how long you have to pay off the loan. And so if you're borrowing 10, 000 and you're paying 7. 35 percent over 10 years, the amount that you will pay back over 10 years.

is estimated to be 14, 416. Now, as you can see here, we have almost an identical example here, but some figures are a little bit different. 10, 000, 7. 5 interest rates, slightly higher. This is another program that we have. This is our 15 year repayment term. So remember I said there's going to be a little bit higher cost overall, but your monthly payments will be lower because you're taking a longer time to pay it off.

And so you can see that here, your total paid over the life of the loan is 17, 006. And then they kind of go from here we have an interest only repayment you're making interest only payments while the student is in college when the student leaves college you get to interest and principal payments highest interest rate possible 7.

95 and your total paid over the life of that loan which is 15 years is 18, 583 a deferred monthly payment so you're not making any payments at all while the student is in college. There is interest accruing on it while the loan is in deferment. So that's something you should definitely know ahead of time.

Um, you know, aside from any kind of government subsidized loans, like federal direct subsidized loans, pretty much any private loan that you're going to get is going to have, uh, interest accruing and deferment and NIFA will as well. Um, all that interest that accrues throughout deferment gets added to the principle.

When you start to pay now, you can make payments and deferment if you want to do that. You're just not required to, um, and then assuming you don't make any of those extra payments here, the amount that this will cost you to borrow 10, 000 over 15 years is 19, 008 56. And then there's one more, which is.

Another deferred loan. It's very similar. This is at 7. 95 percent is the highest rate. The difference is, um, there is a co borrower release option on this loan where if you're, if you make the first 48 consecutive on time monthly payments, you as a parent or whoever the co applicant may be, can apply to be removed from the loan.

And if the student is credit worthy at that point, they can take over the loan on their own. So it's the highest interest rate that we offer. Um, and it's at, this will cost you 20, 012 to pay. Now, one thing I want to mention is that this assumes that you're making every payment on time, no more, no less. Uh, if you pay early, these numbers will be lower.

Uh, on the second page here, we're going to talk about federal loan alternatives. So these are federal loans that they just want you to be aware of these options person. As I mentioned earlier, we do recommend that if you're going to be borrowing anything at all, you start by taking these federal direct loans.

loans first. These are the student loans. We don't necessarily make that, um, recommendation about the PLUS loan. The PLUS loan, there's nothing wrong with the PLUS loan. It's a federal government loan. It's a fine loan to have. Um, it's not considered financially. It doesn't have all the benefits associated with it that the federal direct student loans do.

Um, but they want to make sure that people are educated on those. And, um, some reference notes here, um, have fixed interest rate eligibility criteria all borrowers have the same rights and responsibilities on the loan, and any borrower may make payments that student that's parent. And so this is the information that should be readily available on websites related to educational loans.

Um, once again, if, if, uh, application and solicitation disclosure agreement is not easy to find, uh, then that might draw a little, um, interest, you know, that you might, you might wonder why. Um, so. That's a place that you can look to compare loans and get a sense of what the top end of that rate is going to be and how much that credit will cost you over the life of the loan.

Okay, well thank you for bearing with me there. And can you all see the slides again?

Uh, somebody wants to know if they can apply for a MIFA loan if their son goes to an out of state college. Yes, there doesn't have to be any specific Massachusetts connection actually to use MIFA on either end, whether that's going. To a college out of state or being from a state other than Massachusetts.

Thank you for thank you for letting me know that you can see this thank you for bearing with me on there. I do want to bring in another application and solicitation disclosure agreement, just so you can see. the various costs. We have a pretty narrow, um, spread between our lowest interest rate and our highest interest rate.

And so, um, when you're assuming the highest, you can see where things kind of diverge. Um, I also do want to say that this is just the general form. Let's say you do apply. You are approved. You will get a disclosure statement that is specific to your loans with your amount and with your interest rate and the amount that Um, it will cost you over the repayment term of your loan.

Um, but that comes later on in the process should you decide to go. So I want to start. Yeah. Okay. We're going to focus here on this particular number. Again, we're assuming the highest rate. This is the immediate repayment. You're starting to pay interest and principal back, making the full payment that is, while the student is in college.

Here we have our 15 year repayment term. And so if you're borrowing 10, 000 and you're taking the full 15 years to pay that every month, that is going to end up costing you, at the highest interest rate, 17, 006. 40. That's the estimate. So, um, you know, an extra 7, 000 essentially borrowing 10, 000. Here, this is another private loan lender.

