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[00:00:00] Good afternoon. My name is Stephanie Wells here from MEFA to talk to you about comparing college loan options. First a little bit about MEFA. MEFA is a state authority. We were created back in 1982 at the behest of colleges in Massachusetts to create a low-cost loan program, and since then, we’ve gone on to create college savings plans and lots of guidance and education for families, students, college administrators, and school counselors.

Today we’re going to talk about. Comparing loan options and really digging into that topic in a little bit more detail, talking about loan terminology, giving you as many options as we can think of and guidance to help you minimize debt. The whole purpose of this webinar is to guide families to keep them from borrowing if they don’t need to or borrow as a last resort.

So [00:01:00] that will be the overall theme. We’ll talk about different loan details, comparing loan options and guidance on next steps in the process. First, let’s talk about loan terminology. The first would obviously be the interest rate, which many people understand is the percentage of amount borrowed that a lender will charge for the use of its money.

So it’s important to understand the differences between fixed and variable interest rates and understand and decide what your comfort level is with each, as you’re comparing different loan options. Fixed rates, of course, will stay the same for the life of that loan, which means that your monthly payments will also stay the same, which can be very helpful with budgeting variable interest.

Rate loans will change interest rates over time, depending on the market. And the lender. It could be a monthly, a quarterly interest rate change. It really depends on the lender and how they’ve set that up. Uh, but the monthly [00:02:00] payments will also. Accordingly change as the interest rate changes. So might be able to take advantage of low interest rate environments with a variable rate, but the monthly payment may change, go up and down, which might make it a little bit more difficult for some folks to manage on a monthly basis.

I. If you are looking at variable interest rate loans, make sure you understand if there’s a cap on that interest rate. So how high can the interest rate go? Different states have different laws about the cap on the interest rate, so that could be, uh, dependent on the state that the loan was originated in.

Most interest rates for alternative or private loans outside the federal loan programs. Are going to be tied to the credit score of the borrowers on the application. So the strength of your credit plus loans, which we will talk about are determined based on credit as well. And the interest rate can also be [00:03:00] tied to the repayment option you choose.

So a lot of private lenders, including MEFA right now in the market, will offer multiple different interest rates dependent on the repayment option that you c choose, as well as your credit rating. So once you apply, you’ll find out exactly what your interest rate is and the monthly payment options, depending on the uh, repayment option you’re looking at.

It is important as you’re shopping for loans to look at the full range of interest rates that a lender is offering. So don’t just look at the low teaser rate. Make sure you’re looking at the full range and how high that interest rate can go once you at, once you apply. So that is also, um. Applicable to fixed interest rates.

So how high can the interest rate go? Most families and most borrowers are gonna some fall somewhere in the middle of an interest rate range. So with MEFA, for example, our interest rates range from [00:04:00] 5.75% to 8.95%, depending on the repayment option you choose in the interest rate in your credit score. The A PR is the annual cost of the loan, the annual percentage rate.

It is a good way to compare apples to oranges, so to speak. So if you wanted to compare variable rate loans to a fixed rate loan, which could be very different animals, you could look at that a PR to get an overall assessment of the annual cost of the loan, which would also include fees if there are any charged on that loan.

The repayment term is very important to consider when shopping for a loan. It’s going to have a direct impact on the overall cost of the loan. The repayment term is the maximum term that you have to repay that loan in full. Now, with most education lenders, you can pay the loan off sooner if you want, with no impact to the overall [00:05:00] cost of the loan, no penalty, and that can help reduce the overall cost.

The repayment term can provide different families flexibilities that consider the monthly budget. So do they need to defer payments until the student graduates, or are you looking for the absolute lowest interest rate possible regardless of the payment? So paying the loan off as soon as you can, uh, that’s gonna have a difference in your, uh, total cost.

So most lenders are gonna offer you a different variety of options to choose from. The application and solicitation disclosure is required by every education loan lender. So this is a statement you can look at that will detail all the fine print. It’s a legal requirement for private lenders such as MEFA to have this on their website.

You can also find loan disclosures on. Loan comparison tools such as Elm Select, for example, if you’re looking at different loans, some things [00:06:00] to look for and I’ll, I’ll show you a couple of examples here. What you know, what are the interest rates? What is the maximum cost of that loan at that highest interest rate?

Are there any fees, hidden fees? Um, fine print fees such as late payment fees, things like that. And what will be the total cost by repayment option at the lender’s highest interest rate. That’s really important to know. So if we look here, we see a couple of loan disclosure statements. I just did a couple screenshots of part of the disclosure.

