NYSFAAA Tri-Regional Meeting (May 8, 2009) Navigating the ......Navigating the Student Loan Markets...

Slide 1© Student Lending Analytics, LLC

NYSFAAA Tri-Regional Meeting (May 8, 2009) Navigating the Student Loan Markets in a Time of Turbulence

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


Navigating the Student Loan Markets in a Time of Turbulence Summary

State of private student loan market remains challenging– Supply of capital declined significantly in 2008-09– Demand for loans remains unabated– Net result: Higher priced loans going to fewer people

Private student loan industry concentrated among small number of lenders

Schools being creative at finding alternatives to private student loans

Financial aid can play a critical role in informing students about these loans– Provide counseling and web resources to further their understanding– Catch students at two critical junctions: prior to application and at repayment

Regulatory environment will play more significant role in private loans in the future

Obama proposal to eliminate FFEL program has put the FFELP vs. Direct Lending decision front and center


Navigating the Student Loan Markets in a Time of Turbulence Supply of Private Student Loans Down 30-35% in 2009

Supply of private loans declined rapidly in August-September 2008…– Lenders representing over 30-35% of private loan market left the market

• 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)

While incumbents have not picked up the slack…– Securitization markets have been relatively dormant since 2007

• Recent Sallie Mae deals have been done at extremely high prices– Concerns over consumer credit quality has plagued student loans

• Sallie Mae expected to write-off $1 billion in private student loans in 2009– Limited access to capital

And few new entrants have soaked up the capacity– Discover entered market in 2007– Credit unions starting to increase their market presence– Peer-to-peer lenders, Fynanz and GreenNote, met with limited success


Navigating the Student Loan Markets in a Time of Turbulence Demand For Loans Continues, Shift Toward Federal Loans

Tuition levels continue to rise…– More modest increase of 3-4% expected for 2009-10

While traditional funding sources to finance a college education have been whacked…

– Home equity has plummeted given nationwide declines in home prices– 529 plans have suffered in the bear market which reduced equity values over

50%

Students turning to federal loans in record numbers– According to the Department of Education, federal loans have seen 20.8%

through the end of February for the 2008-09 academic year• Stafford unsubsidized loans increased by $2,000 in July 2008• 10% increase above trend in federal loan borrowings amounts to about $7

billlion in incremental borrowing

Leading indicator, FAFSA filings, are up 20.8% in first quarter, so expect this trend of increased federal loan borrowings to continue


Navigating the Student Loan Markets in a Time of Turbulence Outlook for Private Loans

Do not expect much growth in supply from existing lenders – Largest player, Sallie Mae, has forecast originations of $5-$6 billion in 2009 vs. $6.3 billion in

2008– Citibank undergoing a restructuring; student loan division moved to non-core operations– Securitization markets remain challenging for private loans

• Sallie Mae’s recent TALF-eligible deal priced at LIBOR + 600

Growing number of proprietary schools developing institutional lending programs

Sallie Mae’s new Smart Option loan meeting investor’s needs, will it meet consumers?

– Interest-only payments while in school to eliminate negative amortization loans– Shorter repayment periods (5-15 years)– Co-signers required for all but the most creditworthy students

Will six-fold expansion of Perkins impact private loansStates developing innovative solutions to fill the gap

– Connecticut and Iowa developed partnerships with credit unions– North Carolina received $1.1 billion investment SECU for funding their 2008-09 programs– Largest state-based programs in New Jersey and Massachusetts able to raise $350-$400

Million– New York recently passed NYHELPs legislation to support private loan market for in-state

students


Navigating the Student Loan Markets in a Time of Turbulence The NY HELPs Program

Goal: Access to low-cost education loans not currently available in the private loan market

Expected loan volumes: $350 million to 45,000 students

Administration: HESC

Funding for fixed rate loans: $350 million in private activity bonds through SONYMA

Default support for variable-rate loans: $50 million in year 1, $10 million thereafter


Navigating the Student Loan Markets in a Time of Turbulence The NY HELPs Program (continued)

Fees: Colleges contribute 1% of loan volume to reserve fund

Estimated interest rate for students: 7.5% to 8.5%

Loan platform:– HESC Marketplace – open and transparent platform

Other eligibility requirements– Apply for all state and federal aid – Financial literacy program must be completed