We've taken this from the website. It's not naming the lender, but if you're making a similar loan here, 10, 000, borrowing 10, 000, the highest interest rate here is 16. 6%, and this is a 15 year repayment term, just like ours. That's going to cost you 27, 000, so an extra 10, 000. Um, on this, and that is entirely due to the interest rate being much higher.

Um, so over the life of the loan, interest can really add up. I want to draw this other parallel here between our deferred rate, which if you remember, this assumes that you're at your highest rate and you're not making any payments while the student is in college. All that interest accrues, gets added to the principal, and then you start making payments on that, and it just is accruing in that higher amount.

If you're borrowing 10, 000, that's going to lead to a total cost of 19, 856, so higher than the immediate repay, about 2, 000 higher. So it's going to cost you almost an extra 10, 000 to borrow 10, 000. Um, here, again, Very similar 10, 000 same repayment term 15 but much higher interest rate 16. 6. The total cost to repay that is 46, 420.

So, um, two things obviously the interest rate makes a huge difference. Not everybody is going to be at that absolute ceiling on the interest rate, and I understand that, but it's going to make a huge difference in your, in your total paid, especially when you're going out 15 years. The other thing is look at how much of a difference it makes.

paying now versus deferring the monthly payments. I mean, a much bigger difference in the second letter to MIFA. MIFA has about a 2, 000 or so difference, almost 3, 000 difference, versus almost double, almost 20, 000 from, uh, from the second. So interest rate's important. Repayment term is important, um, and also deferring versus making those immediate repayments right away.

And remember too, this is only year one, right? So if you're looking at four years, this is your first student loan or educational loan. So those are some important things you want to look at, and looking at the application solicitation disclosure agreements can do that.

Okay, now I want to show you some examples on a variable rate loan. We've seen a couple of fixed rate loans. Um, the loan interest rate in FEC, your starting interest rate will be between 2. 125 and 13 percent. Now 2. 1 is a very low interest rate and you can see why, you know, some people might want to go for a variable rate because the rates can be low, but there's a really big, um, spread there as well, right?

2. 1 and 13 percent is really high. Also spelling out some loan fees here. And they look at first as if there's no fees because there's no application fee and there's no origination fee. And by the way, an origination fee, it used to be really common and basically it's just a fee that was either added to the loan or taken out from the loan when it was sent to the college.

They've become less common. We used to have one at 3%, we don't have one anymore. Um, most lenders, a lot of lenders don't. But application fee, no application fee, no origination fee, no guarantee fee, no repayment fee. But then you get down there's a late fee. So a 5 percent charge for late payments up to a maximum of 25.

And there's a return check fee of 20. So a couple of fees, it's kind of buried in that language there. This is that cap that we're talking about, although the rate will vary after you are approved, Bye. Bye. Bye. It will never exceed 25%, the maximum allowable for this loan. Um, if I'm not mistaken, I, I don't think that they can, I think it's this sort of a regulatory thing or even a lot that they can't go above 25%.

Um, but you'll see that's the cap there, 25%. And then one other thing I wanna mention too, because variable rates are based on the market, but they're typically based on an actual. index. So this loan has a variable interest rate that is based on a publicly available index, the 30 day average secured overnight financing rate, rounded up to the nearest one eighth of one percent.

So it's based on that rate and your rate will be calculated each month by adding a margin between 1. 5 Or 12.375 to the SOFR rounded up. So depending on your credit, you know, that's gonna depend on, on what percentage they tack onto that rate. Um, but it's based on that, on that metric. Here's another fixed rate example.

So here, your starting interest rate will be between 6. 49 percent and 9. 99%, so you know, not a little more narrow than what we've seen. Uh, the maximum rate on the student loan is the fixed rate, which will be disclosed to you if you qualify. So again, you don't always know, and oftentimes you don't, most of the times you don't, until you do that application.

and get approved.

Loan cost examples, these are more of what we've seen before, assuming the highest interest rate at 9. 99 percent. Um, deferred interest only payments or full payments, those are your three options. And as you can see, 10, 000 for all. The lowest cost options in the long run are the making full payments right away options that adds another 8000 or so dollars to 10, 000.