The loan disclosure is a two page form. It’s a legal form that every lender has to fill out the same, um, loan disclosure form. So here you can see me a’s disclosure statements, and each lender is required to show. Families before they even apply for a the loan. How much is a $10,000 loan at the highest interest rate for each repayment option?

So almost the worst case scenario for a $10,000 loan. So [00:07:00] borrowers really know what they’re getting themselves into upfront before they even apply. So here you can see MEFA has multiple repayment options. And for our immediate repayment loan at 10 years, you can see the maximum for that loan will be about $15,190.

If you only, if you take the full 10 years to pay it back, of course you can pay the loan off sooner without penalty to lower that cost. If you look at lender B over here, a different lender, this is not a mefa disclosure, and you look at the same f. 10 year immediate repayment loan for a $10,000 loan at this lender’s highest rate at 16.55%.

That $10,000 loan is going to cost over $27,000 at the maximum repayment term. So it really does make a difference what that highest uh, loan amount is, what that highest rate is in the interest rate range. And just [00:08:00] understand that a lot of families will fall somewhere in the middle, but at least this gives you, um.

The overall cost, and you can see just by choosing one lender over another, if you look at the deferred repayment options, those dis differences are even higher because the interest rate is higher on each loan and the time you’re taking to pay the loan off is. Longer, so it’s gonna cost more. So 21,000, a little bit more for a deferred MEFA loan.

But if you look at lender B, because their high rates are so high, their range is so, so wide, over 16%. That $10,000 loan could cost over $47,000. So it is very important to do your, do your homework when looking at different loan options just by choosing one loan over another and you know, doing your shopping.

You could be paying over. $11,000 more for lender B and over $26,000 [00:09:00] more just by choosing lender B. So it really does make a difference when you’re, um, comparing loan options. So if we look at a few other things that you’ll see on a fixed rate disclosure statement, you can see this lender. This is not mefa, this is another lender.

Um, their fixed rates will range from anywhere to that teaser rate I mentioned at 4.75%, but can go up to 16.53%. So you really wanna do, look at that range of interest rates and know, you know, what is that, uh, highest cost that it could be. You’ll find out what your actual rate is when you apply, but you can see the total cost for each repayment option.

For this lender, that $10,000 loan could cost. Anywhere from 27,000 to 34,000 depending on, uh, the repayment option this family chooses. If we look at variable rates, you can see in this example, it also shows the range of the interest rates, [00:10:00] but you’ll also see here the loan fees. You’ll also see this on a fixed rate loan disclosure.

It shows that there are no origination fees, which is great. But if you’re late on your payments, that could be a 5% past due amount or $5, whichever is less. So if a lender has any other types of fees, those will be listed on the disclosure, and it also shows on the variable rate disclosure, what that cap is on the interest rate.

So for this loan. The loan will never go above 18%. Also important when you’re looking at variable interest rates to understand the index that the rate is tied to that will be shown on the variable rate disclosure as well. Co borrower is a very important term, especially for usually parents of students to understand.

Uh, if they’re co borrowing with their students, they have equal responsibility as the student borrower on the loan. Anyone who signs on a loan agreement has equal responsibility for [00:11:00] that loan, and typically the lender is gonna be looking at the co borrower with their, um, usually better credit than the student to get that loan approved.

Sometimes if a parent doesn’t have great credit, and they might add a second parent who might have a better credit score, and with MEFA for example, we’ll look at the highest credit score to give you the lowest rate. So everybody on that loan will look for that highest credit score. So having good credit or a higher credit score can help decrease that interest rate and the overall cost.

So here we are talking about alternative private loans, and then we’ll talk about the federal loan options in just a minute. Some loans also have Cobar release options if the student makes certain amount of on-time payments they can apply to have that co borrower released once they have graduated and have gone into repayment.

So once you’ve looked at, you know, the different loan options that are out there, there are additional guidance and education that we’d love to [00:12:00] share to help families and students be a wise borrower. First, I like to talk about our combination plan, um, so that you can really think about using savings and current income before you look at borrowing.

Borrowing should always be a last resort, so if we look at savings, for example, has, has the parents saved it all and a 5 29 plan, maybe. Maybe the student is looking to save over the summer. So any types of savings that you have, um, maybe grandma or grandpa has saved, or aunts or uncles or godparents have put a little money aside for the student.

Really take a, take a look at all that you’ve saved and create a strategy on how you wanna use those savings. In this example, the parents have saved in a. 5 29 for $16,000 and they’ve decided we’re gonna put 4,000 a year over the four years, they’re gonna split it up over four years. You can utilize your savings however you choose.

