2008 NYSFAAA Conference Lender Lists: 10 Things You Need to Know Now

© Student Lending Analytics, LLC

2008 NYSFAAA Conference Lender Lists: 10 Things You Need to Know

Now

This presentation does not constitute formal policy or legal advice and should not be relied upon as such.


2008 NYSFAAA Conference Lender Lists: 10 Things You Need to Know

NowWhile FFEL market has stabilized, the private student loan market is on life support

Having a lender list for your students matters

All lenders are not created equal

Find savings for your students where you can

HEOA creates new requirements for lender lists

Financial strength of lenders MUST be part of your evaluation process

You cannot measure customer service through an RFI

Lender selection is not a once a year event but requires continuous evaluation

Start focusing on default prevention NOW

Your lender list can be a competitive advantage!


2008 NYSFAAA ConferenceFFEL Market Has Stabilized…

ECASLA: Ensuring Continued Access to Student Loans Act– Department of Education provides liquidity to the market

• Loan participation

• Loan purchases– Extended through 2009-10 academic year– Loans can have the following benefits to be eligible for the program

• Upfront benefits (origination fee/default fee waiver)

• .25% interest rate reduction for auto-debit

Issues– Split servicing of loans may be an issue

• Department has awarded servicing to ACS; Sallie Mae protesting– Bridge financing for initial disbursement– Pre-May 2008 loans


2008 NYSFAAA ConferencePrivate Student Loan Markets Blinking Red

Availability of private loans declining rapidly…– Over 30% of private loan market has departed in 2008

• Credit line pulled: College Loan Corp., Education Finance Partners• Parent company afflicted by sub-prime issues: Wachovia, CampusDoor• Inability to access ABS market: Key Bank, Bank of America (TERI)• Rising delinquencies overall have limited investor appetite for securities

– Other lenders curtailing lender activities due to account profitability or concerns over default rates

– Sallie Mae increased underwriting standards will further crimp supply

• 43% of private loan market in 2007, based on SLA estimates

• Last private loan securitization occurred in March 2007


2008 NYSFAAA ConferencePricing on Private Student Loans Rising

Loans tied to LIBOR have seen dramatic increase– September 15th: One month LIBOR: 2.49%– September 25th: One month LIBOR: 3.70%

Lenders passing along their higher cost of capital to borrowers– Analyst report indicating that large student lender pricing loans at LIBOR +

9.8%

Loans tied to Prime and T-bill rates have benefited from declines in these indices recently


2008 NYSFAAA ConferenceGovernment Intervention in Private Loan

MarketSenator Schumer (NY-DEM) most vocal at highlighting problem– “Build a wall around the student loan market”– Offers no specifics on how this will be achieved– Assurances from Secy. Spelling that issue will be addressed shortly

What might a private student loan rescue plan look like?– Liquidity plan akin to ECASLA for private student loans

• Purchase loans or participation rights directly from private student lenders

• Capital infusion to lenders used to lend back to students• Issues: Pricing of ABS/Servicing/Loan Guarantees/Interest Rates

– Purchase of equity stake in major student lenders akin to recent plan to inject $250 billion in 9 large U.S. banks

– FDIC is guaranteeing senior unsecured debt issued by banks with three year term or less

• Downside is duration of liability doesn’t match asset term


SLA Flash Survey: Alternative Loan Availability

Strategies for Dealing with Alt. Loan Issues (Overall)

77%73%

60%

53% 50%

26%

16% 16%

4%

68%

78%

64%

19% 16%

3%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Co-sig

ners

Paren

t PLUS

Tuition

Rep

aym

ent P

lan

Lender

List

Counse

ling

Exter

nal Si

tes

Insti

tutio

nal Funds

Multi

ple Applic

atio

ns

Peer-t

o-Pee

r

Per

cen

tage

of

Tot

al R

esp

ond

ents

Aug-08

Jun-08

Source: SLA Flash Survey on Alternative Loan Availability

Survey question #2: What are your current strategies to help students find ALTERNATIVE loans for the 2008-09 school year?


