Slide 1© 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.
Slide 2© Student Lending Analytics, LLC
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!
Slide 3© Student Lending Analytics, LLC
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
Slide 4© Student Lending Analytics, LLC
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
Slide 5© Student Lending Analytics, LLC
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
Slide 6© Student Lending Analytics, LLC
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
Slide 7© Student Lending Analytics, LLC
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?
Slide 8© Student Lending Analytics, LLC
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
Slide 9© Student Lending Analytics, LLC
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
Slide 10© Student Lending Analytics, LLC
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.
Slide 11© Student Lending Analytics, LLC
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.
Slide 12© Student Lending Analytics, LLC
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?
Slide 13© Student Lending Analytics, LLC
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
Slide 14© Student Lending Analytics, LLC
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
Slide 15© Student Lending Analytics, LLC
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
Slide 16© Student Lending Analytics, LLC
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
Slide 17© Student Lending Analytics, LLC
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
Slide 18© Student Lending Analytics, LLC
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.
Slide 19© Student Lending Analytics, LLC
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
Slide 20© Student Lending Analytics, LLC
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
Slide 21© Student Lending Analytics, LLC
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
Slide 23© Student Lending Analytics, LLC
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
Slide 24© Student Lending Analytics, LLC
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
Slide 25© Student Lending Analytics, LLC
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
Slide 26© Student Lending Analytics, LLC
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
www.studentlendinganalytics.com
Slide 27© Student Lending Analytics, LLC
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
Slide 28© Student Lending Analytics, LLC
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
Slide 29© Student Lending Analytics, LLC
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
Slide 30© Student Lending Analytics, LLC
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