Activity Consumer Installment Loan vs Rent to Own

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					                                                                                       Module 7: Paying for College and Cars
                                                                                                             Instructor Guide


                                                 Table of Contents

Module 7: Paying for College and Cars Layering Table............................................. 4

Getting Started .............................................................................................................. 6
 Purpose........................................................................................................................ 6
 Objectives .................................................................................................................... 6
 Presentation Time ........................................................................................................ 6
 Materials and Equipment.............................................................................................. 6
 Module Activities .......................................................................................................... 6
 Icons............................................................................................................................. 7
 Character Usage .......................................................................................................... 8
 Pre-Assessment ......................................................................................................... 10

Checking In.................................................................................................................. 11
 Welcome .................................................................................................................... 11
 Introduction ................................................................................................................ 11
 Student Introductions ................................................................................................. 11
 Purpose...................................................................................................................... 12
 Objectives .................................................................................................................. 12
 Agenda and Ground Rules......................................................................................... 13
 Student Materials ....................................................................................................... 13

Increasing Your Wealth .............................................................................................. 14
  Installment Loan Basics ............................................................................................. 14
  Loan Approval ............................................................................................................ 20
  Car Loans................................................................................................................... 22
  How to Pay for College............................................................................................... 32

Checking Your Balance .............................................................................................. 41
 Module Summary ....................................................................................................... 41
 Knowledge Check ...................................................................................................... 42

Course Activities ......................................................................................................... 43
 Activity 1: Unsecured Installment Loan Tips............................................................... 44
 Activity 2: Lending Terms ........................................................................................... 45
 Activity 3: Consumer Installment Loan vs. Rent-to-Own ............................................ 46
 Activity 4: Loan Approval............................................................................................ 48
 Activity 5: Car Loans vs. Car Leases.......................................................................... 49
 Activity 6: Beware of Dealer-Lender Relationships .................................................... 55
 Activity 7: Auto Financing Tips ................................................................................... 56
 Activity 8: Beware of Car Title Loans.......................................................................... 57
 Activity 9: Cost of College Calculator ......................................................................... 58
 Activity 10: Grant Programs ....................................................................................... 59
 Activity 11: Federal Loan Programs and Work-Study................................................. 62
 Activity 12: Alternative Ways to Pay for College......................................................... 65


Money Smart for Young Adults Curriculum                                                                             Page 2 of 72
                                                                                     Module 7: Paying for College and Cars
                                                                                                           Instructor Guide


Glossary....................................................................................................................... 66

FOR FURTHER INFORMATION .................................................................................. 70
 For other education-related resources: ...................................................................... 71



Money Smart for Young Adults Modules

Bank On It                                                   Borrowing Basics
An introduction to bank services                             An introduction to credit

Check It Out                                                 Charge It Right
How to choose and keep a checking                            How to make a credit card work for you
account

Setting Financial Goals                                      Paying for College and Cars
How to keep track of your money                              Know what you are borrowing before you
                                                             buy

Pay Yourself First                                           A Roof Over Your Head
Why you should save, save, save                              What home ownership and renting are all
                                                             about




Money Smart for Young Adults Curriculum                                                                           Page 3 of 72
                                                                          Module 7: Paying for College and Cars
                                                                                                Instructor Guide




Module 7: Paying for College and Cars Layering Table
        Please read the Layering Table Instructions in the Guide to Presenting Money Smart for Young Adults.


Pages    Time         Topic                       Subtopic & Activities                   Target Audiences
        (Min.)
11-13      5   Checking In                                                       • Everyone
               Installment Loan          What is an Installment Loan?            • Anyone who wants to get a
               Basics                    Types of Installment Loans                loan for the first time
                                         Secured Installment Loans               • Those with loans who are
                                                                                   considering refinancing
                                         Collateral                              • Anyone considering or
                                         Unsecured Installment Loans               currently using a rent-to-own
14-20      25                            Benefits of Unsecured Loans               service
                                         • Activity 1: Unsecured
                                            Installment Loan Tips
                                         • Activity 2: Cost of Installment
                                            Loans
                                         • Activity 3: Consumer Installment
                                            Loan vs. Rent-to-Own
                  Loan Approval          The Four C’s of Loan Decision           • Everyone who is considering
20-21      10                            Making                                    applying for a loan or credit
                                                                                   card
                                         • Activity 4: Loan Approval
                  Car Loans              Where to Get Information                • Anyone considering
                                         Car Loans vs. Car Leases                  purchasing a car
                                                                                 • Those who own a car and are
                                             •  Activity 5: Car Loans vs. Car
                                                                                   considering refinancing
                                                Leases
                                         Financing a Car                         • Those who own a car and are
                                                                                   considering using the equity to
                                         Where to Obtain a Car Loan                get “quick cash” through a car
                                         Financing Through Banks and               title loan
22-31      30                             Credit Unions
                                         Financing Through the Car Dealer
                                         •   Activity 6: Beware of Dealer-
                                             Lender Relationships
                                         • Activity 7: Auto Financing Tips
                                         Car Title Loans
                                         •   Activity 8: Beware of Car Title
                                             Loans
32-40      25     How to Pay for         Calculate College Costs                 • Individuals who have not yet
                                                                                   started a higher education


        Money Smart for Young Adults Curriculum                                                   Page 4 of 72
                                                                             Module 7: Paying for College and Cars
                                                                                                   Instructor Guide


Module 7: Paying for College and Cars Layering Table
        Please read the Layering Table Instructions in the Guide to Presenting Money Smart for Young Adults.


Pages    Time            Topic                    Subtopic & Activities                      Target Audiences
        (Min.)
                  College                    •   Activity 9: The Cost of              program (such as at a college
                                                 College Calculator                   or university) but plan to do so
                                         Financial Aid Overview                       and need help paying for it.
                                         Tips to Getting Aid                        • Students already in college
                                                                                      who want a basic overview of
                                         How is the FAFSA Used?
                                                                                      the options for financing a
                                         Scholarships and Grants                      college education.
                                            • Activity 10: Grant Programs
                                         Federal Loan Programs
                                             •  Activity 11: Federal Loan
                                                Programs and Work-Study
                                         Repay Your Loan
                                         Exit Counseling
                                             •    Activity 12: Alternative
                                                  Ways to Pay for College
 41        5      Conclusion                                                        • Everyone
                  Knowledge                                                         • Everyone
 42        5
                  Check




        Money Smart for Young Adults Curriculum                                                      Page 5 of 72
                                                                  Module 7: Paying for College and Cars
                                                                                        Instructor Guide



Getting Started
Purpose
The Paying for College and Cars module provides general information on installment loans,
including car loans and student loans.


Objectives
After completing this module, you will be able to:
   •   Differentiate between secured and unsecured installment loans.
   •   Explain why installment loans cost less than rent-to-own services.
   •   Identify the factors lenders use to make loan decisions.
   •   Identify the questions to ask when purchasing a car.
   •   Describe various types of college loans and loan programs.


Presentation Time
The total time is 100 to 120 minutes, depending on how long it takes students to complete the
exercises. You will see a time listed for each topic in the “Increasing Your Wealth” section. Use
these times to personalize the lessons with your students in order to fit your given time period.


Materials and Equipment
The materials and equipment needed to present all of the FDIC Money Smart for Young Adults
Curriculum modules are listed in the Guide to Presenting the Money Smart for Young Adults
Program. Review the Guide thoroughly before presenting this module.


Module Activities
   •   Unsecured Installment Loan Tips
   •   Lending Terms
   •   Consumer Installment Loan v. Rent-to-Own
   •   Loan Approval
   •   Car Loans v. Car Leases
   •   Beware of Dealer-Lender Relationships
   •   Auto Financing Tips
   •   Beware of Car Title Loans



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                                                               Module 7: Paying for College and Cars
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   •   Cost of College Calculator
   •   Grant Programs
   •   Federal Loan Programs
   •   Alternative Ways to Pay for College


Icons
The following icons are used throughout the Instructor Guide and Participant Guide to indicate
what type of activity will be conducted.

                   Learning Objectives                         Flip Chart
                   This is a short list of                     Brainstorm about a
                   what you will be                            topic, draw a diagram,
                   teaching during the                         or write important
                   lesson.                                     points for students to
                                                               remember.

                   Presentation                                Review
                   Present information or                      Summarize the material
                   demonstrate an idea.                        learned in the module
                                                               with your students.




                   Activity                                    Assessment
                   Complete a small                            Show what you know!
                   project or activity to                      Take a short quiz about
                   learn more about the                        what you've learned.
                   topic.



                   Discussion                                  Ask a Question
                   Talk in a small or large                    This is a problem or
                   group about the topic.                      question that you should
                                                               ask students during the
                                                               discussion.



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                                                                 Module 7: Paying for College and Cars
                                                                                       Instructor Guide



Character Usage
The following characters will be used in the situational comic strips in the module to show the
students a real-world application of the content.

                               Jasmine
                               Jasmine is an 11th grade student at Lakeview High School.
                               Her activities include hanging out with friends and going
                               shopping. In school, her favorite subject is English and she
                               also swims on the swim team. She works part time on the
                               weekends around the holidays in her aunt’s gift shop
                               nearby and has a younger brother named Dominique.
                               Jasmine wants to go to college in-state and plans to be an
                               exercise physiologist.

                               Todd
                               Todd, a sophomore at Lakeview High School, is shy with a
                               very sarcastic sense of humor. He is always avoiding
                               social situations because he comes from a lower-income
                               family and cannot afford to do the things the other teens
                               are doing. He is very intelligent and is planning to attend
                               college, but he is not sure how he will pay for it or where
                               he will go. Todd works two part-time jobs at a fast food
                               restaurant and the local grocery store and is saving all he
                               can for college.

                               Ramón
                               Ramón was born in the U.S. but his parents are from Peru;
                               they came here when they were teenagers themselves.
                               Ramón is 18 and preparing to graduate from Lakeview
                               High School. He will be attending college on a soccer
                               scholarship to study mechanical engineering since his
                               dream job is to work for NASA. Ramón has a little sister,
                               and an older brother who is a pilot in the Air Force. He
                               likes to take his girlfriend to the movies or to play mini
                               golf with money he earns working as a technician at a local
                               computer shop.