If you're paying the interest only so that you keep those monthly payments low while the student is in college, that's a good thing to do. Um, if you're not making extra payments, it's going to add a little bit more to your overall cost, about 22, 000, and then total deferments until after college, 27, 000.

I think it's a good time to talk about the co borrower, and this is something that was sort of hinted at, at one of the questions. And this is, you know, who is responsible for these loans? One of the reasons that we talk about, the federal direct student loans. One of the things that make those loans attractive is that they're really the only loans that the students can get in their own name for the most part without a co applicant because there's no credit check to be approved for those loans.

You essentially have to file your FAFSA and you've got them. Um, for other types of loans, private loans, even other federal loans, There has to be a credit approval for the, you know, for the most part, uh, or credit and income. And who exactly is responsible is another important thing that you want to take into consideration when you're trying to figure out which loan to go with.

Um, you might've seen in one of the other, in one of the disclosure statements there, when we talked about the federal loans, the federal plus that stands for parent loan for undergraduate student. And it's a, it's very popular. It's very common loan. Um, the biggest difference I think between the plus loan.

And a loan like the MIFA loan, other than the fact that the plus is a federal loan, is that the parent is the only one responsible to repay that loan. On the MIFA loan, the student is always a co applicant on the loan, but Somebody on the loan has to be credit approved, right? And most students, as I said, just do not have the credit necessary to be approved.

So they need someone else to act as a co applicant or primary applicant in some cases on their loan. And the loan approval and the loan interest rate is typically decided on that person's credit. The main thing to understand, because I've heard, as I said, I've been a MIFA for over 20 years. Many, many times have I heard the parents say, I know I'm on the loan, but it's not really my loan, it's really his loan, it's really her loan.

If you're on the loan as a co applicant, um, I'm going to call back to what that disclosure statement said. All parties on the loan have equal rights and responsibilities. So that's your loan as much as it is the student's loan. It shows on all your credit bureaus, you're responsible for the debt and, um, you know, you basically are equally responsible to repay along with, along with the student.

Um, Another thing is we take the highest credit score on the application as the one in which we decide the rate. So if you know mom or dad have a a, a good credit score, but maybe somebody else who doesn't mind also being on the loan has a higher credit score, um, you know, that can help get a lower rate.

So adding one or two Co-applicant. May increase your chances for approval and may decrease. Um, now that person is going to be responsible to repay the loan as well. So there is that. So just, you want to be careful there and make sure that that person is okay with that. Um, but that's not to say that mom or dad can't make the payments.

They absolutely can. Some loans do have co borrower release options, as we saw in the MIFA loan. Um, if that's something that you're interested in, I know sometimes people just sort of assume that that's going to be an option. And that's a good general rule to never assume that something is. the case on a loan.

You know, for example, if you have a deferred undergraduate loan and you think your child may end up going to graduate school, you might assume, well, they can just defer it while they're in graduate school, but not necessarily, not necessarily that is going to depend from lender to lender. And I'll tell you right up front that MIFA undergraduate deferred loans cannot be deferred.

through graduate school. Uh, and that is something that I would much rather you know now than when the child goes to graduate school and they want to put their loans into permits. Somebody's going to have to be making the payments on those loans. Um, but some loans do have co borrower lease options, where after a certain amount of on time payments, The co applicants can be removed or applied to be removed from the loans.

So if that's something that you're interested in, um, you know, ask the lender if they have those options and what are the criteria to be able to do that. The wise part of one more question before I get into this, I think, Oh, someone is 10, 000 an example for a semester or a year. Yeah, that's a good question.

And I know I asked it. It is, it's just a general example really. Something's going on here with my computer and I apologize for this I don't know what's happening.

Okay.

Okay, that's better. Sorry about that. Yeah, I know many of you probably are looking at yearly balances that are double 10, 000, if not more. So, it's, it is, I believe, meant to be for the year, as I said, it's just a general example. Here exactly in this. example, we have a balance that's 20, 000. So in this example of minimizing borrowing and using other means before getting to that, we're assuming a 20, 000 balance do, you know, and we know that that's especially where we are in the country, you know, things are a little more expensive, including higher education.