Rollout: Spring term, 2010



State of private student loan market remains challenging



Financial aid can play a critical role in informing students about these loans




Lender Starting Interest Rates Between Fees Savings Opportunities

Discover Certified Private Loan

2.75% and 8.00% None - 2% principal reduction upon graduation - 0.25% interest rate reduction for auto-debit payments

PNC Solution Loan 2.70% and 8.45% 0% to 6% - 0.25% interest rate reduction for auto-debit payments

Citibank CitiAssist Loan 4.25% and 10.75% 0% to 6% - 0.25% interest rate reduction for auto-debit payments

SunTrust Academic Answer Loan

3.63% and 12.13% 0% to 6% - $300 principal reduction per loan upon graduation - 0.25% interest rate reduction for auto-debit payments

Wells Fargo Collegiate Loan

5.75% and 12.74% None - 0.5% interest rate reduction upon graduation

- 0.25% interest rate reduction for auto-debit payments

U.S. Bank No Fee Education Loan

5.20% and 12.20% None - 0.5% interest rate reduction for auto-debit payments

Chase Select Loan 6.07% and 13.57% None - 0.25% interest rate reduction for auto-debit payments

Sallie Mae Smart Option Loan

4.50% and 14.50% 0% to 5% - 0.25% interest rate reduction for auto-debit payments - 0.25% interest rate reduction for receiving communications electronically


Navigating the Student Loan Markets in a Time of Turbulence 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-sign

ers

Parent P

LUS

Tuition Rep

aymen

t Plan

Lender

List

Counsel

ing

Extern

al Sit

es

Institutio

nal Funds

Multiple

Applicati

ons

Peer-to

-Peer

Perc

enta

ge o

f Tot

al R

espo

nden

ts

Aug-08Jun-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?


Navigating the Student Loan Markets in a Time of Turbulence SLA Flash Survey: Private Loans for International Students

ONLY 6% of survey respondents have found private student lenders for international students WITHOUT a U.S. co-signer

– Lenders mentioned which required risk-sharing agreements were:• Credit Unions (3)• Chase (2)• Deutsche Bank (1) – GMAC arrangement

– Lenders mentioned that did NOT require risk-sharing agreements were:• Sallie Mae (3)• Citibank (2)• Chase (2)• Discover (2)• Wells Fargo (1)

62% of respondents indicated that they were able to find private student lenders for international students WITH a U.S. co-signer

– Top 5 lenders mentioned in this category were:• Sallie Mae 47%• Citibank 41%• Chase 32%• Wells Fargo 25%• Discover 16%


Navigating the Student Loan Markets in a Time of Turbulence Schools With Lenders Making Loans WITH U.S. Co-signer

62%66%

59%

0%

29%

90%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Overall Graduate 4-YearPrivate

4-Year Public 2-Year Public Other

Perc

enta

ge o

f Tot

al R

espo

nden

ts

Survey question: As of today, has your school found lender(s) who will be making loans to your school's international students WITH a U.S. citizen as a co-signer for the 2009-10 academic year?


Navigating the Student Loan Markets in a Time of Turbulence Institutional Loan Programs For International Students

74%

8%2% 2%

14%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

No Program, NoPlans to

Implement

Have Program,Plan To Continue

ConsideringProgram For

2009-10

Have Program,Plan to Curtail

Will ImplementNew Program for

2009-10

Perc

enta

ge o

f Tot

al R

espo

nden

ts

Survey question: Describe your institution's approach to providing institutional loans to international students.




Smaller number of lenders constitute most of the market


Financial aid staff can play a critical role in informing students about these loans




Navigating the Student Loan Markets in a Time of Turbulence Entrance Counseling for Private Loans

Take out federal loans before ever considering these “last resort” loans– Generally higher interest rates and less repayment flexibility than federal loans– Based on SLA research, the average private loan interest rate is 11%-12%

Cosigners almost always required– Wells Fargo announced earlier this week that no longer providing “credit-ready” loans

to juniors, seniors, graduate students

Know your interest rate before signing anything– Index (Prime or LIBOR) + Margin– Budget for the fact that your average rate over the life of the loan will be 3-4%

higher than your starting rate

All lenders are not alike– SLA research found that for the same student and cosigner pairing that interest

rates varied from 7% to 12%

Don’t be afraid to shop around due to the new Fair Isaac policy– Make decision within 30 day period to avoid harming FICO score


Navigating the Student Loan Markets in a Time of Turbulence Entrance Counseling for Private Loans

Study the details in the promissory note– Can the lender increase your interest rate if you are late with one payment?– How many days after the due date is a payment considered late?– What fees does the lender charge beyond the origination/repayment fee?– How frequently will my interest rate change? Monthly payment change?