Money Smart for Young Adults Curriculum                                                  Page 8 of 72
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                               Grace
                               Grace is an artistic student who wants to go to Fashion
                               Design School after she graduates high school, but her
                               parents want her to go to college. She doesn’t really fit in
                               to the “high school scene,” but the teachers really see
                               potential in her to do great things. She works at a clothing
                               store at the mall and spends the rest of her time on her
                               fashion sketches. Since her parents are totally against
                               Grace going to Fashion Design School, she is very careful
                               with her money so she can continue to buy design supplies.




Money Smart for Young Adults Curriculum                                                  Page 9 of 72
                                                                  Module 7: Paying for College and Cars
                                                                                        Instructor Guide



                                  Pre-Assessment

                                      1. What is a secured loan?
                                           a. A loan where the borrower offers collateral
                                                for the loan.
                                           b. A loan where no collateral is needed.
                                           c. A low interest-rate loan.
                                           d. A loan that can be approved quickly.

                                      2. When you finance a car, the car then becomes
                                         ___________ for the loan.
                                            a. payment
                                            b. credit
                                            c. collateral
                                            d. the title

                                      3. Why would you want to avoid a rent-to-own situation?
                                           a. Because you would pay a large interest rate.
                                           b. Because it may cost more in the end.
                                           c. Because you are the legal owner of the property.
                                           d. Because you do not have to purchase the item.

                                      4. Which of the following do you NOT need to consider
                                         when deciding on whether to finance or lease a car?
                                            a. Wear and tear.
                                            b. Monthly payments.
                                            c. Mileage limitations.
                                            d. Cost of fuel.

                                      5. What is the first step in applying for financial aid?
                                           a. Talk with you financial advisor.
                                           b. Complete the FAFSA.
                                           c. Apply to a college.
                                           d. Calculate the cost of college.




Money Smart for Young Adults Curriculum                                                   Page 10 of 72
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                                  Checking In

                                  Welcome

                                  Welcome to Paying for College and Cars! Understanding
                                  installment loans and student loans is important when using
                                  loans to make purchases and pay for college. This training will
                                  help you understand what installment loans and student loans are
                                  all about.




Slide 1: Paying for College
and Cars

                                  Introduction

                                  Introduce yourself and share a little of your background and
                                  experience.




                                  Student Introductions

                                  Before we get started, I would like to know a little bit about you.

                                  Ask students to introduce themselves and state their
                                  expectations, questions, and/or concerns about what will be
                                  covered during the training. If there is anything that will not be
                                  covered in the course, tell students where the information can be
                                  obtained (e.g., another module, a Web site). Record their
                                  course-related expectations, questions, and concerns on chart


Money Smart for Young Adults Curriculum                                                   Page 11 of 72
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                                                                                        Instructor Guide



                                  paper and tape to the walls in the classroom.

                                  Purpose

                                  The Paying for College and Cars module provides general
                                  information about installment loans, including car loans and
                                  student loans. When you have completed this module, you will
                                  be able to describe the characteristics of consumer installment
                                  loans and be able to choose what student loans are best for you
                                  to use.




Slide 2: Purpose

                                  Objectives

                                  After completing this module, you will be able to:
                                      •   Differentiate between secured and unsecured installment
                                          loans.
                                      •   Explain why installment loans cost less than rent-to-own
                                          services.
                                      •   Identify the factors lenders use to make loan decisions.
                                      •   Identify the questions to ask when purchasing a car.
                                      •   Describe various types of college loans and loan
                                          programs.




Slide 3: Objectives




Money Smart for Young Adults Curriculum                                                   Page 12 of 72
                                                                  Module 7: Paying for College and Cars
                                                                                        Instructor Guide



                                  Agenda and Ground Rules

                                  This course has a lot of important information. It may take us
                                  longer than one class period to get through all of it. We want to
                                  be sure we use a variety of training methods. I will be presenting
                                  material to you in the form of lectures. However, there will also
                                  be classroom and small group discussions and exercises that
                                  give you a chance to practice what you have learned.

                                  If you have experience or knowledge in some aspect of the
                                  training material, please share your ideas with the class. One of
                                  the best ways to learn is from each other. You might be aware of
                                  some method that has worked well for you or some pitfall to
                                  avoid. Your contribution to the class will make the learning
                                  experience that much better.



                                  Student Materials

Refer students to the             Each of you has a copy of the Paying for College and Cars
Participant Guide. Review         Participant Guide. It contains:
its contents and                      •   Materials and instructions you will need to complete the
organization.                             exercises.
                                      •   Checklists and tip sheets related to the module content.
                                      •   Space for you to take notes.
                                      •   A glossary of the terms used in this module.

                                  Do you have any questions about the module overview?




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Refer students to comic strip on Slide 4.

                                  Increasing Your Wealth

              25 minutes          Installment Loan Basics

                                  You can see in the comic that Todd and Ramón are both finding
                                  out that college is going to be very expensive. Even though
                                  Ramón has a scholarship, he will soon find out that there are a
                                  lot of other items and services to pay for during their post-
                                  secondary education. What are some ways Todd and Ramón can
                                  pay for their expenses? Perhaps the best way is through an
                                  installment loan.

                                  What is an Installment Loan?
                                  An installment loan is a loan that is repaid in equal monthly
                                  payments or installments for a specific period of time, usually
                                  several years.



Slide 5: Installment Loans




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                                                                  Module 7: Paying for College and Cars
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                                  Can anyone give me an example of items that can be purchased
                                  with an installment loan?

                                  If the following are not mentioned, add:
                                      •   Cars
                                      •   Furniture
                                      •   Computers
                                      •   Household appliances

                                  Types of Installment Loans
                                  There are two types of installment loans:
                                     • Secured loans
                                     • Unsecured loans

                                  Let’s look at secured and unsecured loans.

                                  Secured Installment Loans
                                  A secured installment loan is one where the borrower offers
                                  collateral for the loan. The borrower gives up the collateral to
                                  the lender if the loan is not paid back as agreed.



Slide 6: Types of
Installment Loans




Slide 7: Secured Loans




Money Smart for Young Adults Curriculum                                                   Page 15 of 72
                                                                   Module 7: Paying for College and Cars
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                                  Can anyone tell me what collateral means?




                                  Collateral
                                  Collateral is security you provide a lender. Giving the lender
                                  collateral means that you promise an asset you own, such as
                                  your car, to the lender in case you cannot repay the loan.

                                  Generally, if the collateral is not enough to repay your loan, you
                                  are still responsible for:
                                      •   The remaining balance.
                                      •   Any fees and interest associated with the loan.

                                  Unsecured Installment Loans
                                  Unsecured installment loans – sometimes called personal or
                                  signature loans – can be used for a variety of personal expenses
                                  such as education or medical expenses. An unsecured loan is a
                                  loan that is not secured by collateral:
                                      •   There is no collateral requirement for an unsecured loan.
Slide 8: Unsecured                        The terms of the loan might range from 1 to 5 years.
Installment Loans                     •   Since credit cards have become popular, the use of
                                          unsecured consumer installment loans has declined.
                                          However, some financial institutions still offer
                                          unsecured installment loans.

                                  Benefits of Unsecured Loans
                                  Some benefits of unsecured installment loans include:
                                      •   Fast approval time.
                                      •   Interest rates might be lower than credit card rates.
Slide 9: Benefits of
Unsecured Installment
Loans




Money Smart for Young Adults Curriculum                                                    Page 16 of 72
                                                                   Module 7: Paying for College and Cars
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                                  Can you think of any drawbacks to unsecured loans?

                                  If the following are not mentioned, add:
                                      •   Interest rates are generally higher than on secured
                                          loans.
                                      •   Lenders might have stricter credit requirements since
                                          there is no collateral to collect if the borrower does not
                                          pay.

                                  Activity 1: Unsecured Installment Loan Tips
                                  Let’s look at some things you should keep in mind when getting
                                  an unsecured installment loan.

                                  Review the tips with students, using Activity 1 to guide you.
Refer students to Activity
                                  Begin a discussion with the students about why you would want
1: Unsecured Installment
                                  an Unsecured Installment Loan rather than using a credit card.
Loan Tips on page 27 in
                                  There are no wrong answers; discuss each thought as it is
their Participant Guide.
                                  brought up. Ask students if they can think of other tips for taking
See page 44 in your
                                  out loans – secured or unsecured. Answer any questions
Instructor Guide.
                                  students may have.




Slide 10: Activity 1

                                  Do you have any questions about unsecured installment loans?




Money Smart for Young Adults Curriculum                                                    Page 17 of 72
                                                                   Module 7: Paying for College and Cars
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                                  Activity 2: Cost of Installment Loans
                                  There are four terms to keep in mind when looking at
                                  installment loans:
                                      •   Annual percentage rate (APR)
Refer students to Activity            •   Fixed-rate loan
2: Lending Terms on page              •   Variable-rate loan
28 in their Participant               •   Finance charge
Guide.
See page 45 in your               Let’s look at the lending terms that are related to cost in Activity
Instructor Guide.                 2 in your Participant Guide.

                                  Review the cost terms (APR, fixed-rate loan, variable-rate loan,
                                  and finance charge) with students, using Activity 2 to guide you.




Slide 11: Cost Terms
Related to Installment
Loans




Slide 12: Activity 2

                                  Now, let’s see if you can tell me which term I am describing.

                                  Present the following scenarios to students. After the students
                                  have answered, ask them to explain why they chose their answer
                                  and how the term is defined in the scenario.


Money Smart for Young Adults Curriculum                                                    Page 18 of 72
                                                                  Module 7: Paying for College and Cars
                                                                                        Instructor Guide




                                  1. Stephanie took out a car loan with a 10 percent interest rate
                                  and paid $100 in loan application fees. What rate reflects the
                                  interest paid plus the application fee?
                                  Answer: APR

                                  2. Michael took out a loan to buy a computer. He must make 24
                                  equal payments over 2 years at 10 percent interest. Which
                                  lending term best describes this type of loan?

                                  Answer: Fixed-rate loan

                                  3. Kevin took out a loan for a car. He must pay $3,000 in
                                  interest, service charges, and loan fees. What lending term best
                                  describes these costs?

                                  Answer: Finance charges

                                  Cheaper Than Alternatives
                                  A loan can be expensive, but it is usually cheaper than some
                                  alternatives.