You could use it all up front if you wanted, just to [00:13:00] avoid borrowing for a year or two. And then the students might be able to work over the summer to save. And even if it’s not money that they’re applying to the bill, they could save to pay for books and unbuild expenses that a part of that cost of attendance.

You should also look at current income in forms of a, you know, out of your monthly pocket, monthly payments in forms of an interest rate payment plan that is available at every college and university in the United States. Typically, most college will have an interest rate payment plan that allows you to budget payments over the course of the year interest free.

So it’s not a loan, it’s just a way to spread out your payments versus having to write a lump sum check in the fall and then again in the spring. And then as a last resort, you might be looking at college loans if savings and current income can’t take care of your bill due. In this example, this family has a bill due of $20,000 for the year.

So by utilizing a little bit of [00:14:00] savings, we’ve chopped $5,000 off that bill. If we were to put the entire $20,000 on a 10 month payment plan, it will be $2,000 a month. Now that might be too steep for this family’s budget, so they’ve decided we can afford a hundred dollars a month and we’ll put $500 a month on a $5,000 payment plan and the rest on a $10,000 college loan at a hundred dollars a month.

So there’s our $600 affordable payment in this example. So by using savings and current income, we’ve chopped our bill in half. So this family only has to borrow $10,000 versus $20,000, which as you’ve seen, just take taking off a little bit, $10,000, even if it’s at $2,000, you can really save a lot in that total cost of the loan.

The second piece of guidance is to borrow federal direct student loans first. If your family needs to borrow, [00:15:00] typically you will see these federal direct student loans in a financial aid offer. A freshman can borrow up to $5,500 their freshman year, and you can see on this chart here that those loan amounts go up for sophomore, junior, and senior year as well.

So the interest rates for federal loans, for federal direct student loans and federal plus loans are going to change on July 1st for the upcoming 25 26 academic year. Uh, but the credit, um, check is. Not a problem for students. They can take out the loan, there is no credit check, and they can be the student borrower on the loan without a cosigner.

So it is a really nice way for students to take on some of the borrowing responsibility, have a little skin in the game, so to speak. The current interest rate for this current year is. 6.53%. We expect that rate to go down a little bit for the upcoming year. And this loan could be in two different types.[00:16:00]

So you may see on your financial aid offer a subsidized portion of the loan, which means the subsidized loan is not going to accrue interest while the student’s in school. So it’s basically interest free while they’re in school, the unsubsidized portion of the loan or the entire loan. Could be unsubsidized for some students means that interest will be accruing on that loan once it’s dispersed.

Now there is a small fee deducted from this loan, so you should know when you’re looking at loans, if there’s a fee, is it gonna be deducted from the loan? And in this case, there is over a 1% fee, which, um. Really AC accounts to a small amount, you know, a little over $60 for the year, but it is $60. It won’t be applied to the bill.

So the full $5,500 of that loan won’t be applied to the bill. It will be $5,441 and 87 cents. So if you’re trying to get that bill down to the penny, you’ll wanna just incorporate those fees [00:17:00] if there are any. The student will need to go through entrance counseling before they can take out that loan and sign their master promissory note.

They should hear from the financial aid office at the school. They’re attending, um, instructions on how to do [email protected]. And no payments are due on these loans while they’re in school, which is a great option for students who wanna take on some of that borrowing responsibility when they get out of school.

There’s gonna be lots of repayment options for them to choose from, which should make repayment of these loans affordable. So it’s also understand how loans work and how the process works. Whether it’s a NEFA loan, an education loan, or even a parent plus loan, you can only borrow a loan up to the school’s cost of attendance minus any financial aid you received.

So that cost of attendance does include unbuild costs, such as off-campus housing, books, supplies, and transportation. But you really [00:18:00] only borrow what you need, what you need. I really advise families to try and. Focus on the build expenses that you owe the school. If you do need to borrow and pay for un build expenses such as books and, you know, plane fare and things like that, um, out of pocket, maybe through student summer earnings.

If you can, you would be applying for one year at a time. So it is an annual process. You apply for financial aid each year, and you would need to apply for a loan each year if you do need to borrow. So you would apply for the loan amount you need for the entire year. It’s easier to do that than having to apply for each semester.

You can lock in your loan, lock in your interest rate, and just know that interest won’t be assessed on that loan until the money is dispersed to the college. So there’s no reason why you wouldn’t wanna set up your spring semester loan as well as the fall semester loan, knowing that interest isn’t gonna be assessed on that until the springtime when it’s dispersed to the school.