But In this example, we have 20, 000. Now, you can take out a loan for 20, 000. Uh, in fact, you can take out a loan for whatever the cost is. You know, you can ask for 30, 000, 40, 000, 50, 000. Um, but the first step in being a wise borrower is to not borrow for everything if you can pay some out of pocket. So, if you took out a 20, 000 loan, just a, a, a really quick estimate.

that would be about a 200 a month monthly payment. So generally it's about 100 a month per 10, 000 borrowed, you know, assuming an immediate repay. Um, so 20, 000 would be about 200 a month. Okay. Well, maybe that's doable, but remember this is year one. So at the end of year four, you might have an 800 a month monthly payment.

That's a lot. So. What can we do to get that down? So, after financial aid is granted, really there's only three ways to pay for college. It's past income, present income, and future income. So, past income meaning savings. So, if a student has some savings, or if they don't, maybe they can get a job over the summer and start putting some away for college.

Maybe the parent has some savings of their own. In this example, we're assuming that the student's going to do that. They have 1, 000. The parents, maybe they have 4, 000 they can pay. So, alright. Maybe in this example, they can put 5, 000 down. Well, that's your past income, your savings, you know, whether or not you have that essentially by now.

So there's not really too much more to be said about it. I think where we can talk a little bit is the present income, the current wages, because not a lot of parents know about this, but there are interest free monthly payment plans that you can use. So your present income, your wages, your salary. Now, of course, most parents, most families are not able to pay the full.

balance due out of the money that they have after all their other bills and expenses are paid for. But it is worth it to pay what you can out of pocket. As I mentioned, most colleges have interest free monthly payment plans that are available. They usually work through an outside provider to offer those.

And for a fee of anywhere from, well, I don't know, 40 to 100 or so, um, it's going to differ depending on the, uh, on the college. Um, You know, you can set up an arrangement and make a monthly payment every month. And then every dollar that is going to go against tuition. So I guess in this example, let's just say that the family has decided that they can afford to pay 500 a month and they can do that over 10 months.

Okay. So that's another 5, 000, 5, 000 that you're not borrowing. You're not paying interest on, which is key because once you've exhausted financial aid, past income and present income, the only thing that is left is. Future income or loans right so in this example, we've managed to whittle it down to about half or 10, 000.

And again, remember, this is going to go a long way because 200 a month for monthly payment for four years is 800. 10,000 for, for, uh, is gonna be a $100 a month monthly payment over four years. It's gonna be a $400 a month monthly payment. And this is something that will be important to not just the student, but also whoever's going to be the co-applicant on these loans, as I mentioned.

equally responsible with the student and repayment terms of 10, 15 years. So that monthly payment may be with you for a long time. So it is worth it to pay what you can out of pocket before you start to borrow.

Okay,

so that's the first thing. The second thing, and I've been waiting for this, I knew it was coming at some point, is to borrow Federal Direct Student Loans first. So I know you have your, uh, financial aid offers, if you, if you've done your financial aid forms, and all of you should have received almost, I mean, I imagine all of you have received, uh, as part of those financial aid offers.

federal direct student loans. They may be subsidized, they may be unsubsidized, there may be a mixture of both. Um, these are some of the reasons that we recommend starting with these loans first. As I mentioned earlier, they're the only loans, they do not have a credit check necessary to be approved.

They're the only loan students can get in their own name without anybody else being a co borrower. Um, The interest rate is fixed and the fixed interest rates on these federal direct student loans are typically lower than than most private loans. Um, it's at 5. 49 percent for the upcoming academic year.

Remember, this is just for the freshman year alone. So next year's loan will be a different rate and that rate will also be fixed. You have seen possibly subsidized and unsubsidized. This is determined whether or not you qualify for a subsidy is determined on your financial need. And basically what it means is that on a subsidized loan, there's no interest accruing while the student is in college.

So, you know, if you're making payments, let's say on one of those loans, while the student is in college, you're just paying down principal. So no interest. starts until repayment. On the unsubsidized portion, there is interest accruing on that amount while the student is in college. Again, you can pay it if you want to.

It's a, it's a good thing to do if you're able to do it. You don't have to, you're not expected to do that. Um, now I want to just shift over to the right here because This amount for freshman year is probably going to be familiar to you. There are loan limits associated with the federal direct student loans.

5, 500 is the freshman year loan limit. That is the amount that a freshman can get in these loans. Um, and they're part of the financial aid offer. So, oftentimes by the time you get to financing the remainder, you know, you can't go back to that well. It's already part of the financial aid offer and eaten into the cost.

