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PLUS Parent Loans and Stafford Student Loans - an insider's guide

When I worked for a company that was a private funder of Federal student loans, the first products that I was trained to sell were PLUS loans and Stafford loans.

Parent or Student borrower?

First off we established who was calling. Obvious you would say to yourself, you would always want to get the name.

It is actually more important to determine the relationship to the student. Is it the student him or herself, or the parent of the student? If a parent we would tell them about the Stafford Loan (a Federal Education Loan in the student's name) and the PLUS Loan (a Parent Loan for Undergraduate Students). If it was a student, the aim was to try to get the parent on the line either on this call or on a follow up call.

Stafford Loans are limited in size whereas a PLUS education loan can be whatever is needed to pay tuition at the college in question. This is because the parent is a much more known quantity, i.e. the parent has a credit history. If we just had a student, then we would only pitch the Stafford Education Loan to them.

A Stafford college loan was much less attractive to the lender due to the small amount involved.

Stafford Loans, Fafsa Loans, Unsubsidized Loans, Subsidized Loans, Stamford Loans and Stanford Loans

Potential borrowers would often refer to the Stafford education loan as a FAFSA loan, a subsidized loan, an unsubidized loan or erroneously as a Stanford Loan or a Stamford loan. Remember the FAFSA is the financial aid application, not the loan. The loan may be a subsidized loan while student is in school, meaning the government will pay the interest, or an unsubsidized loan, meaning that the interest will accrue.

There may be Stanford loans or Stamford loans but you don't have to go to Stanford or live in Stamford to get the Federal Stafford loan!

Institutional Loan Eligibility - Accreditation

Education Loan Officers also had to establish which institution was being considered. Not all are accredited and thus recognized by the Federal Department of Education. For example, Bob Jones University cannot get Federal education funding as it is predicated more on religious faith than on academic principles.

Institutional Loan Eligibility - DIRECT Loans

Also some schools work exclusively with the Government Department of Education loan program, the DIRECT program. No private education lenders will be able to lend to a student at these schools. They will have to get a Direct Stafford loan or a direct PLUS Loan.

Student Loan Eligibility

• “Is he/she going to be a freshman this fall?” If a student had already obtained a Stafford Loan, then they were expected to use that lender throughout their undergraduate program if they stayed at the same place of higher learning. By establishing that the education loan applicant was in their first year of college, then they would be able to become a customer.

• was the student a single U.S. citizen under the age of 24, with no dependents, attending full time, and not a veteran?

Note that parents cannot be eligible to take out a PLUS loan if the child student is 24 or older on January 1 of the current academic year. If the student was married or had children of his/her own then also they would not be eligible. I believe that non citizens are eligible.

We would ask if they had any other children attending college. This didn't affect eligibility, however it was a good source of more leads and more potential loans.

DEPENDENT STUDENT:

The College Loan Officer would then tell the Dependent Freshman / Sophomore etc, you may receive up to $xxxxx under the Stafford Program. The amount varied depending on what year of school the student is.

Aristotle said that "A whole is that which has a beginning, middle and end". In sales talk, according to infomercial producer, Anthony Ciavatta, that means the script must present a problem (beginning), introduce a product to solve the problem (the middle), and finally create a desire to get that product (the end).

So first, the educational loan consultant must introduce the problem of the cost of attendance and the inability of the Stafford Loan to meet it:

Cost of Attendance

The student loan officer would then point out the Cost of Attendance for the college. If it was about $20,000 per year, we'd say that leaves about $17000 in school fees, and ask them how they expect to cover the remaining cost of college?

A good education loan provider such as ourselves would then suggest the solution of the Federal PLUS college loan:

Parents of students are offered the PLUS Program by the Government so they may be entitled to obtain low cost Federal funding for a child's college career. We'd then say "The privacy Act means I would need to speak with them directly. Would you like me to do this for you?"

FINANCIAL AID PROCESS for students and parents.

“Have you already filed a FAFSA?” If not we advise them to do so and how to do so.

If they had filed the FAFSA then a student aid report would be sent to the student and to the school. The school would send out an award letter. We'd establish if they had received the award letter and if so, ask how much the college expected them to contribute as an out of pocket expense.

In most cases they would choose a combination of Stafford and PLUS education loans. Occasionally the parent would say the kid was on his/her own, or conversely, that they wanted to take the whole burden themselves and not send their child graduate out into the world with a huge education debt to pay.

PLUS Loan and STAFFORD Loan Description

The Stafford Loan would be introduced as a government guaranteed, variable simple interest student loan with a current interest of x% and a cap of 8.25%.  Education loan payments are not due until 6 months after graduation. We'd explain the difference between the unsubsidized Stafford loan and the subsidized Stafford loan and that a dependent freshman can borrow no more than $xxxx.”