Borrowers have option to cancel the loan– Timing usually tied to number of days after Disclosure Statement is received

If you can pay interest only during while you are in school, DO IT!– It can save you thousands of dollars in loan repayment

Expand your alternatives by considering credit unions or state-run private loan programs

DO NOT take out a private loan if you can avoid it!


Navigating the Student Loan Markets in a Time of Turbulence Exit Counseling for Private Student Loans

Congratulations on your upcoming graduation…now it is time to repay your student loans!

These loans will not go away if you don’t pay them– May not be dischargeable in bankruptcy– Stay with you even in death

Once you have settled down to your new address, notify your lender so coupon books/statements will reach you

Find your original paperwork, including your promissory note and Disclosure Statement – Contact lender if you can’t find it

Be pro-active with the borrower benefits that you were promised

Confirm the date that your first payment will be due– Typically have 6 month grace period after graduation


Navigating the Student Loan Markets in a Time of Turbulence Exit Counseling for Private Student Loans

Do not be surprised that your current loan balance is higher than the amount of your original loan

If you are concerned about your ability to make payments on your loans, contact the lender immediately to discuss your options– Forbearance allows you to postpone payments

Your monthly payment will typically be adjusted quarterly or annually by the lender– Expect that interest rates and therefore your monthly payment will increase

as the economy improves

Set up your monthly student loan payment on auto-pay– Earn a reduction in interest rates from 0.25% to 0.50%– Eliminate potential for late fees, which can run as high as $30

If you are ready to pay down some extra principal, contact the lender in case you need to make any special notation on the payment


Navigating the Student Loan Markets in a Time of Turbulence Student Lending Analytics: Resources Available

SLA Private Loan Ratings

2009 SLA Private Loan Guide

SLA Private Loan Series

Paying For College Blog

Student Satisfaction Surveys

Coming Soon: Private Loan Quiz


Navigating the Student Loan Markets in a Time of Turbulence Lender Comparison Table and Disclosures

Disclosure of process– San Francisco State provided actual lender scorecards

• http://www.sfsu.edu/~finaid/lenscoreSALLIEMAE.html– SUNY Fredonia provides actual lender RFIs on their website

• http://www.fredonia.edu/finaid/LenderRFI.asp

Include key factors to enable students and families to more easily compare their options– Private loan examples

• College for Financial Planning: http://fa.cffp.edu/lenderlist/private/• University of California:

http://www.ucop.edu/sas/sfs/loans/privgrad_cosign.pdf

http://fa.cffp.edu/lenderlist/private/

http://www.ucop.edu/sas/sfs/loans/privgrad_cosign.pdf










Navigating the Student Loan Markets in a Time of Turbulence Lender Selection Process for 2009-10

31.7%28.8%

17.0%

11.9%

7.7%

2.9%

0.0%

10.0%

20.0%

30.0%

40.0%

Keep CurrentList

RFI forFFELP/Alt.

Loans

No LenderList

RFI forFFELP ONLY

Less Formal Other

Perc

enta

ge o

f Tot

al F

FEL

P R

espo

nden

ts

Survey Question: What are your current intentions regarding your lender selection process for the 2009-10 academic year?


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 1Len

der 2

Lende

r 3Len

der 4

Lende

r 5Len

der 6

Lende

r 7Len

der 8

Lende

r 9Len

der 1

0Len

der 1

1

Rat

ing

Scal

e (S

tron

gly

Agr

ee =

4.0

)

Source: SLA 2008 Lender Customer Service SurveySurvey 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

3.733.42 3.39

3.24 3.14 3.00 2.982.80 2.70 2.59

1.66

0.0

1.0

2.0

3.0

4.0

Lende

r 1Len

der 2

Lender

3Len

der 4

Lender

5Len

der 6

Lende

r 7Len

der 8

Lende

r 9Len

der 1

0Len

der 1

1R

atin

g Sc

ale

(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%

Lende

r 1Len

der 2

Lende

r 3Len

der 4

Lende

r 5Len

der 6

Lende

r 7Len

der 8

Lende

r 9Len

der 1

0Pe

rcen

tage

of R

espo

nden

ts R

atin

g L

ende

rW

ho In

dica

ted

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?


