Credit Usage in Admissions and Financial Aid

1
Credit Usage in Admissions and Financial Aid

• Presenters
• Ciel Senechal, Nina Prikazsky
• Nellie Mae Student Loans

2
Agenda

• PART A Understanding Credit and the State of
  Finance in America Today
• Current personal finance statistics
• Graduate student credit card debt study
• What is the purpose of a credit report?
• What information is contained in a credit report?
• What is credit scoring?
• How are credit reports and scoring used by
  todays industries?
• PART B Discussion Using Credit During the
  Admission and/or Financial Aid Process
• Why make credit part of the process?
• Counseling vs. Evaluating

3
Current Personal Finance StatisticsSource
jumpstartcoalition.org

• Over 40 of Americans live off of 110 of their
  incomes
• More than 63 of American workers are living
  paycheck to paycheck
• The average household pays over 500 per year in
  interest charges from credit cards alone
• 23 of Americans do not save anything at all on a
  monthly basis for long-term goals (retirement,
  education)
• 75 of credit card holders have maxed out at
  least one credit card during the past year.
• In 2001, more people filed for bankruptcy than
  graduated from college.
• Personal bankruptcies reached an all-time record
  high 1.6 million households filed for bankruptcy
  in 2003
• Fastest growing group declaring bankruptcy is
  young adults age 20-24.

4
Nellie Mae Credit Card Study 2003published May
2004

• Older students have more debt
• Business students have the highest credit card
  balances
• Graduate students borrow more, and they benefit
  more
• Statistics on graduate students
• Percentage who have credit cards 96
• Average number of credit cards 6
• Average credit card debt 7,831
• Median credit card debt 3,730
• Percentage with balances exceeding 15,000 15
• http//www.nelliemae.com/library/research_11.html

5
Highlights

• By Age
• 3-fold increase in average from those under 25
  to those over 40 - 5206 to 15,369
• High balances increase with age 6 of those
  under 25 carry 15,000 or more 34 over 40 have
  15,000
• By Degree
• Business students average balances of 11,585,
  44 more than the next-highest group med
  students at 8,040 also oldest at average 30 yrs
  old
• Dental students most conservative 6019
  average balance

6
Highlights

• By Year in School
• Not significant factor, although first/single
  year students are over-represented in sample
• By Location
• West highest average in US at 8,254 students
  abroad highest average debt
• Compared to Other Adults
• Grad students accumulate one and a half times
  more debt than other adults, and carry 3 times as
  many cards

7
Credit Report Purpose

• Provides a history of your credit use to current
  and prospective lenders
• Allows lenders to assess how you currently handle
  credit, and how you have handled credit in the
  past
• Used by organizations that extend credit
• Renting apartments
• Cell phones
• Private student loans
• Homeowners and auto insurance
• Credit card terms
• Credit line limits

8
Credit Report Information

• Information that is included
• Identifying info your name (nickname), current
  previous addresses, phone , ss , date of birth,
  current previous employer
• Specific info about each credit account date
  opened, credit limit/loan amount, monthly payment
  payment pattern
• Public records federal district bankruptcy,
  state county tax liens, monetary judgments
• Credit inquiries names of people/companies
  requesting your credit history

9
Credit Report Information

• Information that is excluded
• Race
• Religious preference
• Personal lifestyle
• Political preference
• Medical history
• Friends
• Criminal record
• Any other unrelated information

10
Credit Reporting Agencies

• 3 Major Credit Reporting Agencies
• Equifax 800-685-1111 www.equifax.com
• Experian 888-397-3742
  www.experian.com
• TransUnion 800-888-4213
  www.transunion.com
• Call, write, or access your report online
• Report is free if youve been denied credit
  within last 60 days or live in certain states
• Effective 12/1/04 residents of western states, AK
  and HI get 1 free copy from each agency annually
• www.annualcreditreport.com or 877 322-8228
• Monitor report regularly for accuracy

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What is a Credit Score?

• Summary of credit report info represented as
  single number, based on mathematical calculation
• Predicts future payment performance how likely
  you are to repay compared to others (potential
  risk to lender)
• FICO (Fair, Isaac Co.) most common score type
  
• FICOs range from 300 to 850 the higher the
  better
• No single cut-off score used by all lenders
• Scores are fluid - recalculated each inquiry
• Not part of your credit report, but may be
  requested with report
• Resource www.myfico.com

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FICO Score Factors

• Your FICO evaluates...
• How you are paying your accounts
• How much money you currently owe
• How long your accounts have been open
• What different types of credit you use
• How much credit you use compared to the amount
  of credit you have available
• How often and how recently you have applied for
  credit

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Whats in Your Score
Source myfico.com
14
Average FICO Scores
Sourcemyfico.com
15
Average Credit Statistics

• Number of credit obligations 11
• 7 revolving credit, 4 installment accounts
• Past payment performance
• 15 have had 90 day or more late
• 20 have had 60 day or more late
• 40 have had 30 day or more late
• Credit Utilization
• 48 carry balances less than 1,000
• 10 carry balances higher than 10,000
• Total available credit 12,190
• Length of average credit history 13 years

Sourcemyfico.com
16
How Lenders Use FICOs

• Determine credit/loan approval or denial
• May determine your interest rate
• Example 30-year fixed mortgage
• National Average Home Lending Rates by FICO
• 200,000 loan amount
• FICO 500-559 560-619 620-674 675-699
  700-719 720-850
• APR 9.289 8.531 7.759
  6.609 6.072 5.947
• Pmt 1,651 1,542 1,434 1,279
  1,208 1,192
• Source www.myfico.com rates as of 7/15/04
• Borrower with lowest FICO score pays 165,136
  more than borrower with highest FICO score

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Part B Using Credit During Admission and/or
Financial Aid Process

• Why become involved in a students personal
  financial situation?
• Increases in tuition and subsequent reliance on
  private loan financing
• Retention
• Accreditation/default rates
• Pressure on aid office to take care of student
• Counseling vs. Evaluating

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Counseling

• Credit report is only one part of a comprehensive
  financial counseling and budgeting program
• Assistance creating a budget, record keeping
  systems, how to pay bills on time
• Counseling can occur during orientation, at end
  of each term, prior to graduation
• Links to money management sites, budgeting sites
• How to read a credit report

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Evaluating

• Things to consider
• Identify purpose and expected outcomes of a
  credit policy or practice
• Permissible purpose
• Consistency
• Mandatory or voluntary?
• Training
• Who will be responsible for compliance, for
  collecting and reviewing data?

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How will school measure effectiveness?

• Retention rates
• Student Satisfaction Surveys
• Applicant quality
• Effort vs. result

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The End

• Questions?