It goes up every year, just about 6, 500 for a sophomore year, 7, 500 for junior year, stays at 7, 500 for senior year. Um, and this is why people often have to in addition to these loans because they are, uh, limited. In that way, there is an origination fee with these loans. And it's 1. 057 percent that's deducted from the loan amount, uh, when it's sent to the college.

So if you got that freshman year 5, 500, the amount that's actually going to be credited to the student's account with that money is 5, 441. 87. What the student has to do in order to accept that, you know, just by filing your FAFSA, pretty much you got it. The student needs to go online and go to studentaid.

gov, sign their master promissory note, which is good for the four years that they're in school, and complete entrance counseling, which is basically, you know, counseling them on their responsibilities to repay this loan. Um, as I mentioned, you're on, you are not required to make any payments while this loan is in deferment while the student is in college, you can do that if you like, and it's a good thing to do, but you don't have to do that really.

The biggest, some of the biggest reasons that we sort of say that everybody should do this and why this is financial aid, um, if you take. All of your loans every year, right? You have 5, and then 7, 500 again. You're going to leave college with about 27, 000 worth of debt in your own name as a student. The standard repayment term for that is 10 years.

And 10 years, that's beginning six months after the student graduates or leaves school. Um, in order to repay that, it's about a 300 a month monthly payment in 10 years. But there are a lot of options, if that's too high, to make the monthly payment as low or as manageable as possible for students, and this is not available on other types of loans.

As I mentioned earlier, you can, you can stretch that out to 20 25 years. possibly more. You can set the monthly payment to as low as five percent of your discretionary income every month. There's about 11 different repayment plans you can get on, and you know, it's all about sort of seeing which one gets you the lowest monthly payment due.

Um, and that way You know, you can remember you can always pay early, but just setting that amount as low as comfortable for you that you have to pay every every month, with the understanding that the longer you take to repay the higher your cost maybe so you can get that monthly payment, the required monthly payment amount.

to be pretty low and then, and then pay off. Um, and those types of, and there are also public service loan forgiveness options to say nothing of the, you know, we just had a forgiveness that was struck down by the Supreme Court. Uh, that is, that, that, that's a sort of one off that's not typically part of this program.

Even if that didn't happen, I would be talking about this other type of forgiveness called public service loan forgiveness, or if you work for a qualified nonprofit for 10 years, you can have the balance of your loan forgiven. Just a lot of benefits associated with these federal direct student loans that are not.

associated with other types of private loans. So that is something that we, we definitely recommend. So understanding how these loans actually work, you can borrow a loan up to the student's cost of attendance minus any other financial aid you receive. And underneath that application and disclosure agreement on the MIFA site, there was another form.

I'm not sure if you noticed that it's called the self certification form and something that you have to complete as part of process. And basically they'll have you write out what is your cost. What is your aid? Subtract your aid from the cost. This is the amount you should not be borrowing more than this.

Um, so that is the amount that you can, you can borrow to cover all of your costs. But once again, borrow only what you need and try to use every other way to pay for college before you start to borrow. Uh, a really common question that I get is do you apply for four years at once or do you apply for one semester or one year?

Typically, people apply for loans on a yearly basis. Um, you can't really apply for more than one year at once because college has to take that money and apply to a bill. And obviously, you know, you only have one bill at a time. Um, they're not going to be able to hold on to that money for years and then apply it.

Um, you can borrow per semester if you want to do that. I'll talk about MIFA at least that there's no really no reason to do that it doesn't save you any money. Um, you know, if you think that plans might change from semester to semester, um, you can do that. There are also other ways to deal with that if that does happen.

Um, but typically what happens is people borrow for the year, and then the college tells us send us half in the fall semester and send us the other half in the spring semester and they tell us the date on which to do that. Um, yeah, estimate your monthly payment. So there's a way to do that on MIFA. org and we're going to see that, but think about total enrollment.

So two years, three years, four years, five years, whatever it may be, multiply this monthly payment by however many years student is going to be in college and sort of figure out, is this something that you can sort of comfortably do? You may want to think about the students. projected salary when they graduate college and enter their field.

So there might be certain fields that you don't mind taking out a lot of money for if students are going to earn a good salary right away. Um, there are probably fewer of those that are, that are sort of guaranteed, not guaranteed, but likely to result in that than, than others. Um, and the other thing is we Can only send the funds directly to the college and most educational loans are that way as well so we don't send checks out to parents or the students we have to send the money to the college.