2008 NYSFAAA ConferenceHaving a Lender List Matters

GMAC Bank, NextStudent, Xanthus Financial Services, EduCap, Graduate Loan Associates – Recently settled probe into “deceptive marketing practices”

Google “private student loans” and find over 900,000 results

First page of search results– Alternativestudentloan.com

• No Fafsa, instant decisions online, $40,000/year, Funds Direct to You – Estudentloan.com– Studentfinancialgroup.com

• Quick application. Quick response. The Quick-To-Learn loan – Collegeloanstoday.com

• Fast and Easy Approval, Up to $40,000 per year.

Other popular reference sites list hundreds of lenders

Headline anxiety leads to search for experts


2008 NYSFAAA ConferenceChoosing Best Lenders Matters MORE not Less

To students, lender performance seen as extension of financial aid office– Student satisfaction survey comments link financial aid office directly with

lenders

Departure of lenders has wide-ranging impact on operations – Communicate change directly to affected students and parents – Serial borrowers need help selecting new lender and sign new promissory

notes– Change all marketing collateral with lender list printed on it– Change on-line lender list – Front-line team members stressed by volume of calls– Business office must be notified that payments may be delayed

Even with diminished set of lenders, recognize that all lenders are NOT the same


SLA Flash Survey: Lender Customer Service Loan Processing Ratings

3.45 3.40 3.33 3.33 3.323.17 3.17 3.11 3.00

2.87

1.79

0.0

1.0

2.0

3.0

4.0

Lende

r 1

Lende

r 2

Lende

r 3

Lende

r 4

Lende

r 5

Lende

r 6

Lende

r 7

Lende

r 8

Lende

r 9

Lende

r 10

Lende

r 11

Rat

ing

Sca

le (

Str

ongl

y A

gree

= 4

.0)

Source: SLA 2008 Lender Customer Service Survey

Survey statement #1: This lender processes transactions (cash & non-cash) in a timely manner after loans are certified.


SLA Flash Survey: Lender Customer Service Customer Service Rep. Ratings

3.73

3.42 3.393.24 3.14

3.00 2.982.80 2.70 2.59

1.66

0.0

1.0

2.0

3.0

4.0

Lender

1

Lende

r 2

Lender

3

Lender

4

Lender

5

Lender

6

Lender

7

Lender

8

Lender

9

Lender

10

Lende

r 11

Rat

ing

Sca

le (

Str

ongl

y A

gree

= 4

.0)

Source: SLA 2008 Lender Customer Service Survey

Survey statement #2: This lender's representatives are prompt and responsive in addressing questions and problems.


SLA Flash Survey: Lender Customer Service Best Service to Students

62%58%

47%

35%31% 30%

27%23%

9%6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Lender

1

Lender

2

Lender

3

Lender

4

Lender

5

Lender

6

Lender

7

Lende

r 8

Lende

r 9

Lende

r 10

Per

cen

tage

of

Res

pon

den

ts R

atin

g L

end

er

Wh

o In

dic

ated

Len

der

Was

Bes

t

Survey question #7: In your opinion, which of the lenders you interact with provides the best customer service to your students?


2008 NYSFAAA ConferenceFind Savings for Students Where You Can

ECASLA has diminished opportunity for borrower benefits with FFEL loans– Most offering just 0.25% interest rate reduction for auto-debit in order to be

eligible for sale to Department of Education– Still one lender out there with no-fee Stafford loan

The 1% opportunity– Ask lenders to partner with guarantors that are offering to waive the federal

default fee– Guarantors typically announce their policies in December

• Global fee waiver policy

• Selective fee waiver policy– Analyze guarantor financial position to ensure long-term viability of fee

waiver– Saving 1% of $10 million FFEL loan portfolio equates to $100,000


2008 NYSFAAA Conference HEOA Creates New Requirements for Lender

Lists

FFEL Lender Lists– Justify why each lender on your list was selected– Annual reporting requirement to Department of Education– Conform to model disclosure of loan terms and borrower choice

