2011 WASFAA Conference

Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success

● ● ● Performance Management for Student Loans

Performance Management Program Overview

The program is a holistic portfolio management concept:The portfolio is defined as the institution’s entire body of current or former students having Title IV loansAt any point in time, up to 4 cohorts are actively touched by program activitiesEach cohort moves through the program with strategies targeted to the life cycle of the loansProgram activity begins at entry into the loan grace periodProgram activity terminates at the end of the 3 year cohort measurement period

Remedial/Maintenance Mode

(Repayment / Delinquency)

Preventive Mode

(In School / Grace)

45 Month Performance Management Program

REPAYMENTCOHORT 1

REPAYMENTCOHORT 2

REPAYMENTCOHORT 3

REPAYMENTCOHORT 4

Cohorts are dynamically defined

as loan records indicate changes in graduation dates

Message and media are tailored to loan

stage and action/response

activityStatus

Changes

StatusChanges

StatusChanges

High Intensity/Broad Scope Lower Intensity/Targeted Scope

Campaign Dynamics

Cohort Treatment Model

3

Lifecycle Strategies

GRACE

ESTABLISHED PAYERS

DELINQUENT OR DEFAULT

IN-SCHOOL

MessageResponse

Cycle

MessageResponse

Cycle

MessageResponse

Cycle

MessageResponse

Cycle

MessageResponse

Cycle

MessageResponse

Cycle

MessageResponse

Cycle

High intensityEstablish relationshipCreate awarenessRemind/Inform/ EducateInformative tone

Risk based intensityRemind/Educate/Call to ActionRemediateTone varies from complimentary to urgent

End of Measureme

nt Period

Remedial/Maintenance ModePreventive Mode

Results are measured from movement of account statuses

MessageResponse

Cycle

Activity begins 90

days before Grace

Loans in a given cohort are treated based on their stage of life:•Each cohort receives communication strategies based on borrower status•Cohort is dynamically defined as drop-outs introduce themselves to a cohort and expected graduation dates change•Strategies adapt to changes in loan status, previous outreach activity, and cohort membership

Loan Status

Changes

Loan Status

Changes

Loan Status

Changes

Status changes drive loans into campaign strategy segments

Model Communication Strategy

4

Model Communication Strategy

GRACE

ESTABLISHED PAYERS

DELINQUENT OR DEFAULT

IN-SCHOOL

Remedial/Maintenance ModePreventive Mode

Communication Channel and Intensity:•Actual strategies will utilize all the available contact information•Intensity is front-loaded – the emphasis is to pre-emptively avoid delinquency•Segmentation of intensity and channel will evolve with each portfolio

Auto Messaging

Email

SMS

Auto Messaging

Email

SMS

Auto Messaging

Email

SMS

Phone Calls

2 - 4 times/month

1 time/month 1 - 2 times/year

Auto Messaging

Email

SMS

Phone Calls

2 - 6 times/month

1 - 3 times/month

1 -2 times/quarter

Communications

Design and Content:•Communication is done on a first-party basis – in the name of the school•School provides naming and branding guidelines for customization of communications•Communications cycle can be coordinated with school-based outreach communications or programs (e.g. exit counseling)•Based on lifecycle and previous activity, communications contain elements of:

• Consumer credit education (responsible use of credit)• Specific loan education (options for dealing with their particular loans)• Guidance (“how to” get a forbearance, request loan forgiveness program, etc.)• Calls to action (“protect your credit rating”, “update your address”, “call your servicer with your enrollment status”)• Congratulations (linking the value of academic success to their loan responsibilities)

Feedback and Segmentation Cycle:•A borrower’s response to a particular communication will drive subsequent iterations of the communication strategy.

Borrower

Response

Acknowledgement

No Response

Transfer to Servicer

“Opt out” / “Do not call”

New Strategy Segment

New Strategy Segment

Special Handling Segment

Base Strategy Segment

Communication

Delivery

Program Delivery

Data and Analytics :•Program is built upon a robust foundation of servicer, NSLDS, and school information systems data to provide the most accurate up-to-date data available for identifying loan status.•Program activity information is fed back into the data warehouse and tagged to each loan. •Ongoing data analysis refines segmentation and messaging.•Reporting focuses on changes in loan statuses over time to manage effectiveness of the program.•Implementation of Loan Science’s Federal Loan Data Warehousing solution is a prerequisite to the program.

Key Considerations:•Program is primarily preventive, not remedial, so allocation of student population in every cohort to the program by March 1 each year is essential.•Program can be customized to integrate school based activities.

December, 2010 Loan Science Proprietary and Confidential 7

Early intervention communication campaigns run during the grace period Control group set aside for performance measurement Communications emphasized staying in touch and value of managing credit

responsibly

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0 1 2 3 4 5 6 7 8 9 10

Months Since Program Action

Cu

mu

lati

ve

% o

f T

ota

l Lo

an

s w

ith

Up

da

tes

Action Group

Control Group

Case Study: Early Intervention Cut Early Charge-offs by 50%

Current DelinquentForbearanc

eDefaulted

Action Group

37.6% 26.1% 3.0% 4.6%

Control Group

34.7% 29.3% 3.1% 9.3%

Variance % 8.3% -10.9% -2.8% -51.0%

Loan Performance: Status of Loans after 10 Months in Repayment*

Borrower Response: Demographic Update Activity

Notes

Response to program action is indicated by loans having an address or phone number update event.

Recipients of early intervention communications were much more likely to keep their contact information updated.

Positive behavioral difference in action group persists up to 24 months after last communication.

Notes Action group loans have experienced

half the defaults of the control group.

Action group loans are more likely to be current and less likely to be delinquent.

Action group loans are no more likely to use forbearance than control group loans.

December, 2010 Loan Science Proprietary and Confidential 8

Case Study: Portfolio Performance Comparison

Key Portfolio Performance Metrics Compares the net flow rates, delinquency and losses of two pools* of PSL DTC loans. Portfolio A receives full active portfolio management while Portfolio B receives typical loan

servicer “due diligence” treatment.

Cycle 2 to Write-off Net Flow Rates**

0%

10%

20%

30%

40%

50%

60%

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10

Portfolio A

Portfolio B

30+ Delinquency Rates

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10

Portfolio A

Portfolio B

Cumulative Gross Credit Losses per $100MM in Repayment

$0

$5

$10

$15

$20

$25

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10

Mill

ion

s

Portfolio A

Portfolio B

Net Flow Rates** measure the effectiveness of collections over all stages of delinquency. The result is directly reflected in portfolio delinquency rates . . .

* Both pools are direct-to-consumer Private Student Loans issued during 2005-2008 with essentially the same terms, pricing and credit parameters.

** Cycle 2 to Write-Off Net Flow Rate is the cumulative percent of 30 day delinquent accounts (2 cycles past due) that roll to charge off at 6 cycles past due (150+ days past due).

. . . and dollars of credit losses.

Pool Comparative Statistics - As of 1/2010AvgFICO

AvgBalance

PctCosigned

Pct In Repayment

Avg Interest Rate

PctGraduate

Pct 4 yr Undergrad

Portfolio A 722 11,732$ 49.7% 37.2% 6.0% 19.6% 80.4%

Portfolio B 726 13,303$ 59.7% 50.0% 5.7% 18.0% 82.0%

2011 WASFAA Conference

Financial Literacy, Debt Management and Default Aversion - Finding Synergy for Success

● ● ● Performance Management for Student Loans