Navigating the Student Loan Markets in a Time of Turbulence Definition of Preferred Lender Arrangement

Definition of preferred lender arrangement (from HEOA)– Preferred lender arrangement.--The term `preferred lender arrangement'--

``(A) means an arrangement or agreement between a lender and a covered institution or an institution- affiliated organization of such covered institution

• ``(i) under which a lender provides or otherwise issues education loans to the students attending such covered institution or the families of such students; and ``

• (ii) that relates to such covered institution or such institution-affiliated organization recommending, promoting, or endorsing the education loan products of the lender;


Navigating the Student Loan Markets in a Time of Turbulence Preferred Lender List Requirements

Prominently disclose the method and criteria used to select lenders and ensure picked based on best interests of borrowers

Indicates that the students attending the institution, or the families of such students, do not have to borrow from a lender on the preferred lender list;

Does not deny or otherwise impede the borrower's choice of a lender or cause unnecessary delay in loan certification under this title for those borrowers who choose a lender that is not included on the preferred lender list

Highlights minimum number of lenders and whether they are affiliates of one another– Not less than three lenders of FFELP loans – Not less than two lenders of private education loans

Exercise a duty of care and a duty of loyalty to compile the preferred lender list without prejudice and for the sole benefit of the students attending the institution, or the families of such students;

Not less than the information required to be disclosed under section 153(a)(2)(A);

Describes rationale for why the institution has entered into a preferred lender arrangement with each lender on the preferred lender list, particularly with respect to terms and conditions or provisions favorable to the borrower;


Navigating the Student Loan Markets in a Time of Turbulence HEOA Creates New Requirements for Lender Lists

Private Lender Lists– Low threshold

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

– Significantly enhances disclosures to be provided by lenders at every stage of process (application, approval and consummation)

• Federal Reserve recently released disclosure models; 60 day comment period

• Regulations must be finalized by February 2010– Borrowers to self-certify loans

• Financial Aid office responsible for providing required information

Code of Conduct

Dear Colleague Letter released in late December with effective dates on all provisions


Navigating the Student Loan Markets in a Time of Turbulence What About the Annual Report ?

– Timing: • Each covered institution and each institution-affiliated organization that has a

preferred lender arrangement for the purpose of offering FFEL or private education loans to the institution’s students or their families must submit an annual report to the Secretary [of Education], by a date determined by the Secretary.

– Report elements: • the minimum loan information the Department identifies and requires to be

disclosed to students or their families on FFEL loans;• the minimum loan information required to be disclosed on private education loans

under section 128(e)(11) of the TILA • a detailed explanation of the reasons the institution or organization entered into

the preferred arrangement, including why the terms, conditions, and provisions of each type of education loan provided under the arrangement are beneficial to the institution’s students or their families.

– Report must be made available to public and provided to students attending or planning to attend the institution


Navigating the Student Loan Markets in a Time of Turbulence Speak Up About Self-Certification

HEOA requires that the creditor obtain the completed and signed self- certification form before consummating the loan

– Does not specify that creditor obtain directly from consumer

Proposed comment 39(e)-1 would allow the creditor to obtain the self- certification form either directly from the consumer or through the institution of higher education.

– Explanation: “Compliance with the self-certification requirement may be simplified for all parties if the educational institution is permitted to obtain the completed form from the consumer and forward it to the creditor. The consumer may find it easier to return the form to the educational institution as part of the institution's overall financial aid process. The creditor and educational institution may also find it easier to include the self-certification form as part of a larger package of information communicated by the institution to the creditor about the student's eligibility and cost of attendance.”