                                  Activity 3: Consumer Installment Loan vs. Rent-to-Own
Refer students to Activity
                                  Has anyone used or does anyone know of someone who has
3: Consumer Installment
                                  used rent-to-own services?
Loan Versus Rent-to-
Own on page 29 in their
                                  Ask for a show of hands.
Participant Guide.
 See page 46 in your
                                  Although there are many similarities between secured
Instructor Guide.
                                  installment loans and rent-to-own services, there are very
                                  important differences. Let’s look at what they are.

                                  Use Activity 3 to guide you. Divide students into two groups.
                                  One group will read about the characteristics of the Consumer
                                  Installment Loans while the other group reads about the Rent-
                                  to-Own Services. Each group is to come up with five reasons



Money Smart for Young Adults Curriculum                                                   Page 19 of 72
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                                                                                        Instructor Guide



                                  why their service is better to use and present the reasons to the
                                  other side of the class. After the students hold their “debate,”
                                  continue with the scenario about Grace wanting to buy a new
                                  television for her apartment. Conclude the activity by explaining
                                  how rent-to-own services may seem like a good deal, but cost
                                  more in the end, as shown in the scenario.
Slide 13: Activity 3

                                  Do you have any questions about why consumer installment
                                  loans cost less than rent-to-own services?




10 minutes                        Loan Approval

                                  The Four Cs of Loan Decision Making
                                  Lenders generally review the Four Cs to decide whether to make
                                  a loan to you. The Four Cs are capacity, capital, character, and
                                  collateral.

                                  Let’s take a brief look at each one:
                                      •   Capacity refers to your present and future ability to
                                          meet your payment obligations. This includes whether
                                          you have enough income to pay your bills and other
                                          debts.
                                      •   Capital refers to the value of your assets and your net
                                          worth.
Slide 14: The Four Cs
                                      •   Character refers to how you have paid bills or debts in
                                          the past. Your credit report is one tool lenders use to
                                          consider your willingness to repay your debts.
                                      •   Collateral refers to property or assets offered to secure
                                          the loan.




Money Smart for Young Adults Curriculum                                                   Page 20 of 72
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                                  Activity 4: Loan Approval
                                  Using the questions in Activity 4, ask one student to play the
                                  role of “loan officer” and ask other students to try to apply for a
                                  loan. Each student will need to come up with a reason for the
                                  loan, loan amount, and reasons why they should be able to
Refer students to Activity
                                  obtain the loan.
4: Loan Approval on page
31 in their Participant
                                  For example, a student may want to get a $5,000 loan to pay for
Guide.
                                  a used car he wants to purchase and he’s had a job for the past
See page 48 in your
                                  year where he makes $500 a month. The loan officer can go
Instructor Guide.
                                  through the list of questions and then decide if the loan is
                                  approved. After the loan officer has made a decision, facilitate a
                                  discussion with the rest of the class about why the decision was
                                  made.




Slide 15: Activity 4

                                  Do you have any questions about the Four Cs?

                                  Refer students to the Borrowing Basics module for more
                                  information on the Four Cs.

                                  Now let’s talk about a specific type of secured installment loan:
                                  car loans.




Money Smart for Young Adults Curriculum                                                   Page 21 of 72
                                                                   Module 7: Paying for College and Cars
                                                                                         Instructor Guide



30 minutes                        Car Loans

                                  Where to Get Information
                                  There are many decisions you must make before purchasing or
                                  leasing a car. Let’s first talk about some points you need to
                                  consider when looking for a car.


                                  What are some questions to ask yourself when looking for a car?

                                  Record students’ responses on chart paper. Give these answers
                                  if students do not provide them:
                                      •   Should I get a new or used car?
                                      •   Should I lease or buy?
                                      •   How much can I afford?
                                      •   Should I trade in my old car?

                                  The Federal Trade Commission (FTC) has many publications
                                  that can help you answer these questions so you can get a car at
                                  the best price. At the FTC Web site, you can download
                                  brochures such as:
                                      •   Buying a New Car – which includes tips on how to
                                          choose a car, information on negotiating the price, and
                                          considerations when financing a car.
                                      •   Buying a Used Car – which includes information
                                          explaining different payment options, dealer sales,
                                          private sales, and warranties.

                                  Other FTC publications include:
                                      •   Financing a Car
                                      •   Fueling Up
                                      •   Leasing a Car
                                      •   Renting a Car

                                  To save potentially hundreds or even thousands of dollars, it
                                  pays to consult these resources before you go car shopping.



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                                  Write the Web address http://www.ftc.gov/ for the students to
                                  copy down.

                                  Now let’s look at the differences between car loans and car
                                  leases.

                                  Car Loans vs. Car Leases
                                  There are several factors that you need to consider when
                                  deciding between getting a car loan or a car lease. These
                                  include:
                                      • Ownership potential.
                                      • Wear and tear.
                                      • Monthly payments.
                                      • Mileage limitations.
                                      • Auto insurance.
                                      • Cost.

                                  If you are not able to use the PowerPoint presentation, write
                                  these factors on a flip chart for students to view.

Slide 16: Car Loans vs. Car       The minimum requirements for obtaining a car loan or lease
Leases                            vary. In general, you and/or the co-qualifier must be at least 18
                                  years of age. The lender will ensure you have sufficient income
                                  to pay the loan, and will pull your credit report based on your
                                  Social Security number. The lender will also need to know how
                                  long you have held your present and past jobs, as well as how
                                  long you have been at your current and possibly past
                                  residences.




Money Smart for Young Adults Curriculum                                                  Page 23 of 72
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                                                                                        Instructor Guide



                                  Activity 5: Car Loans vs. Car Leases
                                  Review the differences with the students, using Activity 5 to
                                  guide you, by highlighting a few of the factors and reading the
                                  chart located on pages 49-50. Ask students to read different
                                  parts of the chart. After the students have a general overview of
Refer students to Activity
                                  the differences between a car loan and a car lease, you can
5: Car Loans Versus Car
                                  continue on with either Part I or Part II of this activity
Leases on page 32 in their
                                  according to the knowledge and participation levels of your
Participant Guide.
                                  students.
See page 49 in your
Instructor Guide.
                                  Part I
                                  If your students do not have any prior knowledge about
                                  financing or leasing a car, or are timid to participate, distribute
                                  the scripts on pages 51 – 54 and ask students to read the various
                                  characters’ parts. The Narrator part of the script will ask
                                  questions at the end of each skit. Use these questions to
                                  facilitate a discussion about the actions of each character.

Slide 17: Activity 5              After each script has been read, facilitate a discussion about
                                  what questions should be asked when you are purchasing a car.
                                  Correct questions include, but are not limited to:
                                      •   How long is the loan term?
                                      •   What is the interest rate on the loan?
                                      •   What will the monthly payment be?
                                      •   What other costs are involved in owning a car?
                                      •   What is the mileage limitation when leasing a car?
                                      •   How long is the lease term?
                                      •   What is the purchase price after the lease is up?



                                  Part II
                                  If your students already have an understanding of car buying
                                  and leasing, they may need a more challenging exercise. In this
                                  case, ask the students to come up with their own presentation to
                                  the class about the car buying process. One group should show



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                                                                                        Instructor Guide



                                  how to lease a car and the other should show what is involved in
                                  financing a car.

                                  Your job is to come up with a skit to show the rest of the class
                                  an example of someone leasing or financing a car. Roles should
                                  include: the car salesman, the teenager wanting to purchase a
                                  car, and the parent/guardian for the teenager. Other roles can be
                                  added as your groups feel necessary. Use the chart on page 32 in
                                  your Participant Guide to find the benefits and disadvantages as
                                  well as “sell” points to help the car salesman get the teenager to
                                  purchase the car. If you are the teenager, use what you have
                                  learned in this lesson about loans, loan decision-making, and the
                                  car buying process. Ask me if you have any questions.

                                  Allow 10 minutes for students to work on the skits. After each
                                  group has presented, ask a student from another group to
                                  summarize what the skit was about and the pros and cons of
                                  either leasing or financing.

                                  Facilitate a discussion about what questions should be asked
                                  when you are purchasing a car. Correct questions include, but
                                  are not limited to:
                                      •   How long is the loan term?
                                      •   What is the interest rate on the loan?
                                      •   What will the monthly payment be?
                                      •   What other costs are involved in owning a car?
                                      •   What is the mileage limitation when leasing a car?
                                      •   How long is the lease term?
                                      •   What is the purchase price after the lease is up?




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                                  Do you have any questions about the differences between car
                                  loans and car leases?

                                  It is important to understand the differences and carefully
                                  consider all the costs and benefits before deciding whether to
                                  buy or lease. To help you understand the cost of buying a car,
                                  let’s talk about getting a car loan.

                                  Financing a Car
                                  Getting a car loan is also referred to as financing a car. A car
                                  loan can be used to purchase a new or used car. Your car
                                  becomes your collateral for the loan, which means the lender
                                  will hold the car title until the loan is paid off. The title indicates
                                  who owns the car.

                                  If you do not pay off the loan, the bank can take back the car
                                  and then sell it to get the remaining loan amount back. New car
                                  loans typically are for 3 to 7 years and used car loans 2 to 5
                                  years.

Slide 18: Financing a Car         A car loan might be one of the biggest expenses you have.
                                  Therefore, if you decide to purchase a car, you should know
                                  exactly how much you are paying for the car and exactly how
                                  much you need to borrow.

                                  When shopping for a car, don’t negotiate or make a decision
                                  based just on the monthly payment, even if the car dealer
                                  suggests that you do. The total amount you will pay depends
                                  on the price of the car you negotiate, the APR, and the
                                  length of the loan.

                                  Write the following example on chart paper as you explain it.

                                  You decide to buy a used car and have saved $2,500 from your
                                  summer job for a down payment. You find a car you like and
                                  the monthly payment is $225 for 60 months with your $2,500
                                  down payment. The tax and registration fee is $575 and the



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                                  APR is 12.10 percent. With this information you figure the total
                                  cost of the car to be:

                                                          $225 monthly payment
                                                        x    60 number of payments
                                                        $13,500 total of payments



                                                        $13,500   total of payments
                                                         $2,500   down payment
                                                       + $575     tax and registration fee
                                                        $16,575   total cost of car

                                  Now, we can figure out how much the loan actually costs by
                                  comparing $16,575 to the cost of the car if you were to pay
                                  cash. If you pay cash for the car and do not take out a loan, the
                                  car dealer tells you he will give you a deal so that the car costs
                                  $12,595 plus tax and registration:

                                                       $12,595 + $575 = $13,170

                                  Now that you know the cost of the car if you paid cash and the
                                  cost of a 60-month loan, you can figure out the difference which
                                  would be the cost of your loan.

