How America Pays for COllege

Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.

Jill Gosse, Senior Account Executive

HOW AMERICA PAYS FOR COLLEGE

SPRING 2014

Confidential and proprietary information © 2013 Sallie Mae, Inc. All rights reserved.

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This presentation is an overview of trends in the industry and how families are paying for college

► Total Cost of Education

► Is it Worth It?

► How America Pays for College

► Best Practices for Counseling Families

Agenda


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Total Cost of Education


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College Costs Continue to Increase

SOURCE: College Board Trends in College Pricing 2012.

Average Published Charges for Undergraduates, AY 2012-13


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► Rising cost of attendance► Decline in availability of non-federal sources

of funding– Decline in family contribution– Decline in state and institutional funding due to

budget constraints► Increase in enrollment► Changes to PLUS loan eligibility► Limited number of providers

Trends Likely to Shape Student Aid


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► Higher Education Act (HEA) up for reauthorization– No official action expected– Extended on year-by-year basis– 2013 hearings and proposals

► Sequestration– Increase in fees on Stafford Loans to 1.072% and PLUS Loans to

4.288%– Reduced funding for other higher education programs funded from non-

exempt accounts, including federal work-study, SEOG, TRIO, GEAR UP, and other smaller programs.

► Federal loan interest rates– Rates reduced July 1, 2013, looks like over 1% increase in ‘14

► Pell Grant shortfall– FY 2014 appropriations must find $6B to $9B to fund– Pell Grants at current levels for AY 14-15– 10-year shortfall is nearly $80B

Legislative / Regulatory Issues


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Total Education Spend

*Sources: Department of Education, College Board, McKinsey & Company team analysis, MeasureOne, National Student Clearinghouse

1) Total education spend includes “all-in” cost of attendance (e.g., in AY09-10, total spend of $387B was comprised of $203B in tuition and fees, $122B in room and board, $17B in books and supplies, and $45B in transportation/other costs). 2) Grants include federal, state, institutional, and private/employer. 3) Includes private loans based on MeasureOne data. 4) Fall enrollment – degree granting - AY1213 estimated.

$88 $102 $108 $110 $103

$77$98

$111 $113 $116$12

$17$20 $21 $21

$168

$167

$175 $180 $191$10.3

$6.8

$6.0 $6.4 $7.2

19.1

20.421.0 21.0 20.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

08-09 09-10 10-11 11-12 *12-13

Tota

l Fal

l Enr

ollm

ent (

$MM

)

Tota

l Edu

catio

n Sp

end

($B)

Total Postsecondary Education Spend

State/ Federal Loans Grants Ed. Tax Benefit/ Work Study Family Contribution Private Student Loans Enrollment

$430$420$438

$355

$391

1

2 3 4


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Proportion using Federal and Private Student Loans

Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013


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Average Individual Indebtedness

Source: Federal Reserve Bank of New York

Average outstanding student loan balance per borrower = $23,300. Median balance = $12,800

10% owe more than $ 54,000 3% owe more than $100,000


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The Pell Grant Shortfall


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Is it Worth It?


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Education Pays

Source: Bureau of Labor Statistics, Current Population Survey 2012Data is for age 25 and over, earnings are for full-time wage and salary workers

31% of the total population ages 25 and older held a Bachelor’s degree or higher, 43% had a high school degree or less

The unemployment rate for individuals 25 and older with at least a bachelor’s degree averaged 4.0%, compared with an average unemployment rate of 6.8% for all individuals 25 and older.


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Recent Research Reinforces Value of College Degree:College Degree Recipients Weather Recession Better Than Less Educated

Source: Georgetown Public Policy Institute, Center on Education and the Workforce , “The College Advantage: Weathering the Economic Storm,”


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0%10%20%30%40%50%60%70%80%90%

100%

2008

2009

2010

2011

2012

2013

2008

2009

2010

2011

2012

2013

2008

2009

2010

2011

2012

2013

2008

*20

09*

2010

2011

2012

2013

Willing to StretchFinancially

Rather BorrowThan Not Go

An Investment inThe Future

Degree More Important Now

Strongly Agree Somewhat Agree *Not asked in 2008 or 2009

Agreement with Value of College, Year-Over-Year

Source: “How America Pays for College,” August 2013


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Recent Graduates & The Great Recession

Sources: The John J. Heldrich Center for Workforce Development Chasing the American Dream: Recent College Graduates and the Great Recession, May 2012

Progress Students Have MadePaying Off Debt

Confidence in the Next 10 Years That…

Of those who graduated between 2006 -2011


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How Well Do Students Correlate Amount Borrowed and Repayment? The Future?

0 20000 40000 60000 80000 100000 1200000

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Total Expected Borrowed Amount

Ex

pe

cte

d M

on

thly

Pa

ym

en

t

Student Estimates of Monthly Loan Repayment

Actual Monthly Cost


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How America Pays for College


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College Savings

College savings reach new high in 2012

Total Assets in State-Sponsored Section 529 Savings Plans ($ Billions)

Note: Values for 1999 through 2011 are as of December 31. Value for 2012 is as of June 30.

SOURCE: College Board Trends in Student Aid 2012. Data provided by College Savings Plans Network (www.collegesavings.org).