Usually in January, I. You’ll wanna estimate your [00:19:00] monthly payment, understand what the monthly payment will be for the first year, and then project out what you will need to borrow for years two, three, and four, maybe a fifth year. So that you know you can afford multiple loans for the full course of the student’s academic career versus just focusing on the first year.

So $200 might be an okay monthly payment for the first year loan if it’s $20,000, but could you afford 20,000 per year for four years for a total of $80,000 at approximately $800 a month? So those are things that you wanna project out and consider. And also consider the student’s projected salary and whether they will be able to assist with family loans or co-signed loans after they get outta school.

Remembering that they do have their federal direct student loans that they will be needing to pay back as well. So typically the school will split that loan in into a 50 50 for the fall and [00:20:00] spring semesters, and typically the loan funds will go directly to the college. If you do need any of those loan funds for unbuild expenses such as off-campus housing or books, then you can get a refund from the college once the loan is applied to your, um, account at the school.

And any unbuild, expen, any unpaid expenses have been paid to the school. So looking at the loan affordability is critical. I’m gonna show you a’s loan payment calculator. Just to show you in black and white how just shaving off a little bit of the loan can really help, um, reduce that total cost. So I’m gonna show you a $10,000 loan.

We’re gonna have four years before graduation, so the calculator knows how much to, um, incorporate for deferment costs. And then we’ll put in, uh, our credit is very good. So right in the middle, which is where most people fall. So if you look at this chart here, [00:21:00] you can see that our monthly payment for a 10 year loan at $10,000 is gonna be around $120 a month.

If we round up a little bit, if we do a 15 year loan, that’s gonna shave off a little bit on the monthly payment about, you know, $25 a month. If we do rough math here. Uh, but you can see as we go on and add in interest only payments of deferred options. The monthly payments do go up after the student graduates, and the total cost of that loan also goes up accordingly with the interest rates.

So it really is upon your family to decide. You know, what can you afford? Can you afford that $120 payment for that $10,000 loan? If so, then that would be the lowest cost option to go with. But maybe payments are tight right now and budgets are tight, so you might wanna be deferring for a few years. You can make voluntary payments while the students in school, even if you defer the loan to try and [00:22:00] shave down a little bit on that total cost.

Now if I shave down, let’s just say I’m gonna borrow $7,000 instead of 10 so that I can put a little bit, maybe $3,000 on a payment plan. You can see when we calculate this, it really does start shaving off, you know, a lot, not just in the primary, uh, principle amount you’re borrowing, but also the interest costs.

So then we’ll go back and we’ll talk about the Mial loan specifically. Get into a little bit more detail about that. We do get lots of questions when we’re talking to families about the Mial loan and the Federal Plus loan. There’s lots of other loans out there as well, but we often get this question now, as I mentioned, with the Federal direct student loan.

Those interest rates will be reset on July 1st. So here we show the Federal Direct plus loan at its current rate, as well as the MEFA [00:23:00] loans at our current rate for the current academic year of 24 25. Within the next month or so, we hope to have our our MEFA loan rate set for the 25 26 academic year. And we do know that the Federal Plus loan is probably gonna go down a little bit, maybe a little bit under 9% based on projections, but we’ll see what that rate is once it’s finalized.

But you can see just by looking at the current year rates, that the Mefa loan, even if it at its highest range, is still lower than the federal parent loan through the federal government. And there are no fees on the federal, on the Mefa loan versus a over 4% fee. Origination fee on the Direct plus loan, and as a reminder, that fee is going to be deducted from your loan proceeds.

So the student is not on that federal loan. It only can be in the parent’s name. However, with the Mefa loan, it is a family loan, so the students and credit worthy co-signers, typically parents can all be on the loan. There are, uh, Cobar [00:24:00] release options with the Mefa loan for the deferred. Cobra release repayment option if you choose that there are minimum credit scores for amfa to get approved of six 70 at minimum.

Um, and the direct close loan is a li has a little bit lighter credit standards. Um, for some folks who have credit issues and can’t, uh, get a loan out through a private lender, that might be an option for you, but there are immediate repayment and deferred options for both students do need. To be enrolled at least half time to maintain both of these loans.

And there are consumer safeguards in the case of the Mefa loan. God forbid, in the case of student death or disability, there is forgiveness for that loan. And, uh, on, on the other side, for the parent loan, the plus loan. If there is parent or student death or disability, that loan is forgiven as well. Now you don’t need to file the FAFSA to get a mefa loan, but we do recommend that you do file the FAFSA to see what you’re eligible for for federal and state aid.