                                          $16,575 – $13,170 = $3,405 (the interest for the loan)

                                  When considering a car loan, be sure to shop around for the best
                                  deal before you make a commitment.

                                  Think about the lending terms we’ve reviewed. What should
                                  you use to compare loans for the best buy?

                                  Answer: APR




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                                  Where to Obtain a Car Loan
                                  You can obtain a car loan from:
                                     • Banks.
                                     • Credit unions.
                                     • Thrifts.
                                     • Finance companies.
                                     • Car dealerships.




Slide 19: Where to Obtain
Car Loans



                                  Financing through Banks and Credit Unions
                                  The financial institution where you already have an account is a
                                  good place to start when you need to finance a car. But, still be
                                  sure to shop around to make sure you are getting the best deal.

                                  Most lenders can even pre-approve you for a car loan before you
                                  go car shopping. This means the financial institution calculates
                                  how much money you can borrow to buy your car. This is
Slide 20: Loan Pre-               typically a free service and does not require you to accept a loan
Approval                          offer from the institution.

                                  Financing through the Car Dealer
                                  Car dealers may also offer to finance your car loan.

                                  Dealers sometimes even offer low loan rates for specific cars.
                                  To get the lowest advertised rate, you might have to:
                                      •   Make a large down payment.
Slide 21: When Dealers                •   Agree to a short loan term, usually 3 years or less.
Offer Low Interest Rates              •   Have an excellent credit history.
                                      •Pay additional fees or purchase additional products that
                                       are not necessarily reflected in the APR.
                                  Remember that a dealer offering a low interest rate is likely to


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                                  be less willing to negotiate on the price of the car. Therefore,
                                  you may find that it’s more affordable to negotiate a lower price
                                  on the car and finance through your own financial institution
                                  than it is to accept the dealer’s offer of a low-interest rate loan.



Slide 22: Participation Fee

                                  Do you have any questions so far?




                                  Activity 6: Beware of Dealer-Lender Relationships
                                  Just as it’s important to shop for the best price on the car, you
                                  can see why it is important to shop around for the best financing
                                  for your car.

Refer students to Activity
                                  Sometimes, dealers try to make extra profit through the loan
6: Beware of Dealer-
                                  process. A dealer might have business relationships with many
Lender Relationships on
                                  different lenders, so when you ask the dealer for financing, they
page 34 in their Participant
                                  might call several lenders.
Guide.
 See page 55 in your
                                  Instead of picking the lender with the best rate for you, some
Instructor Guide.
                                  dealers might pick the lender that makes the most profit for the
                                  dealership. For referring you and other customers, the lender
                                  might pay money to the dealership. Therefore, be aware that
                                  financing obtained by the dealer, even if the dealer contacts
                                  lenders on your behalf may not be the best deal you can get.

                                  Review instructions with students, using Activity 6 to guide you.
                                  Give students 5 minutes to complete the exercise.
Slide 23: Beware of Dealer-
Lender Relationships




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Slide 24: Activity 6

                                  Activity 7: Auto Financing Tips
                                  Review the tips with students, using Activity 7 to guide you.
                                  Relate student suggestions with the tips on the activity sheet.
                                  Answer any questions students may have.
Refer students to Activity
7: Auto Financing Tips on
page 35 in their Participant
Guide.
See page 56 in your
Instructor Guide.




Slide 25: Activity 7

                                  Do you have any questions about car financing?


                                  Once you own your car, you also need to be careful of title
                                  loans.




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                                  Car Title Loans
                                  Title loans are short-term, usually 1 month, loans that allow you
                                  to use your car as collateral to borrow money. They may sound
                                  like a good way to get quick cash, but they can be very costly.




Slide 26: Car Title Loans

                                  Activity 8: Beware of Car Title Loans
                                  Let’s look at an example of how costly a title loan can be.

                                  Review the example, using Activity 8 to guide you. Answer any
                                  questions students may have.
Refer students to Activity
8: Beware of Car Title
Loans on page 36 in their
Participant Guide.
See page 57 in your
Instructor Guide.




Slide 27: Activity 8




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                                  Do you have any questions about car title loans?

                                  Now that you know about different car loans, it is time to talk
                                  about another kind of loan: a student loan.




25 minutes                        How to Pay for College

                                  College is a large expense that will need a lot of planning and
                                  research. Some of you may not be attending college; you may
                                  be going on to vocational or trade school or be entering the
                                  workforce.


                                  How many of you plan on attending college?

                                  Ask students to raise their hands if they plan on attending
                                  college after high school. You can use this information to
                                  present the rest of the lesson. If there are students who do not
                                  plan on attending college, make sure you include statements
                                  geared towards vocational/trade schools and those students
                                  entering the workforce. For example, consider mentioning that
                                  certain financing options do or do not apply if you go to a trade
                                  school. Students can view the school’s Web site to see what
                                  financial aid applies. This can also open up a discussion about
                                  what options are available after high school (i.e., art school,
                                  design school, trade school, military, two-year programs,
                                  entering the workforce).

                                  Calculate College Costs
                                  When deciding on how to pay for college, tuition is not the only
                                  thing you will need to consider. There are many other costs such
                                  as books, fees, and housing that add up to a significant amount
                                  of money.



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                                  The cost of the college should be considered along with the
                                  academic programs of a school. College comparison shopping
                                  should include options such as two-year community colleges
                                  and schools close to home, which can help save on room and
                                  board.


Slide 28: Cost of College
Calculator

                                  What else will you have to pay for while you are at college?




                                  Activity 9: The Cost of College Calculator
                                  The Cost of College Calculator will help you determine your
                                  expenses and estimate your total available income for college.
                                  You will need to consider all of your resources and the total cost
                                  of your education. Even if you do not plan on attending college,
Refer students to Activity
                                  this calculator will give you an idea about the costs you will
9: The Cost of College
                                  have after high school whether you are moving to your own
Calculator on page 37 in
                                  apartment, buying a car, or going to another educational
their Participant Guide.
                                  institution. Take a moment to review the worksheet. Is there
See page 58 in your
                                  anything there that surprises you, that you didn’t consider?
Instructor Guide.

                                  What other things might you include that are NOT listed on the
                                  worksheet?

                                  To complete the worksheet, enter numbers in the blanks. Some
                                  of the categories are broken down so that you can estimate the
                                  total cost. When you've finished entering your estimates, add
                                  together all of the numbers in the Expense column and all of the
Slide 29: Activity 9              numbers in the Income column. Then subtract the Expenses
                                  from the Income to find the leftover cost for which you will be
                                  responsible.



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                                  Review Activity 9 with students. Explain that they can take this
                                  home and sit down with their parents/guardians to get a better
                                  idea of how much college will cost. Each of the financial aid
                                  programs are explained throughout the rest of the module if
                                  they have questions about acronyms.



                                  Do you have any questions about how to calculate college
                                  costs? Remember that there are many costs aside from just
                                  tuition!

                                  Inform students they should visit http://www.ed.gov/students/ for
                                  an abundance of resources relating to college, financing,
                                  student aid, etc.

                                  Financial Aid Overview
                                  The FAFSA (Free Application for Federal Student Aid) is the
                                  first step in the financial aid process. Use it to apply for federal
                                  student financial aid, such as the Pell grant, student loans, and
                                  college work-study. In addition, most states and schools use
                                  FAFSA information to award their financial aid.

                                  Inform students they can find out more and complete the FAFSA
                                  online at http://www.fafsa.ed.gov/.

                                  Tips to Getting Aid
                                  Financial aid administrators and guidance counselors agree that
                                  the following tips speed up the application process:

Slide 30: Tips to Getting
                                      •   Read the Instructions
Aid
                                          Many questions on the FAFSA are straightforward, like
                                          your Social Security number. But many questions are
                                          asked specifically for purposes of student financial aid.
                                          Common words like "household," "investments," and
                                          even "parent" may have special meaning. Read all
                                          instructions carefully.




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                                      •   Apply Early
                                          State and school deadlines will vary and tend to be early.
                                          Check with them to find out their exact deadline dates.
                                          Your FAFSA will be processed if it is received on or
                                          before the deadline.
                                      •   Complete Your Tax Return
                                          It is recommended that you (and your parents if you are a
                                          dependent student) complete your tax return, if
                                          applicable, before filling out your FAFSA. This will
                                          make completing the FAFSA easier because tax
                                          information is required.

                                      •   File Electronically
                                          Complete and submit your FAFSA online. It is the
                                          fastest and most accurate way to apply for student aid.
                                      •   Additional Forms
                                          Many schools and states rely on the FAFSA as the single
                                          application for student aid. However, your school or
                                          state may require additional forms. Check with your state
                                          agency and the financial aid office at the school you plan
                                          to attend to find out if they require additional forms.

                                  How is the FAFSA used?
                                  Your FAFSA responses are entered into a formula known as the
                                  Federal Methodology, which is required by the Higher
                                  Education Act of 1965. The result is your Expected Family
                                  Contribution, or EFC. The EFC is a number that measures your
                                  family’s financial strength. It is subtracted from the cost of
                                  attendance at the school(s) you plan to attend to determine your
                                  eligibility for federal student aid.

                                  Do you have any questions about applying for or obtaining
                                  financial aid?




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                                  Scholarships and Grants
                                  A scholarship is money for college that you will not be expected
                                  to repay. Scholarships are definitely worth seeking!



                                  Scholarships sponsored by colleges are often designated for
                                  students who fit a particular profile. For example, students who
                                  are from the college's home state, hold a specified grade point
                                  average, enroll in a particular major, or bring special talent, such
                                  as in athletics or in music. Other outside scholarships may be
                                  available to students whose parents work for a particular
                                  company or to students who are eligible for scholarships
Slide 31: Scholarships            sponsored by religious or civic organizations. You will need to
                                  check with each college to see what scholarships are available.

                                  At the same time, though, be very wary of companies that
                                  guarantee or promise you scholarships, grants or fantastic
                                  financial aid packages in exchange for a fee. Many of these are
                                  scams and you will simply lose your money and risk giving your
                                  personal information to a potentially unscrupulous business or
                                  individual.

                                  Inform students they can find out more about scholarships at
                                  http://www.ftc.gov/bcp/menus/consumer/education/scholarships.
                                  shtm.

