Slide 1© Student Lending Analytics, LLC
SLA Webinar SeriesManaging Lender Selection in a Time of Financial Turmoil
This presentation does not constitute formal policy or legal
advice and should not be relied upon as such.
Slide 2© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Summary
Having a lender list for your students still matters
– Students looking for experts to help them
– All lenders are not created equal
Overall, market conditions remain challenging
– Multiple government programs propping up FFELP
– Availability of private loans has narrowed considerably
HEOA creates new requirements for lender lists
– The process matters
Important criteria to consider in your process
– Customer service
– Financial strength
List management requires ongoing vigilance
Slide 3© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Having a Lender List Matters
GMAC Bank, NextStudent, Xanthus Financial Services, EduCap, Graduate Loan Associates, Nelnet and Campus Door – 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 4© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil What Has Changed in the Last Year?
FFELP loans– Large number of lenders have left market; some have returned
– Lenders have changed business models, including servicing relationships
– Ongoing credit crisis increases importance of short-term liquidity to fund loans
– Significant cutbacks in customer service require ongoing diligence
– Since Parent PLUS loans now have deferment option, be sure to check timing of capitalization of interest
– Mergers may reduce number of lenders further
Private loans– Lenders representing over 35% of private loan volume are no longer lending
– Interest rates and fees continue to change on ongoing basis
– Credit requirements have tightened in light of increasing defaults and delinquencies
– Some states have had success raising capital in bond markets for private loans while others have not
Slide 5© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Choosing 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 6© 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
3.002.87
1.79
0.0
1.0
2.0
3.0
4.0
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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 7© Student Lending Analytics, LLC
SLA Flash Survey: Lender Customer Service Customer Service Rep. Ratings
3.73
3.42 3.393.24
3.143.00 2.98
2.80 2.702.59
1.66
0.0
1.0
2.0
3.0
4.0
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(S
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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 8© 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%
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Survey question #7: In your opinion, which of the lenders you interact with provides the best customer service to your students?
Slide 9© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Summary
Rationale for lender lists
Market conditions for FFELP and private loans
HEOA and new requirements for lender lists
RFI considerations for 2009-10
Successful management of lender relationships
Slide 10© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil FFELP Market Update
One-two punch of CCRA and credit crunch has floored over 100 FFELP lenders
Government has intervened aggressively to prop up FFELP lenders– ECASLA
– Short-Term Loan Purchase Program
– Commercial Paper Conduit
– TALF
No student who needed a federal loan was denied one, but…– Lender list shake-up created confusion, uncertainty and extra work
– Some lenders delayed their disbursements
– Lenders significantly restructured their staffing levels to reflect new market realities
Current structure – Bank/Student lender originates loan
– Department of Education purchases loans or a participation right
Servicing rights for loans involved in government programs: different answer for different programs
Slide 11© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Federal Student Loan Financing Programs
Program Loan Type Dates Servicer
Loan Purchase and Participation FFELP 2008-2010 TBD
Short-Term Purchase Plan FFELP 2007-08
Dept. of Ed
servicer
TALF
Private,
FFELP
Post-May 1,
2007 No change
ABCP Conduit FFELP Post-2003 No change
Note: TALF includes consolidation loans
Slide 12© Student Lending Analytics, LLC
Managing Lender Lists in Time of Financial Turmoil Split-Servicing of FFELP Loans Sold to Department
Be aware that FFELP loans sold to the Department through their Short-Term Purchase Program will be serviced by the Department of Education’s servicer
– See Electronic Announcement from January 30, 2009:
• http://www.ifap.ed.gov/eannouncements/013009CustServInfoforBorrow
ers.html
Customer Service Toll-Free Numbers for FFEL Loans Purchased/Serviced by the Department...
– For Borrowers 800/508-1378
– For Schools 866/938-4750
– For Collections 866/938-4749
Slide 13© Student Lending Analytics, LLC
SLA Flash Survey: Trends in FFEL and DIRECT Lending Current Plans for FFELP Participants (Overall)
46.8%
17.4%
29.4%
6.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Committed to FFELP Considered DL,
Expect Stay in FFELP
Considering DL Decided to go DL for
09-10
Per
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FE
LP
Res
po
nd
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Survey question: Which description most accurately describes your school's federal student loan plans for the
2009-10 school year?
Slide 14© Student Lending Analytics, LLC
SLA Flash Survey: Trends in FFEL and DIRECT Lending Reasons for Staying in FFELP Program
4.564.25
3.92 3.803.48
2.09
0.0
1.0
2.0
3.0
4.0
5.0
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DL E
xper
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Imp
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Mo
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Survey question: Please indicate the importance of each factor in your school's decision to remain a participant in FFELP.