So [00:25:00] again, looking at borrowing as a last resort and you will need to file that F FAFSA for the plus loan anyway, as well as to be considered for state aid from the Commonwealth of Massachusetts. So you do wanna get advice from trusted resources. That is, there’s a lot of stuff out there on the internet and on TikTok.

Um, but ask questions of the lenders that you’re, you’ve narrowed your list down to. If you’re shopping around for a couple, give them a call. Look on their websites. You know, look at those disclosure statements. Look for transparency. In each lender that you’re considering, is it easy to find their disclosure statement on their website?

If not, why is that? Um, is it easy to find maybe any, um, fees that they’re gonna be charging you? Things like that. It’s important to look for transparency on a website. And when you’re talking to folks, comparing your options, utilize only free resources through this process. There’s no reason to pay someone to figure out how to.

Pay your [00:26:00] college Bill MEFA has free resources. You can set up one-on-one appointments. I will show you some free resources at the end with QR codes if you wanna take advantage of those. And don’t be shy about working with your college’s. Financial aid and bursa, our student accounts office, they’re there to help you.

They wanna help you come up with a plan to pay that bill and make it affordable. And if there are any special extenuating circumstances, you might need to talk to them about your financial aid offer. Get in touch with them, see what they can do for help. Um, look at the college’s websites. They might have a lender list or loan comparison tool, and other good guidance and advice for you when you’re going through this.

Um, exploration. You’re shopping for loans to pay the college bill. Keep in mind the timing that’s coming up for, uh, fall semester bills that will be due soon. They will be coming out and being sent to you sometime in [00:27:00] June or July, and they’re usually due three to five weeks later in July or August. This will include just the direct cost tuition fees.

And food and housing. Um, it may in include insurance coverage, so you’ll wanna waive that insurance coverage if the student is already insured under your plan, that could be a good $2,000 bill. So you’ll wanna save that. Your enrollment deposit is well. Is any financial aid and private scholarships that have been reported to the school or sent to the school will be deducted from your bill and if you set up a payment plan already taken out your loan, you may also see these amounts credited towards your bill when you get that.

Most colleges are not gonna deduct work study from the bill. That is a job that the student will have to apply for. On campus and they’ll get a biweekly paycheck to, um, get those monies to help pay for their transportation. Other miscellaneous expenses, you do wanna give yourself a good two week cushion before the bill’s due.

Don’t wait till the day before the bill’s due to apply for a loan, [00:28:00] just in case there are any, you know, unforeseen issues and credit or anything like that. But the application is pretty easy for most lenders. With MEFA, for example, you apply, it takes maybe 10, 20 minutes to fill out the loan, fill out your.

Loan paperwork, your loan disclosures and promissory note and choose your repayment options and all of that. It really doesn’t take long. It’s an instant credit decision. Uh, but you do wanna give yourself a little cushion just to get everything all set up and apply for the full academic year. The school will set up the spring semester to be dispersed sometime in December or January.

Now we do have a special hotline coming up on July 15th from 5:00 PM to 7:00 PM You can arrive at any time during those hours. To be put in a private zoom room with one of MFA’s counselors and experts. I’ll be on that hotline myself, helping families, and you can share your screen. We can talk about your bill, we can share the loan payment [00:29:00] calculator, and run numbers with you.

Whatever we need to do to help you, uh, you’ll get one-on-one attention at this hotline. So please, uh, sign up on the QR code to uh, visit us on the 15th. Virtually and we’ll, we’ll be able to talk to you on Zoom. Here are some great QR codes you can scan. You’ll get copies of these slides, uh, are attached to the link where you found this recording, so you can send it for our emails.

Make sure you’re on track with that. If you love podcasts, MEFA is a great podcast. All sorts of different guests and topics related to college enrollment and MI a’s free calculators and resources are also on our website on MEFA.org. If you wanna set up a one-on-one appointment before our hotline on July 15th, you can also scan this QR code here to take advantage of that.

Our social channels are all here to. You know, connect with us, like us friend us, follow us on [00:30:00] social, and access all of our free resources and guidance, and stay on top of upcoming events that we have for families and students to help you through this process. Here is our phone number and email that you can call.

We’re open nine to five Monday through Friday to get free guidance and education about anything related to the college enrollment process. Give us a call. We usually will know the answer or be able to put you in the right direction if it’s something, um, that somebody else needs to help you with or assist you with.

So feel free to reach out to us. We look forward to hearing from you and helping you through your college journey. Thank you and have a great day.