                                  Grants, like scholarships, do not have to be repaid and are
                                  offered to a variety of students. Let’s look at some different
                                  grant programs.




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                                  Activity 10: Grant Programs
                                  Review the different types of grants using Activity 10 to guide
                                  you. Divide the class into four groups. Write each of the four
                                  grant programs on the top of four separate sheets of flip chart
                                  paper and post around the room. Instruct each group to come
Refer students to Activity
                                  up with a list of points to describe their assigned grant program.
10: Grant Programs on
                                  Each group will then present what they found to the class so all
page 38 in their Participant
                                  students have an understanding of each grant program.
Guide.
See page 59 in your
                                  Ask the students to think about what types of scholarships or
Instructor Guide.
                                  grants they qualify for. Remind them that there are a variety of
                                  scholarships and grant programs depending on the college they
                                  plan to attend. There are even scholarships for specific traits,
                                  such as left-handedness, so make sure they do their research!




Slide 32: Activity 10

                                  Federal Loan Programs
                                  If grants and scholarships do not add up to be enough to pay for
                                  college, you can look into federal loan programs. You must
                                  complete the FAFSA before finding out what loan programs for
                                  which you are eligible. If you think you need a loan, do your
                                  homework and ask lots of questions before settling on one.
                                  Among the many options are federal government loan programs,
                                  including PLUS loans for parents and Perkins and Stafford loans
                                  for students.

                                  There are also private loans. There are often big differences
                                  between private loans and federal student loans. A private
Slide 33: Federal Loan            lender likely will offer both types of loans, so be sure to ask
Programs                          questions to fully understand the pros and cons of any loan
                                  product. For example, ask about fees, when you will have to
                                  start paying back your loan, the interest rate, and whether you



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                                  will have to pay interest while in school. Remember that you
                                  must repay the loan, so don’t borrow more than you need for
                                  school-related expenses.

                                  Your state's department of education and the college's financial
                                  aid department are good resources when deciding on which type
                                  of loan is best for you. Don't completely depend on your school
                                  to pick the right loan or lender, though. Some colleges and
                                  private lenders have been scrutinized for conflicts of interest in
                                  steering students toward "preferred lenders." These preferred
                                  lenders may not give you the best rates, so be sure to always do
                                  your own research and ask questions.

                                  Activity 11: Federal Loan Programs and Work-Study
                                  Review the different types of loan programs using Activity 11 to
                                  guide you. Give a brief overview of each loan and students can
                                  read the details on their own. Ask for five volunteers or choose
                                  five students. One student will play the role of the loan officer
Refer students to Activity
                                  and the other four students will be inquiring about each of the
11: Federal Loan Programs
                                  four federal loan programs. Using the questions and answers in
on page 40 in their
                                  Activity 10, the five students will sit in front of the class and role
Participant Guide.
                                  play as a loan officer and students who are interested in the
See page 62 in your
                                  loan programs. After the presentation is complete, ask the class
Instructor Guide.
                                  what they saw were the benefits and/or drawbacks to each of the
                                  loan programs.

                                  For more information on Federal Loan Programs, direct
                                  students to http://studentaid.ed.gov.




Slide 34: Activity 11




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                                  Repay Your Loan
                                  After you graduate, leave school, or drop below half-time
                                  enrollment, you have a period of time before you must begin
                                  repayment. While you need to look carefully at correspondence
                                  from your lender for the exact repayment start date, the “grace
                                  period” will generally be:
                                      •   Six months for a Federal (FFEL) or Direct Stafford
                                          Loan.
                                      •   Nine months for Federal Perkins Loans.




Slide 35: Repay Your Loan

                                  Exit Counseling
                                  You'll receive information about repayment. Your loan provider
                                  will notify you when you have to start making loan payments. It
                                  is very important to make your full loan payment according to
                                  your repayment schedule. If you don't, you could end up in
                                  default, which has serious consequences. Student loans are real
                                  loans—just as real as car loans or mortgages. You have to pay
                                  back your student loans.

                                  Depending on the type of loan you have, some graduates who
                                  get jobs in certain fields may even be eligible for special perks
                                  such as forgiveness of part of their student loan balance.

                                  You can also explore options to manage your student loan
                                  payments after graduation, such as loan consolidation. But be
                                  sure to fully research the pros and cons of consolidation before
                                  signing any paperwork. Student loan consolidation can be used
                                  to:
                                      •   Reduce your monthly student loan payment.
                                      •   Simplify your finances by making one payment per
                                          month.




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                                  Do you have any questions about scholarships, grants, or loans?

                                  College costs are increasing every year and if student loans
                                  aren’t enough, here are several other ways you may be able to
                                  pay for school.

                                  Activity 12: Alternative Ways to Pay for College
                                  Ask students if they know of any other alternative ways to pay
                                  for college. Have students record the alternative methods in
                                  Activity 12. If students do not mention, add the following
                                  recommendations:
Refer students to Activity            •   Take accelerated classes that can cram a semester's
12: Alternative Ways to                   worth of material into a shorter session.
Pay for College on page 42
                                      •   Take general education requirements at a local
in their Participant Guide.               community college to cut down on tuition and room and
See page 65 in your                       board costs. Credits earned at a community college can
Instructor Guide.                         then be transferred to a more expensive school.
                                      •   There are tuition-free schools; however, you will have to
                                          work while you attend class:
                                             • New York: The Cooper Union; The Webb
                                                 Institute
                                             • Kentucky: Berea College; Alice Lloyd College
                                             • Missouri: College of the Ozarks

                                      •   Some schools offer locked-in tuition rates so that while
                                          you are at the institution, you are guaranteed the same
Slide 36: Activity 12                     tuition each year.
                                      •   After graduating, you may be able to cancel part or all
                                          of your federal education debt by working in certain
                                          professional jobs that serve low-income communities or
                                          by volunteering. Loan-forgiveness programs are
                                          available to everyone from teachers to nurses to
                                          government employees.

                                      •   Your parents can borrow against their home or
                                          retirement account. Parents who do not qualify for a tax
                                          deduction on loans for higher education may want to
                                          consider using a home equity loan if they qualify for a
                                          tax break on the interest. You will need to sit down with
                                          your parents to discuss this option.


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Refer students to comic strip on Slide 37.


                                  Checking Your Balance
                                  Module Summary

                                  Congratulations! You have completed the Paying for College
                                  and Cars module. We have covered a lot of information today
                                  about financing two big goals. You learned about:
                                      •   Secured and unsecured loans.
                                      •   Car loans and auto financing.
                                      •   Some of the ways to finance a college education.
                                      •   The Four Cs of loan decisions.

                                  Review what was covered in the module. Review the chart
                                  papers with students’ expectations, questions, and concerns to
                                  make sure they have all been covered.

Slide 38: Paying for College
                                  You now know what to consider when shopping for these loans.
and Cars

                                  Do you have any final questions?




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                                                                                        Instructor Guide



                                  Knowledge Check

                                      1. What is a secured loan?
                                           a. A loan where the borrower offers collateral
                                                for the loan.
                                           b. A loan where no collateral is needed.
                                           c. A low interest-rate loan.
                                           d. A loan that can be approved quickly.

                                      2. When you finance a car, the car then becomes
                                         ___________ for the loan.
                                            a. payment
Slide 39: Assess Your
                                            b. credit
Knowledge
                                            c. collateral
                                            d. the title

                                      3. Why would you want to avoid a rent-to-own situation?
                                           a. Because you would pay a large interest rate.
                                           b. Because it may cost more in the end.
                                           c. Because you are the legal owner of the property.
                                           d. Because you do not have to purchase the item.

                                      4. Which of the following do you NOT need to consider
                                         when deciding on whether to finance or lease a car?
                                            a. Wear and tear.
                                            b. Monthly payments.
                                            c. Mileage limitations.
                                            d. Cost of fuel.

                                      5. What is the first step in applying for financial aid?
                                           a. Talk with you financial advisor.
                                           b. Complete the FAFSA.
                                           c. Apply to a college.
                                           d. Calculate the cost of college.




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                                                                               Instructor Guide




                                     Course Activities




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                                                                                      Instructor Guide


Activity 1: Unsecured Installment Loan Tips

   •   You may find it beneficial to consolidate your loans. If you plan to use an unsecured
       installment loan to consolidate your other loans, make sure the new APR is lower than
       your current APR.

   •   As with any other loan, you could become overwhelmed and unable to make the
       payments if you take on too much debt. If you have trouble paying your bills, you might
       consider getting credit counseling.

   •   Beware of debt consolidation traps. These are loans that you get in order to help pay off
       what you owe on several credit cards. They can be either secured loans, such as home
       equity loans, or unsecured loans.

   •   Beware of companies and Web sites that charge high rates and application fees. Look for
       hidden charges. Ask for references before signing an agreement.

   •   Choosing the wrong debt consolidation loan can make matters worse and put you further
       into debt. Shop around so that you have the information to decide on the debt
       consolidation loan that best meets your needs and budget. Research different lenders and
       collect quotes before deciding.

   •   Good credit counseling agencies can help you budget and negotiate with your lenders to
       make loan payments more manageable.

   To learn more about how to choose a credit counselor, review the Money Smart for Young
   Adults module Charge It Right. The Pay Yourself First module also has helpful budgeting
   tips.




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Activity 2: Lending Terms

Loan Terms

        Installment loan
        A loan that is repaid in equal monthly payments or installments for a specific period,
        usually several years.

        Secured loan
        A loan where the borrower offers collateral for the loan. The borrower gives up his or
        her right to the collateral if the loan is not paid back as agreed.

        Collateral
        The asset (anything owned that has monetary value) a borrower promises to give to the
        lender if the borrower does not pay back the loan.

        Unsecured loan
        A loan where the lender does not require collateral.


Cost Terms

        Annual percentage rate (APR)
        A measure of the cost of a loan expressed as a yearly percentage rate. When shopping
        for the best loan rates, compare the APRs rather than the interest rates, since APRs
        reflect the cost of interest and other finance charges.

        Fixed-rate loan
        A loan that has an interest rate that stays the same throughout the term of the loan. Most
        installment loans have fixed rates.

        Variable-rate loan
        A loan that has an interest rate that might change during any period of the loan, as
        written in the loan agreement or contract.

        Finance charge
        The dollar amount the loan will cost. It includes items such as interest, service charges,
        and loan fees.




