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2008 NYSFAAA Conference Lender Lists: 10 Things You Need to Know Now © Student Lending Analytics, LLC

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

Slide 1

2008 NYSFAAA Conference Lender Lists: 10 Things You Need to Know Now While 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! © Student Lending Analytics, LLC Slide 2

2008 NYSFAAA Conference FFEL 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 © Student Lending Analytics, LLC Slide 3

2008 NYSFAAA Conference Private 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 © Student Lending Analytics, LLC Slide 4

2008 NYSFAAA Conference Pricing on Private Student Loans Rising Loans tied to LIBOR have seen dramatic increase – September 15 th : One month LIBOR: 2.49% – September 25 th : 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 © Student Lending Analytics, LLC Slide 5

2008 NYSFAAA Conference Government Intervention in Private Loan Market Senator 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 © Student Lending Analytics, LLC Slide 6

SLA Flash Survey: Alternative Loan Availability Strategies for Dealing with Alt. Loan Issues (Overall)

80.0% 70.0% 77% 68% 78% 73% 60% 60.0% 64% 53% 50% 50.0% 40.0% 30.0% 20.0% 26% 10.0% 0.0% C o si gn er s Par en t P L U S R ep aym en t P lan T ui tion L en de r L

Source: SLA Flash Survey on Alternative Loan Availability

ist C ou ns el in g E xt er nal S ite s In st itu tion al F M un ul ds tip le A pp lic at ion s Pe er -t o Pe er

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

Aug-08 Jun-08

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2008 NYSFAAA Conference Having 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 © Student Lending Analytics, LLC Slide 8

2008 NYSFAAA Conference 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 © Student Lending Analytics, LLC Slide 9

SLA Flash Survey: Lender Customer Service Loan Processing Ratings

4.0

3.0

3.45

3.40

3.33

3.32

3.17

3.11

3.00

2.87

2.0

1.0

1.79

0.0

L en de r 1 L en de r 2 L en de r 3 L en de r 4 L en de r 5 L en de r 6 L en de r 7 L en de r 8 L en de r 9 L en de r 10

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.

L en de r 11

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

4.0

3.73

3.0

3.42

3.39

3.24

3.14

3.00

2.98

2.80

2.70

2.59

2.0

1.66

1.0

0.0

L en de r 1 L en de r 2 L en de r 3 L en de r 4 L en de r 5 L en de r 6 L en de r 7 L en de r 8 L en de r 9 L en de r 10 L en de r 11

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

70.0% 62% 60.0% 58% 50.0% 47% 40.0% 35% 31% 30% 30.0% 27% 23% 20.0% 10.0% 9% 6% 0.0% L en de r 1 L en de r 2 L en de r 3 L en de r 4 L en de r 5 L en de r 6 L en de r 7 L en de r 8 L en de r 9 L en de r 10

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

2008 NYSFAAA Conference Find 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 © Student Lending Analytics, LLC Slide 13

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 © Student Lending Analytics, LLC Slide 14

2008 NYSFAAA Conference Financial 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 © Student Lending Analytics, LLC Slide 15

2008 NYSFAAA Conference RFI 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 © Student Lending Analytics, LLC Slide 16

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

100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 86% 93% 79% 78% 10.0% 0.0% Overall 4-Year Private 4-Year Public 2-Year Public

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 © Student Lending Analytics, LLC Slide 17

SLA Flash Survey: Customer Service Measuring Customer Service

80.0% 70.0% 73% 71% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% L en de r We bs ite s Fi n.

A id S ta ff Su rv ey s 58% 45% 36% 33% R FI Q ue st C io us ns to m er S er vi ce C al ls C om pl ai nt L og St ud en t S ur ve ys

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

10% O th er

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2008 NYSFAAA Conference 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 © Student Lending Analytics, LLC Slide 19

2008 NYSFAAA Conference Start 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 © Student Lending Analytics, LLC Slide 20

2008 NYSFAAA Conference The 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 © Student Lending Analytics, LLC Slide 21

2008 NYSFAAA Conference 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 © Student Lending Analytics, LLC Slide 23

Student Lending Analytics Background 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 Analytics, LLC Slide 24

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 – 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 Analytics, LLC Slide 25

Student Lending Analytics Contact 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 © Student Lending Analytics, LLC Slide 27

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 © Student Lending Analytics, LLC Slide 28

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 © Student Lending Analytics, LLC Slide 29

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 © Student Lending Analytics, LLC Slide 30

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