Private Lender Lists– Low threshold

• An educational institution that provides “information regarding a private education loan from a lender to a prospective borrower”

– Significantly enhanced disclosures to be provided by lenders at every stage of process

– Borrowers to certify loans

Code of Conduct

Dear Colleague Letter forthcoming from Department of Education


2008 NYSFAAA ConferenceFinancial Strength of Lenders MUST be

Evaluated Source of financing– Internal– External

• Participation in Dept. of Education’s liquidity plan• Even with ECASLA, bridge financing critical to survival in FFEL

External bond ratings provide clue to cost of capital– Moody’s, Fitch, S&P

Loan growth over 3-5 year period

Default and delinquency rates

Stock price – Performance relative to other student lenders– Trends

Performance of other consumer credit portfolios


2008 NYSFAAA ConferenceRFI Necessary But Not Sufficient In Measuring

Customer Service

Student/Parent Surveys– Time as close to disbursement as possible– Measure performance of lender during each stage of process and each

touch point– Determine criteria that are most important to them in selecting lenders

Financial Aid Team Members– Gauge quality of loan processing and responsive of lender representatives– Good source for student issues also

Call Center quality– Measure quality of interaction with customer service representatives– Develop standardized situations to ensure “apples to apples” comparison

Website reviews– Assess user-friendliness and ability of borrowers to self-service– Assess transparency of lender’s disclosures


SLA Flash Survey: Customer Service Include Customer Service in Lender Selection

Process

86%93%

79% 78%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Overall 4-Year Private 4-Year Public 2-Year Public

Per

cen

tage

of

Tot

al R

esp

ond

ents

Survey question #1: Do you currently include customer service as a criterion in your lender selection process?

Note: Only includes schools who had FFEL and/or Alternative Lender List


SLA Flash Survey: Customer Service Measuring Customer Service

73% 71%

58%

45%

36% 33%

10%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Lende

r Web

sites

Fin. A

id S

taff

Survey

s

RFI Ques

tions

Custom

er S

ervice

Call

s

Complai

nt L

og

Studen

t Surv

eys

Oth

er

Per

cen

tage

of

Tot

al R

esp

ond

ents

Survey question #4: Indicate ALL of the methods that you utilize to measure lender customer service.


2008 NYSFAAA ConferenceLender Management Not a Once Per Year

EventSelecting lenders is the beginning of the process not the end

Keys to effectively managing lender relationship– Information shared by lenders

• Approval rates• Tiering distribution• Changes to loan terms/eligibility requirements

– Information shared by schools• Feedback from students/parents/financial aid staff• Identify systemic issues early

Establish service expectations in the RFI to avoid misunderstandings– Can’t manage it if you do not measure it

Adjust lender list based on new developments– Importance of casting a wide net


2008 NYSFAAA ConferenceStart Focusing on Default Prevention NOW

Recessions drive default rates higher

Lenders determine attractiveness of schools based on default rates

SLA provides list of financial literacy/default prevention resources on the Student Lending Analytics Blog– Financial Literacy Resource List– Campus-Based Literacy Programs

Ask lenders in RFI about their default prevention activities

Guarantors can be useful source for training and educating students on financial literacy topics


2008 NYSFAAA ConferenceThe Process Matters

Receive confirmation from lenders that they are able to respond

Identify most important criteria and determine their weightings

Craft RFI based on criteria you determine is most important

Develop comprehensive list of lenders to invite

Ask lenders to confirm their interest after RFI sent out

Analyze lender responses in objective, analytical fashion

Develop scorecard for lender responses

Select lenders based on scorecard

Draft methodology document which describes your process– Appoint scribe at outset of process


The Student Lending Analytics ProcessRFI Management


2008 NYSFAAA ConferenceLender List Can Be a Competitive Advantage

Parents and students appreciate it– Time savings– Positive customer service experience affects opinion of financial aid– Increased confidence about the choices they made– Provides confidence that they will have access to loans