Money Smart for Young Adults Curriculum                                                  Page 45 of 72
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Activity 3: Consumer Installment Loan vs. Rent-to-Own
Loans Rent-to-Own Services
       Consumer Installment Loan                              Rent-to-Own Services
 Secured installment loans are loans that are     Rent-to-own allows you to use an item for a
 repaid in equal monthly payments for a           period of time. You make weekly or monthly
 specific period and are secured by the item      payments in exchange for using the item. You
 you purchased. You can use the item you          do not have to purchase the item. However, if
 purchased while you are paying.                  you decide to purchase the item, the store
                                                  may set up a plan for you to rent the item
                                                  until it is paid off. The store is the legal owner
                                                  until you make the final payment. If you miss
                                                  a payment, the store may repossess the
                                                  property, which means you do not own it.
 With installment loans, you are charged          Rent-to-own agreements are technically not
 interest and you can shop for the best deal by   loans, so no “interest” is charged and, often,
 comparing APRs.                                  no credit check is performed. The difference
                                                  between the cash price and your total
                                                  payment is just like interest you would pay on
                                                  a loan.
 Generally, installment loans are less            By making the weekly payments, you will
 expensive than rent-to-own agreements.           pay much more than if you paid cash or used
                                                  an installment loan.

Grace is moving into her own apartment after graduation and wants to buy a television. She is
trying to decide between getting an installment loan and using a rent-to-own service for the large
purchase. A local electronics store was selling the television for $1,500. A nearby rent-to-own
store advertised the same model for $55 every other week. After seeing the advertisement, Grace
went to the rent-to-own store to get more details. The manager told Grace she would own the
television in 52 payments or 2 years. Grace multiplied $55 x 52 weeks and got $2,860. Grace
also found out that if she misses one payment, the rent-to-own service will take the television
back. If she makes 50 payments on time – that is 50 x $55 = $2,750 – and misses payment 51,
she loses the television and is out $2,750.



                                                                                         (continued)



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The manager told Grace that with rent-to-own, she could return the television with no obligation.
Grace did another quick calculation. If she used the rent-to-own company and returned the
television after a year, she would pay $1,430 – that is 26 weeks x $55.

Help Grace decide which is better for her budget, rent-to-own or an installment loan. She
decided to purchase the television at the electronics store for $1,500. She obtained a 2-year
installment loan with a 12 percent APR. She made timely payments and paid off the loan in 2
years. She paid a total of $1,695. Her monthly payments for the installment loan were $70.61,
which was less than what she would have paid with a rent-to-own agreement – that is $55 x 52
weeks = $2,860.

Give the students the following chart as the answer to the exercise:


          Consumer Installment Loan                              Rent-to-Own
   Advertised price = $1,500                      Advertised price = $55 every other week
   12% APR for 2 years                            (hidden costs)
   $70.61 x 24 months = $1,695
                                                  $55 x 52 weeks = $2,860
   Grace saved $1,165


Although $55 every other week sounds affordable, it actually costs more in the end. You can see
how rent-to-own services may seem appealing, but really aren’t the best deals.




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Activity 4: Loan Approval
When you are applying for a loan, the loan officer may ask the following questions regarding the
Four Cs of Lending.


Capacity
 • Do you have a job?
 • How much money do you make each month?
 • What are your monthly expenses?


Capital
 • How much money do you have in your checking and savings accounts?
 • Do you have investments or other assets (e.g., a car)?


Character
 • Have you had credit in the past?
 • How many credit accounts do you have?


Collateral
 • Do you have assets to provide to secure the loan beyond your capacity to pay it off?



There are some characteristics that show that a borrower does not have Capacity, Capital,
Character and/or Collateral and should not receive a loan:
 • Consistently making late payments.
 • Filing for bankruptcy.
 • Having property repossessed or foreclosed.
 • Having a court order requiring a debtor to pay money to the creditor.



Do you have what it takes to get a loan?
    ______________________________________________________________________
    ______________________________________________________________________
    ______________________________________________________________________
    ______________________________________________________________________
    ______________________________________________________________________



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Activity 5: Car Loans vs. Car Leases

       Factors                    Car Loans                            Car Leases
   Ownership          Car belongs to you and the bank     You are essentially renting the car
   Potential          that gave you the loan until you    from the dealership. The lease is
                      have paid off the loan. Then, the   like a rental agreement. You make
                      car becomes yours.                  monthly payments to the dealership
                                                          for a set number of years. But the
                                                          car does not belong to you. When
                                                          the lease ends, you have to return
                                                          the car to the dealership.
   Wear and Tear      No additional costs for wear and    Most leases charge you extra
                      tear in your loan agreement.        money for any damage found at the
                                                          end of the lease that goes beyond
                                                          “normal wear and tear.”
   Monthly            Payments are higher; however,       Payments are lower because you
   Payments           at the end of the loan, you own     are not purchasing the car; the
                      the car.                            dealership still owns it. Once your
                                                          lease ends, you turn the car back in
                                                          and the dealership can sell it or
                                                          lease it to another customer. You
                                                          may decide to purchase the car at
                                                          the end of the lease; however, the
                                                          total cost ends up being more than
                                                          it would have been if you had
                                                          bought the car instead of leasing it.




                                                                                         (continued)


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       Factors                    Car Loans                              Car Leases
   Mileage            No mileage restrictions.              Leases restrict the number of miles
   Limitations                                              you can drive the car each year. If
                                                            you exceed the mileage allowed,
                                                            you have to pay the dealer for each
                                                            mile over the limit, according to
                                                            your lease. For example, a dealer
                                                            may charge you 15 cents for every
                                                            mile that you drive over 24,000
                                                            miles in 2 years. If you drive the car
                                                            an additional 3,000 miles, you
                                                            would owe the dealer $450 for
                                                            those miles.
   Auto               May cost more during the loan         Usually costs more if you lease a
   Insurance*         than it will after the loan is        car than it does if you buy. Most car
                      repaid because the lender may         leases require you to carry higher
                      require more coverage, but            levels of coverage than purchase
                      usually still less expensive than     agreements do. Some insurance
                      auto insurance for leased cars.       carriers may also consider leasing
                                                            to be a higher risk than purchasing.
   Cost               Probably will cost more in the        Probably will cost less in the short
                      short term than a car lease; your     term than a car purchase; your total
                      total loan and monthly payments       loan and monthly payments are
                      are likely to be higher. However,     likely to be lower. However, if you
                      once the loan is repaid, the car is   exceed the mileage on a leased car
                      yours.                                and/or decide to buy it outright
                                                            once your lease has expired, it will
                                                            end up costing you more.


*Make sure you find out what the requirements are and get a cost estimate from your insurance
company before you decide whether to lease or buy. Remember, you need insurance coverage
for your car before you can legally drive it away from the dealership.




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                                  Financing My First Car

Characters:
   •   Big Al, the car salesman
   •   Jasmine
   •   Rick, Jasmine’s father
   •   Narrator


Narrator: Jasmine and Rick are walking around Big Al’s Super Used Cars lot and Big Al
approaches them as they are looking at a blue sports car.

Al: Hello there, folks! How can I help you this beautiful afternoon?

Rick: Well, my daughter here is looking to buy her first car.

Al (looking at Jasmine): Well alright. What type of car are you looking for?

Jasmine: I’d like a car with a stereo, air conditioning, sun roof….

Rick (cutting off Jasmine): She wants the best deal you have on the lot…she’s paying for this
herself!

Jasmine: Yeah, I know I have to pay for it myself, Dad! I really like this blue one! How much is
it?

Al: The sticker here says $10,000…(Jasmine sighs and frowns.)…but I think I could drop that
down to $9,250.

Jasmine: Well, how much would that be per month?

Al: That depends on the financing. It could be $200 a month for five years with no down
payment. Do you have money for a down payment?

Jasmine: Uh, no. I didn’t realize I’d need to put money down on it!

Al: Do you have a job?


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Jasmine: Yes, I usually make about $200 a month from babysitting. I don’t really have any other
expenses, but I don’t want to spend everything I make on a car!

Al: I have this nice red car over here. (Al, Jasmine, and Rick walk towards another car.) You can
finance this one for $125 a month and then it’s yours to own after six years.

Jasmine: I can afford that!!

Rick: Remember, you’ll need to pay for insurance, maintenance, gas, and everything else that
comes along with owning a car…

Jasmine: I really want this one, Dad, and I can afford it!

Al: Let’s just step into my office and we can get this little lady her car. (Al, Jasmine, and Rick
walk into Al’s office and all sit down.) Ok, now will you be co-signing this loan for your
daughter?

Rick: Yes, she’s only 17, so I will be co-signing. (Turning to his daughter.) Now you know I
expect you to pay the bill on time every month, right? I expect you to be responsible!

Jasmine: Yes, Dad, I know. I’ll make sure I have the money to pay for everything…including
fuzzy dice!! (Everyone laughs.)

Narrator: Jasmine ends up financing the car for $125 per month for six years. She doesn’t
realize that one reason the payment was lower per month was because the term of the loan was
extended – meaning she paid the loan back over a longer time period. This means that she paid
more in interest than if the term were shorter. After driving the car for two years, Jasmine went
to start the car to go to work one morning and it made a funny noise and wouldn’t start. It ended
up costing $2,000 in repairs! Jasmine was disappointed to find out that the $500 in insurance
she paid every year didn’t cover the repair. Was financing this car the right idea for Jasmine?
What should she have looked out for?




Money Smart for Young Adults Curriculum                                                    Page 52 of 72
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                                    Leasing My First Car

Characters:
   •   Big Al, the car salesman
   •   Todd
   •   Sharon, Todd’s mother
   •   Narrator


Narrator: Todd and Sharon are walking around the Big Al’s Super Used Cars lot and Big Al
approaches them as they are looking at a green truck.

Al: Hello there, folks! How can I help you this beautiful afternoon?

Todd: I want a car!!

Sharon: (Giving her son a stern look.) Um, yes, my son here is looking for a car he can
purchase.

Todd: No, Mom, I want to lease a car. I’m going to college in two years and I won’t be able to
take my car on campus. I’m just looking for a car for work and to drive to school and stuff until I
graduate.

Al: Sounds like you know what you want!

Todd: Yes sir. It’ll cost me less in the end and I don’t want the long-term loan right now. I only
plan on driving around town and I’ll return the car when the lease expires. So how much does
this cool green truck cost? (Points to a nearby truck he has been looking at.)