Slide 15© Student Lending Analytics, LLC
SLA Flash Survey: Trends in FFEL and DIRECT Lending Reasons Considering (or Switching To] DL Program
4.384.13
3.953.73 3.60 3.57 3.57
3.04
0.0
1.0
2.0
3.0
4.0
5.0
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Survey question: Please indicate the relative importance of each factor in your decision to switch to Direct Lending (or to consider making the switch)
Slide 16© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Private Student Loan Markets Blinking Red
Availability of private loans declining rapidly…
– Lenders representing over 35% of private loan market have 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 narrowing loan activities to most creditworthy clients as fears mount over deteriorating consumer credit situation
• Largest private lender Sallie Mae (over 40% market share) had 20%
drop in private loan originations in 2008.
• Citibank and Sallie Mae both continue to see increasing
delinquencies based on most recent quarterly reports.
Slide 17© Student Lending Analytics, LLC
Managing Lender Lists in Time of Financial Turmoil 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 restructuring
– Banks likely to remain risk-adverse in light of rising delinquencies
Expect credit unions to become more active players in private student loans
Proprietary schools lending directly to their students– Will non-profit institutions follow their lead?
Expect loan terms to be restructured by lenders reliant on securitization markets– Interest-only payments while in school to eliminate negative amortization loans
– Shorter terms
– Co-signers required for all but the most creditworthy students
States also looking for 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 has proposed private loan program for in-state students
Slide 18© 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-
sign
ers
Paren
t PLUS
Tuiti
on R
epay
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Cou
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Inst
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unds
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pplicat
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Peer-
to-P
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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 19© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Summary
Rationale for lender lists
Market conditions for FFELP and private loans
HEOA and new requirements for lender lists
RFI considerations for 2009-10
Successful management of lender relationships
Slide 20© Student Lending Analytics, LLC
Stimulus BillWhat’s In It for Higher Education?
Increase in Pell Grant funding levels
– $5,350 for 2009-10 and $5,550 for 2010-11
Increase tuition tax credit for up to $2,500
– Partially refundable
Increase work-study funding by $200 million
Following items were dropped which had appeared in House bill
– $2,000 increase in Stafford loan limits
– Lender subsidy recalculation
Slide 21© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil 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;
Slide 22© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil 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 enhances disclosures to be provided by lenders at every stage of process (application, approval and consummation)
– 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
Slide 23© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil 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
Slide 24© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Preferred Lender List Requirements
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;
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;
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
Prominently disclose the method and criteria used to select lenders and ensure picked based on best interests of borrowers
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;
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
Slide 25© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Summary
Rationale for lender lists
Market conditions for FFELP and private loans
HEOA and new requirements for lender lists
RFI considerations for 2009-10
Successful management of lender relationships
Slide 26© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil The Process Matters
Appoint scribe at outset of process to detail the process
Determine the targeted number of lenders on the list
Identify most important criteria and determine their weightings
Craft RFI questions based on criteria you determine are the most important
– Yes/No questions vs. open-ended ones
Develop comprehensive list of lenders to invite
Receive confirmation from lenders that they will be responding
– Bank of America has indicated they will not be responding to RFIs
– Chase will respond to Alt. Loan RFIs now and FFEL RFIs at some point in future
Analyze lender responses in objective, analytical fashion
Develop scorecard for lender responses
Select lenders based on scorecard
Slide 27© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial TurmoilLender 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
Slide 28© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Find Savings for Students Where You Can
ECASLA has diminished opportunity for borrower benefits with FFELP 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
• For 2009-10 standard origination fee for Stafford loans drops to 0.5%
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 29© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Financial Strength of Lenders MUST be Evaluated
Use your Business Office to assist with this analysis
Persistence in lending activities– Any issues with delayed disbursements
Source of financing– Internal– External
• Participation in Dept. of Education’s liquidity plan
• Even with all government programs, lines of credit still imperative
External bond ratings provide clue to cost of capital– Moody’s, Fitch, S&P
Loan growth over 2-3 year period provides signal on access to capital
Default and delinquency rates
Stock price – Performance relative to other student lenders– Trends
Slide 30© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Innovative Ways To Measure 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 31© Student Lending Analytics, LLC
SLA Flash Survey: Customer Service Include Customer Service in Lender Selection Process
86%
93%
79% 78%
0.0%
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Overall 4-Year Private 4-Year Public 2-Year Public
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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 32© Student Lending Analytics, LLC
SLA Flash Survey: Customer Service Measuring Customer Service
73% 71%
58%
45%
36%33%
10%
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20.0%
30.0%
40.0%
50.0%
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Survey question #4: Indicate ALL of the methods that you utilize to measure lender customer service.
Slide 33© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Summary
Rationale for lender lists
Market conditions for FFELP and private loans
HEOA and new requirements for lender lists
RFI considerations for 2009-10
Successful management of lender relationships
Slide 34© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Lender Management Not a Once Per Year Event
Selecting 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 to have back-ups available
Slide 35© Student Lending Analytics, LLC
Managing Lender Selection in Time of Financial Turmoil Lender 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 36© 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 38© 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 39© 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