A free online tool launched by Sallie Mae Corporation promises to help families of prospective college students build a plan to pay for college.
The largest private student loan company in the country, Sallie Mae launched its Education Investment Planner (EIP) in early August to help students, parents and financial aid officers come up with a personalized plan regarding how to pay for college. The planner also aims to motivate payers to think about the long term payment process.
“Sallie Mae developed the EIP in response to feedback from customers and higher education policy advocates indicating that families need better ways to assess the cost of college and their choices for footing the bill,” Patricia Christel, a spokeswoman for Sallie Mae, wrote in an e-mail. “The planner makes it easy for a family to think about the total cost of a degree, say, four years for a bachelor’s degree, rather than planning how to pay just one year at a time.”
But some financial aid experts, including Washington University Director of Student Financial Services Bill Witbrodt, believe that the new tool, though well intentioned, may mislead students.
“It’s nice that it exposes folks to the financial aid process [who] might never become familiar with it,” Witbrodt said. “It’s dangerous because it could give folks the wrong impression [of how this process works].”
The tool works in three steps. First, it estimates total college costs using information submitted by colleges to a national database. Then, the EIP asks the user to provide information on the amount of money the family can contribute toward the degree from various sources, including income, savings accounts, relatives, friends and projections of various grants and scholarships for which the student may qualify.
If more funds are needed, the tool then estimates the maximum level of federal loans a student would be eligible for based on the student’s year in college.
Finally, the planner asks the user to choose a mix of federal Parent or Grad PLUS loans with private loans.
The tool can indicate how much money the student should expect to receive from these sources. If the student requires loans, the planner estimates the monthly repayment on those loans after graduation and the annual income needed for the repayment of the loans to be manageable for the student.
“We encourage students and parents to use EIP to explore several different scenarios for how they might pay for college to see what works best for them,” Christel said.
The income earned by the student following graduation can be of prime importance. According to a Sallie Mae study of 1,400 college students and parents, about 70 percent of families said that the student’s expected post-graduation income was not a factor in their decisions.
“We hope that EIP will help to change this statistic—so that more and more families are reporting that they are thinking carefully about a student’s likely starting salary as part of their decisions to take out student loans,” Christel said.
Witbrodt, however, said that the tool fails to take into account intangible factors, such as whether the family is a single-parent or a two-parent family.
“It’s always dangerous for a prospective student to work on one of these calculations because a lot more goes into it than just raw data,” he said. “Students can fill out an app and give all the information, and then a computer can figure out how much the student is supposed to need based on the information, but then it has to be refined.”
According to Christel, the tool is not intended to determine how much a family can to contribute, and it asks the family to estimate that number.
Witbrodt recommends that students and their families rely more on financial aid officers at their respective institutions for financial guidance.
“I think it could be dangerous because it could discourage students from applying to the best schools, making them appear too expensive, and with this instrument the students and their family is out there on their own,” Witbrodt said.
Witbrodt also noted that the planner does not take into account some other available loans.
“Financial aid folks have knowledge and access to other forms for financial aid besides these student loans,” Witbrodt said. “Our financial aid office knows about different trusts that have been established to provide no interest loans and other sources of income.”
Students believe the planner might be useful but they also agree that families should not rely on it alone.
“I think that it could be useful but I also think that when dealing with financial loans and finances in general should be able to research in depth enough the proper and necessary information,” senior Ross Zeitlin said. “I don’t think it’s going to be that helpful.”
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