Al: I can lease that to you for $200 a month. Is that in your price range?

Todd: Wow, that’s a lot more than I thought! I don’t have a job right now so coming up with
$200 a month may be difficult. What if I promise that I’ll get a job?

Sharon: You can’t just promise to get a job, Todd! I thought you said you had saved some
money from working at the restaurant this summer?



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Todd: Yeah, I have money for a down payment and the first few payments, but I’ll need to find a
job for the rest.

Al: Maybe you need to come back when you have a job and know that you can afford this nice
truck?

Todd: No! I want it now, I told all my friends that I’d drive them to the big game next weekend!
I know I can find a job in the next few weeks and I have the money for the down payment and
the first month. (Turns to Sharon.) Mom, can I please get this truck??

Sharon: It’s your decision. Your father and I do not want to cover the payments if you can’t
make them.

Todd: I know, I know! Ok, I want to get it!!

Al: Alright, just step into my office and we’ll see what we can do!

Narrator: Sharon leases the car on Todd’s behalf. Sharon and Todd agree that Todd is
responsible for the payment and all expenses. Todd finds a part-time job; however, he didn’t
realize that gas would be so expensive when he is the one always driving his friends around.
Every month he struggles to make the payment. He has to give up buying items like CDs and
clothing just so he can make the lease payment. After two years, Todd turns the leased car back
in to the dealership and realizes that he has paid $4,800 for the car and now has nothing to show
for it! Was this the right choice for Todd? What could he have done better?




Money Smart for Young Adults Curriculum                                                  Page 54 of 72
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Activity 6: Beware of Dealer-Lender Relationships

Instructions
   • Read the scenario carefully.
   •    Write down some things that Sam could have done differently.
   •    Be prepared to explain your answers.

Scenario
Sam assumed the dealer would give him the best deal and did not shop around for a car loan.
After all, he was able to negotiate the best price at this dealership − $6,000 for a used pickup
truck. The dealer told Sam that if he put up $1,000 as a down payment, he could get a car loan
for 16 percent. Sam accepted the agreement without researching other possibilities.

This is what happened:
   •    The car dealer had called several lenders in the area for Sam. Lender A told the dealer
        that Sam qualified for a $5,000 car loan for as low as 10 percent.
   •    However, Lender A had an agreement with the dealer stating that for any rate over 10
        percent, the lender and the dealer would split the profit. This gives the dealer an incentive
        to work with Lender A and to charge Sam a high interest rate.
   •    The difference between a 16 percent loan and 10 percent loan is $921. That means Sam
        paid $921 more than he had to. The dealer and Lender A split the $921.

What could Sam have done differently?

       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________




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Activity 7: Auto Financing Tips

   •   Shop around for auto financing before going to the dealer. Get pre-approved for the loan
       by a bank or credit union.

   •   Compare APRs from local banks, thrifts, credit unions, such as by reviewing Web sites
       and newspapers.

   •   Order a copy of your credit report and correct any errors a few months before shopping
       for a car regardless of whether you think you have a credit history.

   •   Make the largest down payment you can. Beware of a low down payment or long
       repayment plans. The more you borrow and the longer you take to pay the loan, the more
       interest you will pay and the more your car will cost you in the end. Additionally, if you
       have to sell your car in the first few years, you could owe the lender more than the car is
       worth.

   •   Consider paying for the tags, title, and taxes separately, rather than financing them. This
       can reduce the amount of interest you will pay.

   •   If you are going to apply for a loan at the dealership, make sure you first negotiate the
       best price on the car. Beware of dealers who insist on asking you how much you can
       afford to pay every month. These dealers might be trying to make you stretch out the
       term of the loan to make the loan sound more affordable. However, extending the length
       of the loan will increase your total cost.

   •   Be aware of penalties. Some lenders might charge you for paying off your loan early.

   •   Service contracts, credit insurance, extended warranties, and other options are not
       required and can be costly over the term of the loan.

   •   Be wary of ads that promise loans for people with bad credit. These deals often require a
       higher down payment or have a very high APR.




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Activity 8: Beware of Car Title Loans

Instructions
   • Read the scenario carefully.
   •    Write down some things that Michael could have done differently.
   •    Be prepared to explain your answers.

Scenario
Michael had $500 in unexpected medical expenses and needed a loan. He saw a television
commercial that declared, "If you have a car, you can get a loan." Michael had a car worth about
$2,500, so he decided to apply for the loan. The finance company Michael saw in the
commercial loaned him $500 at 20 percent interest per month. Note that the finance company did
not advertise the APR. The finance company took his car title as collateral and Michael kept the
car. With a 20 percent monthly interest rate on the $500 loan, Michael owed $600 at the end of
the month -- the $500 loan plus $100 in interest. Michael could not repay the $600 at the end of
the month. The lender could have repossessed the car. However, the lender gave Michael the
option of just paying the $100 interest and gave him until the next month to pay the loan. At the
end of the next month, Michael still owed $600 ($500 loan + another $100 in interest) and still
could not repay. By the end of one year, Michael had paid $1,200 in interest for his $500 loan −
$100 every month = $1,200! This equates to a loan with a 240 percent APR. Finally, Michael
received a bonus from work and was able to pay off the $600.

This is an expensive way to borrow money! What could Michael have done differently?

       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
       ______________________________________________________________________
        _____________________________________________________________________




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Activity 9: Cost of College Calculator
                    Expenses                                    Income
Education                                 $   Family Contribution                      $
 Tuition                                       Parents
 Books                                           You
 Fees                                            Friends/Relatives
 Supplies
Transportation                            $   Financial Assistance                     $
 Bus/Air/Train                                  Summer Job Savings
 Car Payment                                     Other Savings
 Car Repair/Insurance
Housing                                   $   Financial Aid Grants                     $
 Mortgage                                       Pell
 Dormitory/Rent                                  FSEOG
 Utlities                                        ACG/ SMART
 Telephone                                       Institutional
                                                 State
Food                                      $   Federal Direct Loans                     $
 Room & Board Plan                             Subsidized Stafford
 Groceries                                       Unsubsidized Stafford
Health                                    $   Loans                                    $
 Insurance                                     Federal Perkins
 Doctor/Prescriptions                            FFEL
                                                 State
Personal/Miscellaneous                    $   Employment                               $
 Laundry/Cleaning                              Federal Work-Study
 Drug Store Items                                Institutional
 Clothing                                        Off-Campus
Entertainment                             $   Scholarships                             $
In-School Interest                        $   Other Income/Resources                   $
  Direct Unsubsidized Loan
Emergencies                               $
Other Expenses                            $
  Credit Card Payment
Total Expenses                            $   Total Income                             $


                         Income – Expenses = $                   Your Balance


Money Smart for Young Adults Curriculum                                                     Page 58 of 72
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Activity 10: Grant Programs

Federal Pell Grant
A Federal Pell Grant, unlike a loan, does not have to be repaid. Pell Grants are awarded usually
only to undergraduate students who have not earned a bachelor's or a professional degree. Pell
Grants are considered a foundation of federal financial aid, to which aid from other federal and
nonfederal sources might be added.

How much can I get?
The maximum Pell Grant award changes each award year depending on program funding. The
maximum award for the 2007-08 award year (July 1, 2008 to June 30, 2009) is $4,731. The
amount you get depends not only on your financial need, but also on your costs to attend school,
your status as a full-time or part-time student, and your plans to attend school for a full academic
year or less.

If I am eligible, how will I get the Pell Grant money?
Your school can apply Pell Grant funds to your school costs, pay you directly (usually by check),
or combine these methods. The school must tell you in writing how much your award will be and
how and when you'll be paid. Schools must disburse funds at least once per term (semester,
trimester, or quarter). Schools that do not use semesters, trimesters, or quarters must disburse
funds at least twice per academic year.


Federal Supplemental Educational Opportunity Grant (FSEOG)
The Federal Supplemental Educational Opportunity Grant (FSEOG) program is for
undergraduates with exceptional financial need. Pell Grant recipients with the lowest expected
family contributions (EFCs) will be considered first for a FSEOG. Just like Pell Grants, the
FSEOG does not have to be repaid.

How much can I get?
You can receive between $100 and $4,000 a year, depending on when you apply, your financial
need, the funding at the school you're attending, and the policies of the financial aid office at
your school.




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If I am eligible, how will I get the FSEOG money?
If you are eligible, your school will credit your account, pay you directly (usually by check), or
combine these methods. Your school must pay you at least once per term (semester, trimester, or
quarter). Schools that do not use semesters, trimesters, or quarters must disburse funds at least
twice per academic year.


Academic Competitiveness Grant
The Academic Competitiveness Grant was made available for the first time for the 2006-2007
school year for first year college students who graduated from high school after January 1, 2006,
and for second year college students who graduated from high school after January 1, 2005. The
Academic Competitiveness Grant award is in addition to the student's Pell Grant award.

How Much Can A Student Receive?
An Academic Competitiveness Grant will provide up to $750 for the first year of undergraduate
study and up to $1,300 for the second year of undergraduate study to full-time students who are
eligible for a Federal Pell Grant and who had successfully completed a rigorous high school
program, as determined by the state or local education agency and recognized by the Secretary of
Education. Second year students must maintain a cumulative grade point average (GPA) of at
least 3.0.


The National Science & Mathematics Access to Retain Talent Grant
(National SMART Grant)
The National Science and Mathematics Access to Retain Talent Grant, also known as the
National SMART Grant is available during the third and fourth years of undergraduate study to
full-time students who are eligible for the Federal Pell Grant and who are majoring in physical,
life, or computer sciences, mathematics, technology, or engineering or in a foreign language
determined critical to national security. The student must also have maintained a cumulative
grade point average (GPA) of at least 3.0 in coursework required for the major. The National
SMART Grant award is in addition to the student's Pell Grant award.

How Much Can A Student Receive?
A National SMART Grant will provide up to $4,000 for each of the third and fourth years of
undergraduate study to full-time students who are eligible for a Federal Pell Grant and who are
majoring in physical, life, or computer sciences, mathematics, technology, or engineering or in a
foreign language determined critical to national security.



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Institutional Grants
Colleges provide institutional grants to help make up the difference between college costs and
what a family can be expected to contribute through income, savings, loans, and student
earnings.

Other institutional grants, known as merit awards or merit scholarships, are awarded on the basis
of academic achievement. Some merit awards are offered only to students whose families
demonstrate financial need; others are awarded without regard to a family's finances.