Want to comment on this: Regulation Z - Truth in Lending [R-1353]

Closing date for comments: 05/26/2009 Submit comment on this proposal View comments on this proposal

http://www.federalreserve.gov/newsevents/press/bcreg/20090311a.htm

http://www.federalreserve.gov/generalinfo/foia/index.cfm?doc_id=R%2D1353&doc_ver=1


Navigating the Student Loan Markets in a Time of Turbulence Comments on Federal Reserve Proposal for Private Loans

Requesting comments on the prominence of using A.P.R. as compared to Interest Rate

Requesting exemption to waive application disclosure requirements for telephonic communications

Will NOT require disclosure of fees that occur based on an option exercised by the consumer AFTER consummation (e.g., forbearance)

Will NOT require lenders to indicate that “federal loans may be obtained in lieu of or in addition to private education loans”

Requesting comments on whether the limitations of discharging private loans in bankruptcy should be disclosed

Will NOT include federal loan alternatives with final set of disclosures









Regulatory environment will play significant role in how financial aid addresses private loans in the future

Obama proposal to eliminate bank subsidies has put the FFELP vs. Direct Lending issue front and center


Navigating the Student Loan Markets in a Time of Turbulence Current Plans for FFELP Participants (Overall) - Respondents

56.3%

18.1%15.0%

10.7%

18.7%15.0%

48.9%

17.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Committed toFFELP

Considered DL,Expect Stay in

FFELP

Considering DL Decided to go DLfor 09-10

Perc

enta

ge o

f Tot

al

RespondentsLoan Volume

Survey question: Which description most accurately describes your school's federal student loan plans for the 2009-10 school year?


Navigating the Student Loan Markets in a Time of Turbulence Current Plans for FFELP Participants (By School Type]

52.2%

63.7%

15.4%18.8% 20.0%

12.5% 12.5%

22.8%

13.2%

7.7% 7.5%

53.8%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Committed toFFELP

Considered DL,Expect Stay in

FFELP

Considering DL Decided to go DLfor 09-10

Perc

enta

ge o

f Tot

al F

FEL

P R

espo

nden

ts

4-Year Private4-Year Public2-Year Public

Survey question : Which description most accurately describes your school's federal student loan plans for the 2009-10 school year?


Navigating the Student Loan Markets in a Time of Turbulence Over 1 in 5 (21.7%) Committed to FFELP Will Sign Up (And Not Disburse) Under DL

78.3%

7.3%

14.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Not Registered for DL Registered for DL Intend to Register

Perc

enta

ge o

f Tot

al F

FEL

P R

espo

nden

ts

Survey question : Respond to this statement: My school has signed up for Direct Lending, although we do not intend to disburse funds in the DL program for the 2009-10 academic year.


Navigating the Student Loan Markets in a Time of Turbulence Impact of Obama Budget Blueprint on FFEL/DL Decision

64.5%

32.3%

3.2%

0.0

No Impact on Decision More Likely to Go To DL Less Likely to Go DL

Perc

enta

ge o

f Tot

al R

espo

nden

ts

Con

sider

ing

Mov

e to

Dir

ect L

endi

ng

Survey question: To what extent has the Obama Administration's recent budget proposal to shift entirely to Direct Lending had an impact on your school's decision-making process for 2009-10?


Navigating the Student Loan Markets in a Time of Turbulence Who’s Going Direct?

School 2007-08 VolumeNationalAuburn University $110.6 millionUniversity of Connecticut $109.9 millionUniversity of Louisville $90.8 millionMiddle Tennessee State $86.7 millionLocalNew York Institute of Technology (New York) $138.1 millionStony Brook University (Stony Brook) $86.6 millionEmpire State University (Saratoga Springs) $42.0 millionSt. John Fisher (Rochester) $38.4 millionBarnard College (New York) $8.3 million


Navigating the Student Loan Markets in a Time of Turbulence

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Student Lending Analytics Background

Founded in 2007Independent Research and Advisory Service with NO lender affiliationsMission: Find best lenders for students through an analytically rigorous and comprehensive processServices

– SLA grades private loans with SLA Private Loan Ratings– 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


The Student Lending Analytics Process RFI Management


Student Lending Analytics Research 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• December – Conversation about FFEL and Direct Lending Programs

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

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


Student Lending Analytics Contact Information

For more information about SLA and our Private Student Loan Ratings Service, please contact us at:

Tim RanzettaStudent Lending Analytics LLC650-218-8408tranzetta@studentlendinganalytics.comwww.studentlendinganalytics.com

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