We'd then say that since the Stafford Loan will not usually cover the total cost of education, the Government offers the PLUS loan. 

PLUS Loan

The PLUS Parent Loan for Undergraduate Students is a simple interest, government guaranteed, parent loan with a current discounted rate as low as x.xx% (this discounted rate included the 1/4% that we'd take off for automated direct debit payments) and a cap of 9%.  Some or all of the interest may be deductible. The total cost of education can be borrowed including tuition, housing, books, supplies, and basic travel expense minus any other financial aid awarded to the student. If the total cost of education was borrowed then no Stafford Loan would be necessary.

Student Loan Fees and Guarantees

We'd tell them that as a private education loan maker under the Federal loan program we do not charge ANY fees.  The Government charges a one-time 3% fee that’s considered part of the cost of education and which comes  out of the loan proceeds, so there is no out of pocket expense to the borrower. The fee paid for 3 very important benefits:

• Interest rate cap
• The option to reduce or defer payments if financial problems occur, without affecting your credit
• in the event of the death of parent or student or total disability of the parent, the loan is forgiven.

We would then start creating the desire in the prospect to get the PLUS loan.

Cost of Attendance

We'd use the award letter information if available otherwise figure out how much they would need to borrow.

From that we'd estimate the monthly loan payment, based on a 10 year term at the current rates. We'd tell them that they may be able to extend the term up to 30 years depending on the loan amount, and thus reduce their payments. This would be if they chose to do a consolidation loan at some time in the future. Also, there is no prepayment penalty.

Loan Repayment Incentives

We'd offer additional discounts on the college loans. They were

• Quarter percent reduction with automatic debit of the payments from a bank account
• after 48 on time payments, Plus: 1% rebate, Stafford 2% rate reduction

These were pretty standard throughout the FFEL college loan industry.

PLUS vs. OTHER OPTIONS

We'd ask whether they had any other options for paying for college. This was in order to eliminate the competition from those other options. At the time I was working in the industry, the biggie was home equity loans as they were almost at the same low interest rate as the education loans.

• Paying out of pocket
• Cashing in savings or investments
• Borrowing against their home

We'd ask "which option would you most likely choose?"

With home equity and other adjustable interest rates now much higher, the interest rate capped Government education loans must be looking more attractive.

PLUS Loan QUALIFICATION

We'd establish if in the past 5 years the prospect had any bankruptcies, foreclosures, tax liens or if they currently have any accounts past due over 90 days.

If yes, we'd try to establish if they had a credit-worthy co-signer.

CLOSE

Plus Pre-approval

This was the big one for the educational loan counselor, as we would get paid for getting the prospect to the credit check stage. Not all schools had this online credit check, but most did. If they chose not to have credit checked online: we'd send them a pre-approval form.”

We'd offer a free PLUS credit pre-approval service "which will allow you to make sure all your bases are covered without committing you to accepting the loan. Then, if you decide to use the PLUS loan when its time to pay for school, you will know in advance that, unless you have an adverse credit situation arise after the pre-approval, the funds are going to be available to you.  As there can frequently be unexpected delays with the Federal Financial Aid process, you should get this safety net in place now."

Note all the creation of uncertainty: "bases covered", "adverse credit situation", "unexpected delays", "safety net". The guys who wrote this knew what they were doing.

Getting the social security number to do the check was the "YES" moment for most of the college loan counselors.

Locking in the borrower

We would then try to lock them in in a number of ways, by confirming that “I will be assigned as your College Loan Counselor from this point forward. That means I will be available personally to help you throughout your/ your families years at college.”

Looking back at it, this is a bit of a beef of mine with the company, as there was a pretty high turnover usually with people leaving during the slow period for college loans (October through March) and the company was very resistant to the idea of allowing people, even good people, to work seasonally. So a promise to look after someone through their years of college was pretty baseless.

For those who did the online credit pre-approval, we'd mention the repayment incentives that will end up saving them some money should they decide to use the PLUS loan. To make sure they'd receive these incentives we'd tell them that it is important that they give us a call as soon as they receive the award letter.

Importantly, we'd tell them to "keep in mind that you have already been credit pre-approved" with us. "It is important to note that should you choose another lender another credit check would be pulled. To avoid this you will need our lender information for the school paperwork you will receive."

We didn't want the loan being screwed up by the school using some sort of preferred lender arrangement on the forms it sent the students.

We'd emphasis our expertise in easing and simplifying the entire Financial Aid process, and that our job is to help secure these benefits as quickly and effortlessly as possible. There were counselors available 24 hours a day, seven days a week "in case you have any last minute emergencies.”

We'd also have one last shot at asking if a parent had any other children that are attending college or that will be in the future?

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