Some grants come with special privileges or obligations. You'll want to find out about the types
of grants awarded by each college you are considering.




Money Smart for Young Adults Curriculum                                                 Page 61 of 72
                                                                 Module 7: Paying for College and Cars
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Activity 11: Federal Loan Programs and Work-Study

Federal Work-Study (FWS)
Federal Work-Study (FWS) provides part-time jobs for undergraduate and graduate students
with financial need, allowing them to earn money to help pay education expenses. The program
encourages community service work and work related to the recipient's course of study.

Will I be paid the same as I would in any other job?
You will be paid by the hour if you are an undergraduate. No FWS student may be paid by
commission or fee. Your school must pay you directly (unless you direct otherwise) and at least
monthly. Wages for the program must equal at least the current federal minimum wage but might
be higher, depending on the type of work you do and the skills required. The amount you earn
cannot exceed your total FWS award. When assigning work hours, your employer or financial
aid administrator will consider your award amount, your class schedule, and your academic
progress.

What kinds of jobs are there in Federal Work-Study?
If you work on campus, you will usually work for your school. If you work off campus, your
employer will usually be a private nonprofit organization or a public agency, and the work
performed must be in the public interest.

Your school might have agreements with private for-profit employers for Federal Work-Study
jobs. This type of job must be relevant to your course of study (to the maximum extent possible).
If you attend a career school, there might be further restrictions on the jobs you can be assigned.


Federal Perkins Loans
A Federal Perkins Loan is a low-interest (5 percent) loan for both undergraduate and graduate
students with exceptional financial need. Federal Perkins Loans are made through a school's
financial aid office. Your school is your lender, and the loan is made with government funds.
You must repay this loan to your school.

Your school will either pay you directly (usually by check) or apply your loan to your school
charges. You'll receive the loan in at least two payments during the academic year.




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How much can I borrow?
You can borrow up to $4,000 for each year of undergraduate study (the total you can borrow as
an undergraduate is $20,000). The amount you receive depends on when you apply, your
financial need, and the funding level at the school.

Other than interest, is there a charge for this loan?
No, there are no other charges. However, if you skip a payment, if it's late, or if you make less
than a full payment, you might have to pay a late charge plus any collection costs.

When do I pay it back?
If you are attending school at least half time, you have nine months after you graduate, leave
school, or drop below half-time status before you must begin repayment. This is called a "grace
period." If you are attending less than half time, check with your college or career school to find
out how long your grace period will be.


Stafford Loans (FFELs and Direct Loans)
In addition to Perkins Loans, the U.S. Department of Education administers the Federal Family
Education Loan (FFEL) Program and the William D. Ford Federal Direct Loan (Direct Loan)
Program. Both the FFEL and Direct Loan programs consist of what are generally known as
Stafford Loans (for students) and PLUS Loans (for parents).

Schools generally participate in either the FFEL or Direct Loan program but sometimes
participate in both. Under the Direct Loan Program, the funds for your loan come directly from
the federal government. Funds for your FFEL will come from a bank, credit union, or other
lender that participates in the program. Eligibility rules and loan amounts are identical under
both programs, but repayment plans differ somewhat.

How can I get a FFEL or Direct Loan?
For either type of loan, you must fill out a FAFSA. After your FAFSA is processed, your school
will review the results and will inform you about your loan eligibility. You also will have to sign
a promissory note, a binding legal document that lists the conditions under which you're
borrowing and the terms under which you agree to repay your loan.




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PLUS Loans (Parent Loans)
Parents can borrow a PLUS Loan to help pay your education expenses if you are a dependent
undergraduate student enrolled at least half time in an eligible program at an eligible school.
PLUS Loans are available through the Federal Family Education Loan (FFEL) Program and the
William D. Ford Federal Direct Loan (Direct Loan) Program. Your parents can get either loan,
but not both, for you during the same enrollment period. They also must have an acceptable
credit history.




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Activity 12: Alternative Ways to Pay for College

What are other ways to pay for college?


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                                          Glossary




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Annual Percentage Rate (APR)
The APR is a measure of the cost of your loan expressed as a yearly percentage rate. When
shopping for the best loan rates, compare the APRs rather than the interest rates since APRs
reflect the cost of interest and other finance charges.

Capacity
One of the Four Cs of loan decision-making, capacity is your present and future ability to meet
your payment obligations. This includes whether you have enough income to pay your bills and
other debts.

Capital
One of the Four Cs of loan decision-making, capital refers to the value of your assets and your
net worth.

Car Lease
A car lease is an agreement between you and the car dealer, manufacturer, or other company that
allows you to essentially rent the car for a period of time. You make monthly payments, but the
car does not belong to you. If you are allowed to end the lease early, you will likely pay
substantial penalties or other fees. When the lease ends, you have to return the car to the
dealership.

Car Title
This is a legal document that indicates who owns the car. The bank that lends you the money to
pay for the car keeps the title until you pay off the loan.

Character
One of the Four Cs of loan decision-making, character refers to how you have paid bills or debts
in the past. Your credit report is one tool lenders use to consider your willingness to repay your
debts.

Collateral
One of the Four Cs of loan-decision making, collateral is a piece of property or an asset that you
promise to give to the bank if you cannot pay back the loan.

Equity
Equity is the value of your home (or other asset) minus the debt.



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Expected Family Contribution (EFC)
EFC is the number that measures your family’s financial strength. It is subtracted from the cost
of attendance at the school(s) you plan to attend. The EFC determines your eligibility for federal
student aid.

FAFSA (Free Application for Federal Student Aid)
The FAFSA is the first step in the financial aid process. Use it to apply for federal student
financial aid, such as the Pell grant, student loans, and college work-study. In addition, most
states and schools use FAFSA information to award their financial aid.

Federal Methodology
A formula used to determine your Expected Family Income (EFC) after completing the FAFSA.

Finance Charge
The finance charge is the dollar amount the loan will cost you. It includes items such as interest,
service charges, and loan fees.

Fixed-Rate Loan
This is a loan that has an interest rate that stays the same throughout the term of the loan. Most
installment loans have fixed rates.

Grants
Grants, like scholarships, do not have to be repaid and are offered to a variety of students.

Installment Loan
This is a loan that is repaid in equal monthly payments, or installments, for a specific period of
time, usually several years.

Loan Pre-Approval
Loan pre-approval occurs when a financial institution calculates how much money you can
borrow. It is typically a free service and does not obligate you to accept a loan offer from the
institution.

Participation Fee
A participation fee is money that some dealer finance companies might charge you to get a low
interest rate.




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Scholarship
A scholarship is money for college that you will not be expected to repay. Scholarships
sponsored by colleges are often designated for students who satisfy certain criteria or other
factors. Other outside scholarships may be available to students whose parents work for a
particular company or to students who are eligible for scholarships sponsored by church or civic
organizations.

Secured Loan
A secured loan is one where the borrower offers collateral for the loan.

Title Loan
A title loan is a short-term (usually one month) loan that allows you to use your car as collateral
to obtain money.

Unsecured Loan
An unsecured loan is a loan that is not secured by collateral.

Variable-Rate Loan
This is a loan that has an interest rate that might change during the period of the loan. The loan
agreement or contract will tell you if and how the rate may change.




Money Smart for Young Adults Curriculum                                                   Page 69 of 72
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FOR FURTHER INFORMATION
Federal Deposit Insurance Corporation (FDIC)
Division of Supervision & Consumer Protection
2345 Grand Boulevard, Suite 1200
Kansas City, Missouri 64108
1-877-ASK-FDIC (1-877-275-3342)
Email: consumer@fdic.gov
www.fdic.gov

U.S. Financial Literacy and Education Commission
www.mymoney.gov
1-888-My-Money (1-888-696-6639)
MyMoney.gov is the U.S. Government's website dedicated to teaching all Americans
about financial education. Whether you are planning to buy a home, balancing your
checkbook, or investing in your 401k, the resources on MyMoney.gov can help you.
Throughout the site, you will find important information from 20 Federal agencies.

Federal Consumer Information Center (FCIC)
www.pueblo.gsa.gov
800-688-9889
The Federal Consumer Information Center (FCIC) provides free online consumer
information to help the public. The FCIC produces the Consumer Action Handbook,
which is designed to help citizens find the best sources for assistance with their consumer
problems and questions.

USA.gov: the Federal Government’s Web Portal
www.usa.gov
FirstGov.gov is the official gateway to all government information.

Consumer.gov: a resource for consumer information from the federal government
www.consumer.gov

Department of Education
http://www.ed.gov/students/
The Department of Education provides Information relating to college, financing, and
student aid.



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   For other education-related resources:
   • Complete the FAFSA online at http://www.fafsa.ed.gov/.
   • Find out more about scholarships at
     http://www.ftc.gov/bcp/menus/consumer/education/scholarships.shtm.
   • For more information on Federal Loan Programs, http://studentaid.ed.gov.

Federal Trade Commission
www.ftc.gov
877-FTC-HELP (382-4357)
The Federal Trade Commission website offers practical information on a variety of
consumer topics, including credit and identity theft.

Department of Housing and Urban Development (HUD)
www.hud.gov
800-669-9777
The HUD website offers educational resources on buying and renting homes.

Internal Revenue Service
www.irs.gov
You can get copies of IRS publications and forms at this website or by calling
800- 829-3676. Call 800-829-1040 for questions about your income taxes.

Securities and Exchange Commission (SEC)
www.sec.gov
800-SEC-0330
The SEC provides information about investing.

Social Security Administration
www.ssa.gov
800-772-1213
You can find out about Social Security benefits at this site.




Money Smart for Young Adults Curriculum                                                 Page 71 of 72
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Go Direct
www.GoDirect.org
(800) 333-1795
To quickly and easily sign up for direct deposit of your Social Security or other federal
benefit payments, contact Go Direct, a campaign sponsored by the U.S. Department of the
Treasury and the Federal Reserve Banks.

National Association of Securities Dealers
www.nasd.com
1-800-289-9999
The National Association of Securities Dealers provides information about registered
securities brokers to help you decide whether to do business with them.

The Center for Social Development (CSD), George Warren Brown School of
Social Work, Washington University, St. Louis, MO.
The CSD Website includes useful information on Individual Development Accounts
(IDAs).
http://gwbweb.wustl.edu/csd/asset/idas.htm




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