Now the question often comes up, if people can pay for off campus housing with that with the educational loan. And our answer is If the college is okay with it, you know, just check with them first. We can, we can only send the money to them. They have the final say on the amount and they would say, okay, if off campus housing is part of the cost of attendance, you can have a loan for that amount.

And they would have to get the checkout to the student. Um, so you just want to make sure that the financial aid office at the college is okay with that and all your ducks are in a row there. Okay, now I have a funny feeling this isn't going to work either, so I'm going to stop my screen sharing again so that, uh, you don't have to watch me fumble around with this, but I'm going to go to the loan repayment calculator on the MIFA site and then, um, start this

again.

Okay?

Uh,

here we go. Oh, no, that's not it. Oh, excuse me.

There we go. Okay, so we have our rates over here

to our immediate repay 10 year 15 year interest only repayment deferred student deferred.

We can say we're going to borrow 20, 000 years before graduation when it's like four years. And to be safe, I always see the middle for the credit you can estimate your credit good very good or exceptional. And here it'll give you your monthly payment amounts. Your interest rate and your total cost of the loan.

So you compare, and again, this is for one year, you can see remains here from about one 25 of the students in college for the interest one 81 for the 15 year, all the way up to two 96 per month. That's the monthly payment. And this is for the one year of school. So, um, unfortunately I'm running out of time, so I don't want to spend too much longer on that.

Um,

but you can go and take a look at that. Um, this is the comparison between the MEFA loan and the Direct PLUS loan. Uh, the PLUS loan is that parent loan for undergraduate students to the federal government. Interest rate 8. 5, 8. 05 fixed. Um, again, the student, the parent is the sole responsible party here.

Um. There is an origination fee of 4. 228 percent and that's taken out of the PLUS law. So if you, uh, want 10, 000, for example, you'd need to factor in that. You'd need to increase your amount. Borrowed by that origination face of the college gets 10, 000 so student on the loan. Yes for me for no for plus, um, Kobar release option no for plus credit criteria.

There's a score for MIFA. Uh, the plus approval is not based on a score, but on, uh, not having adverse credit. I'm not quite sure exactly what that means, but the upshot is I think it's a little bit easier to get the PLUS loan. The repayment term 10 to 15 years for MIFA or 10 to 25 years for the PLUS. Um, repayment options for MIFA, immediate interest only or deferred.

For PLUS, immediate or deferred. Uh, and you do not need to file a, um, FAFSA for the MIFA, but you had The student has to have filed a plus for a FAFSA for the parent to get a plus. And then for consumer safeguards, there's student death and disability loan forgiveness for MIFA. Obviously, don't want to think about that.

For the plus loans, parent is the borrower. It's parent or student death or disability loan forgiveness.

So finally, You know, talking about summaries, get advice from trusted resources, ask questions of your lenders. Hopefully you have a good idea now of some of the questions that you may want to ask. Look for transparency. How easy is it to find that application solicitation disclosure agreement? How easy is it to get your answers, your questions answered from lenders?

Utilize free resources, including NIFA, but also Your college financial aid office, certain financial aid offices, they'll have, um, lender lists that they work with. They are, um, they can answer questions about the process and deadlines and things like that. Um, now I have. One more thing on timing and that is and I know you're probably thinking about this now because bills are going to be due soon.

Um, bills for the fall semester send in June, July, June, July, August include direct costs only. So those are costs that show up in a bill. So tuition fees, uh, dorm and meal plans of the direct costs may include health insurance. Um, if you still have the chance to, if your child is going to be covered under your insurance.

You can have that waived so that can save you. Um, you know, maybe 2, 000 or so. Um, but so get in touch with the financial aid office about that if you that's something you want to do and haven't done that yet. Your enrollment deposit which you paid back in May is going to be deducted from that bill and if there are any private scholarships.

Or, you know, outside scholarships from from organizations that should be removed and financial aid as well. And if you set up a payment plan through one of those interest free monthly payment plans, you may see that on the bill as well. If you have work study if the student was awarded work study you won't see that deducted because typically, because the student needs to find a work study job and work the hours and the student gets paid in a paycheck was just like any other job.

So that's not really deducted from the bill. As far as the timing is concerned, it's apply for a loan at least two weeks before the college's due date. Um, so, you know, you're getting closer now. You're not too