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► 17% of families used parent savings from dedicated college savings plans/529s

► 5% used retirement savings

► 11% used parent savings from other types of investments

► 27% of families used student savings

Role of Savings

Saving for

Col-lege50%

Not Saving

for Col-lege50%

Parents of Children Under 18 Saving for College



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Differences in Affordable Actions Taken by School Type

Live at home Roommate Transfer Part time Accelerate Change major0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

41%

32%

7%10%

23%

14%

48%

34%

10%12%

24%

16%

83%

47%

23%25%

34%

26%

4-yr private 4-yr public 2-yr publicSOURCE: Sallie Mae (with Ipsos Public Affairs): How America Pays for College, 2013.


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Affordable Actions

Military

Transfer to Less Expensive School*

Part Time

Changed Majors

Parent Work More

Early Loan Payments

Accelerate

Add Roommate**

Tax Credits/ Deduc.

Student Work More

Parent Reduced Spending

Living At Home

Student Reduced Spending

0% 10% 20% 30% 40% 50% 60% 70%

4%

13%

15%

19%

20%

22%

27%

35%

41%

47%

48%

57%

60%

**Among students not living at home*Among non-freshmen



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Cumulative Elimination of Colleges Based on Cost, Year-Over-Year



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Completion of FAFSA by grade level, year-over year

Total Freshman Sophomore Junior Senior0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

74%

65%

74%

82%78%

76% 75% 76%73% 75%

72%

80%

74%71%

61%

80%

91%

77%

83%

72%

81% 83%78%

88%

81%82%

86%82%

80%78%

2008 2009 2010 2011 2012 2013Source: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2013


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► FAFSA completion is growing

► Freshman rates continue to increase

► Reasons for not completing the FAFSA:– Didn’t need aid– Didn’t believe their family would qualify– Weren’t aware of FAFSA

FAFSA Trends

SOURCE: Sallie Mae (with Ipsos Public Affairs): How America Pays for College,


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How the Typical Family Pays for College, Funding Source Share



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Use of Grants and Scholarships, by School Type

2-yr public 4-yr public 4-yr private0%

10%

20%

30%

40%

50%

60%

70%

48%

40%

52%

26%

38%

64%

Grants Scholarships

Per

cent

usi

ng s

ourc

e

2-yr public 4-yr public 4-yr private $-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$3,766

$5,696

$11,786

$5,450 $5,903

$13,709

Grants Scholarships

Ave

rage

am

ount

use

d am

ong

stud

ents

with

sou

rce



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Best Practices for Counseling Families


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► Families should look for resources that offer:– FREE, easy-to-use database– Calendar listing scholarships by deadline– Filtering capabilities

• By name• By deadline• By award amount

– Rating of scholarships– Adjustable settings

Scholarship Search – Best Practices


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► Sallie Mae’s free scholarship search provides access to more than 3 million scholarships– SallieMae.com/ScholarshipSearch

► Fastweb.com features over 1.5 million scholarships– Fastweb.com/College-Scholarships

► Private Scholarship Resources– KFC Scholarship– Coca-Cola Scholarship– Ronald McDonald Scholarship– Scholarships for Women– Wal-Mart Scholarship

Scholarship Tools

– African American Scholarships– Target Scholarship Application– Scholarship America– ScholarshipAmerica.org


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► Parents are key contributors to college education, paying 36% of the overall cost:– 73% of parents believe paying for college should be a shared

responsibility– 13% say parents should be entirely responsible for costs– 42% of parents do not want the loan in their name

► The College Savings Foundation’s 2011 Survey of Parents found that:– 94% of parents intend to pay some of the costs of college for their child– 72% are planning to pay half or more of the cost

► Parents use various sources to fund the gap:– Parent’s current income– 529 plans– 401(k) loans and withdrawals– Other savings & investments

Parents Want Shared Responsibility

SOURCES: Sallie Mae (with Ipsos Public Affairs); How America Pays for College, 2012; College Savings Foundation 2012 Survey of Parents; Rockbridge 2012.

– PLUS Loans– Private Loans– Home Equity Loans– Credit Cards


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► Families should understand the total cost of funding and should consider a package of gap financing options and not limit themselves to just one– Cash, Tuition Payment Plans, PLUS Loans and Private Loans

► Families should only borrow what they need

► Responsible borrowing: A creditworthy borrower has good or excellent credit, an ability to repay the loan and the capacity to take on the debt– The Ability to Pay: A comparison of the applicant’s total debt to their total

income and a review of their outstanding student loan indebtedness– Stability: How long they have been at their current address, job stability,

and established credit history– Willingness to Pay: Credit score and payment history on other types

of credit

Gap Financing Tips


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► Most colleges and universities offer tuition payment plans

► 52% of families report using parents’ current income to pay for college – many of them are using a tuition payment plan

► Allows parents and students to pay their tuition in manageable monthly payments using their income

► Tuition payment plans help attract and retain students by giving them an additional funding solution

► Provides an interest free funding option

Tuition Payment Plans


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► Some lenders are offering fixed rates as good or better than PLUS loans to highly qualified graduate students

► Schools are becoming concerned about debt in the student’s name

► Death and disability discharge

► Families are becoming concerned about using 401K to pay for their child’s education

► Some lenders have programs available for cohorts of students not eligible for federal programs– LTHT students– Prior balances

Private Loan Trends


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Questions


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The information contained in this presentation is not comprehensive,

is subject to constant change, and therefore should serve only as

general, background information for further investigation and study

related to the subject matter and the specific factual circumstances

being considered or evaluated. Nothing in this presentation

constitutes or is designed to constitute legal advice.

For school use only. Not to be distributed to students.

MKT8043

How America Pays for COllege

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