Taking Sallie Mae's Education Investment Planner For A Test Drive

Sallie Mae announced the release of their Education Investment Planner (EIP) yesterday in an email that went out to financial aid administrators yesterday (it appears that this may be a beta version as the email was clearly stamped "NOT FOR STUDENT OR BORROWER DISTRIBUTION").

I thought that I would take a test drive of this application as a student.  Update:  Sorry for the length of this product evaluation (I did get a bit carried away).  What started out as a test drive ended up becoming a cross-country trip.  Here are my thoughts: 

Before starting the process, the EIP provides a list of benefits: 

• Estimate and compare total education costs at over 5,500 colleges and graduate schools.
• Understand and explore your funding options based on a combination of savings, scholarships and grants, and student loans.
• Forecast estimated repayment costs if student loans are part of your paying-for-college plan.
• Share plans with family and friends for feedback and discussion.

Step 1:  The application asks the user to complete the statement "I am ..... 

• Three choices are provided:  Parent, Student, FAA/Counselor.
• I select Student, click on START NOW and hold my breath

Step 2:  Enter student information including

• Year in School
• Degree
• State of Residence
• Citizenship Status
• Stage of Planning and Application Process

Comment:  I like the information bubbles () just to the right of the
drop-down menus, which provide an in-depth explanation of the terms.

Step 3: Estimating School Costs - Selecting a School

• School Location
• Name of School
  • If you don't have a specific school in mind, the application allows you to select a type of school (e.g. 4 year private) and state and will provide an estimate of cost.
  • Comment:  I like the feature that allows you to start typing in school name and shows you the matches after several keystrokes.
• Enrollment Status
• Start Date
• Number of Years Attending School

Comment:  The drop-down menu only goes up to 4 years for undergraduate.  Given the high percentage of students that require more than 4 years, this may be underestimating the cost by 25% (assuming 5 years to graduation). 

Step 4:  Estimating Costs - Itemizing Expenses

• Application pre-fills expected expenses for the school that was selected in Step 3:
  • Tuition
  • Average annual room & board
  • Additional annual fees for full-time students
  • Average annual costs of books and supplies

Comment:  It is nice to have this information pre-filled, as it limits the search time to find this information.

 

Step 5:  Plan Summary 

• Application creates a table (or graph) that takes first year costs and extrapolates a total estimated cost of education over a four year period
  • Assumes annual cost increases of 6.6%, based on College Board’s College Board's Trends in College Pricing 2007 research on in-state four year U.S. public universities.

Comments: 

• I am not sure why they chose the cost increase for in-state four year institutions when Stanford University is a private institution.
• Provides Table and Graph options to display data which is a nice option to have.    

Step 6:  How to Pay for School - Personal Contributions

• This screen describes the next step in the process this way: 

Now that you’ve estimated the total cost of completing your education, it’s time to identify ways to pay.

First, we’ll ask you to list any savings and income your family can contribute to the student’s education. You can also enter other sources of money, such as money from relatives or friends.

Then we’ll ask you to tell us about any gift aid (scholarships and grants) that the student has already been awarded or that you expect the student might receive.

We’ll suggest types of savings or scholarships to prompt you."

Step 7:  How to Pay for School - Personal Contributions - Savings and Income

• Asks students to enter current savings available for student's education in:
  • 529 Plans
  • Parent's savings
  • Student's savings
  • Other sources
    • Might include Home Equity Line of Credit (HELOC), loan from family member, etc.

• Enter amount to be paid out of current income while student is attending school
  • Parents
  • Students

Step 8:  How to Pay for School - Personal Contributions - Scholarships and Grants

• Provides "free" money sources of college funding
  • School scholarships and grants
  • Federal grant amount (alphabet soup)
    
    • Pell Grant
    • SEOG
    • ACG
    • SMART
    • TEACH Grant
  • State-awarded scholarship and grants
  • Other scholarships and grants

Comment:  It would be useful to have links to the various federal grant programs so that student could estimate amounts and eligibility.  Obviously, this would be easier if student already had award letter in hand but many will likely begin their planning before they have received it.  Having a link to a scholarship database also would be useful in steering students toward potential opportunities.

Step 9:  How to Pay for School - Personal Contributions - Summary

• Review results from Steps 7-8 (Savings, Income and Free Money)

Step 10:  The Gap

• Highlights difference between 4-year Costs and Total Personal Contributions
  • Identified as "Remaining amount to be funded."
  • Provides overall financing gap and table shows amount by year

Step 11:  How to Pay for School - Federal Stafford Loans

• Provides following disclosure regarding student loans:

"Many families don’t have enough in combined personal contributions to cover the total cost of college. That’s where student loans come in.