Financial aid team members appreciate it– Streamlined operations– Minimize time spent helping borrowers “find the best lender”– Opportunity to provide input to process– Recognize value of lender list to students


Student Lending AnalyticsBackground

Founded in 2007

Independent Research and Advisory Service with NO lender affiliations

Mission: Find best lenders for students through an analytically rigorous and comprehensive process

Services– RFI Management of FFEL and Private Loans– Research

Successes to Date– Managed RFI process at institutions with over $850 million in loan volume– Inside Student Lending, our monthly newsletter, reaches over 5,000 financial aid

administrators– Student Lending Analytics Blog has become the go-to source for breaking

developments and analysis on the student lending industry– SLA Flash Surveys have included the insights from over 1,500 financial aid

professionals on a variety of timely topics– Private Loan Options and the SLA’s 2008 Alternative Loan Guide provides

students and financial aid offices with an objective and focused list of private lenders


Student Lending AnalyticsResearch Services

Inform financial aid offices on industry developments (implications for their lender lists and relationships)

– Student Lending Analytics Blog• Timely insights to developments in student lending industry

– Alerts• Legislation, lender exits, earnings calls, industry insight

– Monthly newsletter• August – Tips for Lender Lists

– Webinars• April – Lessons Learned in Trenches of Lender Selection Process• September – HEOA and Lender Lists

– Surveys (summaries available on our website)• FFEL vs. Direct Lending• RFI Practices• Implementing increased Federal Stafford loan limits• Alternative Loans

– Legislative and regulatory updates– White papers– Help Line to answer questions/resolve issues throughout the year


Student Lending AnalyticsContact Information

For more information about SLA and our RFI+ services, please contact us at:

Tim Ranzetta

Student Lending Analytics LLC

1000 Elwell Court, Suite 203

Palo Alto, CA 94303

(650) 858-2724 X10

[email protected]

www.studentlendinganalytics.com


NYSFAAA Conference SLATE

Detailed in Subpart 145-10 effective July 17, 2008

Definition of Preferred Lender List– “a list of one or more suggested or recommended lending institutions that a

covered institution makes available for consideration by borrowers, potential borrowers or others, in print or any other medium or form”

Prohibitions of Gifts

Required loan disclosures– Inform borrowers about Title IV loans before providing private loan– No quid pro quo with opportunity loans

Preferred lender list standards

Disclosures required for each available type of loan

Lending institutions disclosures to schools


NYSFAAA Conference Preferred Lender List Standards

Disclose process including method and criteria

Borrowers can select lender of their choice

Determined solely by consideration of best interests of students

Lenders may not utilize name, emblem, mascot or logo

If not in alphabetical order, must explain rationale for ordering

Reviewed and updated no less than annually

Lenders must commit that benefits will continue to inure even if loan is sold

Must indicate if lender intends to sell loans

Each loan program must be treated separately; can’t link placement

Disclosure requirements


NYSFAAA Conference Disclosure Requirements

Interest rate of loan and APR

Any fees associated with loan

Repayment terms

Borrower benefits with utilization rates by institution

Opportunity for deferment or forbearance

Definition of loan consolidation; early repayment penalty

Borrower’s estimated monthly payment; min/max rates

Average amount borrowed by students for preceding year

Intent to sell loans

Late payment fees

Early repayment

Statement that borrowers not required to select from the list


NYSFAAA Conference Disclosure Requirements (Lenders)

Private loan data– Default rates at institution– Rates of interest charged borrowers at school– Percentage of borrowers obtaining each rate of interest

If loan is sold, then loan purchaser needs to provide private loan data

School needs to periodically review preferred lender list at least once every three years

2008 NYSFAAA Conference Lender Lists: 10 Things You Need to Know Now

Documents

Transcript of 2008 NYSFAAA Conference Lender Lists: 10 Things You Need to Know Now