In addition to any gift aid or work-study aid awarded to the student, he/she may be awarded federal student loans.

Federal Stafford student loans itemized in the school’s award letter are generally the best student loans because they have advantageous terms and conditions. Stafford loans generally carry low interest rates, have no payment requirements while the student is enrolled and, for students with the most need, the interest may be subsidized while they are in school. Students who plan to borrow should consider Federal Stafford loans before other types of student loans.

Next, we’ll ask you a few questions to help us determine possible eligibility for awarded and non-awarded student loans.

After that, we’ll estimate loan amounts for Federal Stafford and other awarded student loans. Then we’ll take another look at your Plan Summary."

Comment:  The sequencing of this application requires potential undergraduate borrowers to be introduced to Stafford loans FIRST which is a good thing. 

Step 12:  Three questions about student's status which impact student loans

• Dependent/independent status
• Parent planning to take out loan on student's behalf (Y/N)
• Creditworthy adult available as co-signer (Y/N)

Step 13:  How to Pay for School - Federal Stafford Loans

• Pre-fills estimated Stafford loan amount based on current unsubsidized limits
• Also includes Other Awarded Loans (e.g. Perkins)

Step 14:  Updates Plan Summary with Stafford loan amounts

Step 15:  How to Pay for School - PLUS and Private Education Loans

• Application provides a slider bar to allow student to determine ratio of PLUS and Private Education Loans required to fill the financing GAP
  
  • Total Private Student Loans max out at $100,000
  • Links to table comparing the Sallie Mae PLUS and Private Student Loan options

Comments:

• I thought this was one of the best features of the application as it provides the right context to allow students to see the trade-offs between the PLUS and Private Loans.  Every dollar not taken out with a PLUS loan will require a Private Loan.
• The table with the comparison between the PLUS and Private loan could have been more complete.  For interest rate, it only indicates Fixed for PLUS and Variable for Private rather than the actual rates for PLUS (8.5%) and an interest rate range for Private loans.
• The "Review and compare the features of both Sallie Mae PLUS and Private student loan options" link was annoying as it could not be printed and required scrolling to the bottom of the page so that it would appear on the screen. 

Step 16:  Additional Private Loan Information (if private loan was selected in Step 14 ONLY)

• Asks if Parent/Guardian and Student will be each applying for private loans or not.

Step 17:  Provides completed Plan Summary

• Includes estimated student loan monthly payments for parents and students
• Provides information on how estimated student loan payment is calculated
  • Private student loan monthly payment assumes fixed rate of 8.31% sourced from BankRate.com Private Student Loan National Index

Comments: 

• This BankRate.com figure would seem to significantly understate the interest rates on student loans, particularly those provided by Sallie Mae. An FBR analyst indicated in a recent research note that SLM's average interest rates on private loans are LIBOR + 980bp.  With one month LIBOR currently at 2.18%, that would equate to about 12% + fees of up to 6% (3% origination, 3% repayment).  This is about 50% higher than the BankRate.com figures and significantly understates the monthy repayment figures. 

• After doing some digging, it is unclear how the BankRate.com Private Student Loan National Index is calculated.  However, after going through multiple iterations of their 5 step process to get student loan rates, I consistently only got two lenders:  Chase and Next Student, with the rates varying from 8.7% to 9.75%.   

Step 18:  Review Loan Repayment Details

• Repayment Breakdown and Schedule

• Provides detail on the monthly repayment amounts for each of the loans taken out (Stafford, PLUS, Private)
• Provides interest accrued amounts for each loan prior to repayment

Comment:  It would be useful to show various repayment options (e.g., interest paid while in school, principal and interest paid in school) and the impact on total loan payments.  There is a link to "Learn ways you can lower your student loan payment," which lists various repayment options.  I think showing the dollar impact of these payment plans can have a powerful impact on modifying behavior. 

• Student Loan Debt-to-Income Ratio

• Student enters Expected Annual Gross Income after Graduation and gets the resultant debt-to-income ratio calculated based on pre-filled information regarding project monthly student loan payment.  
• Includes Student Loan Repayment Manageability Barometer to help students calibrate a reasonable level of debt-to-income. 

Comments:

• I think it would be useful to sequence students automatically through this Step 18 rather than make it optional for them (borrowers must click on Review Loan Repayment Options to get here). 
• Future releases of the application might include data about starting salaries by college major (with an inflation factor), so student borrowers have some standard to compare against. 

Other

• Saving your work requires a user to register on the site.   
• Users can print their work without registering. 

Comments

[collegeloanconsultant]

A dropdown box for the student's state (when selected, a list of possible state grants and scholarships could pop up) would also be useful.