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Slide 1 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think This presentation does not constitute formal policy or legal advice and should not be relied upon as such. Slide 2 Slide 2 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Agenda Federal Student Loans Private Student Loans Financial Literacy programs Financial Aid Counseling Perkins Loan Program Slide 3 Slide 3 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Federal Student Loan Plans for 2009-10 Survey question: Please select the choice which best describes your institution's plans for the 2009-10 academic year (Direct Lending or FFELP or some variation). Source: SLA Flash Survey: FFELP and Direct Lending, July 2009 (453 respondents) Slide 4 Slide 4 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Steps To Prepare For Direct Lending Survey question: My institution (either myself or other staff members) has taken the following steps to prepare for Direct Lending should that become the platform for loan origination as well as servicing in 2010-11. Source: SLA Flash Survey: FFELP and Direct Lending, July 2009 (453 respondents) Slide 5 Slide 5 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think College Administration Involvement Survey question: COMMENT ON THIS STATEMENT. The administration at my institution is interested in having a contingency plan prepared to implement Direct Lending by the proposed July 1, 2010 start date. Source: SLA Flash Survey: FFELP and Direct Lending, July 2009 (453 respondents) Slide 6 Slide 6 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Overall- Financial Aid Systems Survey question: Please indicate the financial aid system currently used by your financial aid office. Note: Others include CampusVue, CARS, Jenzibar and Poise Source: SLA Flash Survey: FFELP and Direct Lending, July 2009 (453 respondents) Slide 7 Slide 7 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think By Loan Program Type: Financial Aid Systems Survey question: Please indicate the financial aid system currently used by your financial aid office. Note: Others include CampusVue, CARS, Jenzibar and Poise among others Source: SLA Flash Survey: FFELP and Direct Lending, July 2009 (453 respondents) Slide 8 Slide 8 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Direct Lending Satisfaction Scores Survey question: Describe your level of satisfaction with the Direct Lending program for each of the factors described below. Note: Value-added services include financial literacy and default prevention activities Source: SLA Flash Survey: FFELP and Direct Lending, July 2009 (453 respondents) Slide 9 Slide 9 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Improving Direct Lending PLUS Loan Process: The PLUS loan process whereby DL would notify the borrower to e-sign instead of printing prom notes or have the prom note available to download on their web site similar to FFELP lenders. PLUS Loan processing, would like DL to offer some automation, so parents could apply online with them. Modifying internal systems/processes: Overall, I would say the ED's processes are fine; the complicated part has been modifying our internal systems and processes. Creating testing environment: I'd like to have more testing opportunities to make sure the process flow is working well. Currently, we have to set up our systems with assistance from the DL program, but there is no opportunity to test the electronic process flow to ensure that everything is working correctly. It's just "turn it on and hope it works right" currently. Slide 10 Slide 10 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Improving Direct Lending Website enhancements Students should be able to do the MPN and entrance counseling on the same website. Also, the precise way a student must enter their school on the MPN site is not user friendly. How about some type of good-old-fashion drop-down list? The DL Servicing Website needs to be more user-friendly. It needs more financial literacy material, advice about borrowing, and calculators that are easier to locate. Default prevention and service to students: Default Prevention, there does not seem to be many materials or much available. Students exit and that is it. Improve customer service to students. Implementation assistance I would like to see the Department provide some more training opportunities. Better coordination of contact for FAA with COD/Direct Loan Origination. Better interface/instructions for set up on COD and Direct Loan Servicing site. It's not intuitive. Stability of servicers Keeping the same contractors for the servicing. It seems that every few years a new contractor takes over and it takes a while for everything to move smoothly after each transition. Slide 11 Slide 11 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Whos Going Direct? Source: SLA research, May 2009 Slide 12 Slide 12 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think The Geography of FFELP program Thirteen states had at least 90% of the institutions within their state participating in the FFEL Program in 2007-08: West Alaska Hawaii Montana New Mexico Utah Wyoming Midwest Nebraska North Dakota South Dakota East Pennsylvania New Hampshire Vermont South Mississippi Slide 13 Slide 13 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think The Legislative Process From Here H.R. 3221 Debated in House of Representatives Most analysts expect the bill to pass the House after August recess Senate Committee on Health, Education, Labor and Pensions (HELP) to introduce their own legislation Senate debates and votes on Senate Committees bill Differences between Senate and House bill to be resolved by Conference Committee Legislation will be reported to respective Budget Committees by October 15, 2009 House and Senate vote on respective budget bills Differences between House and Senate resolved by Conference Committee House and Senate vote on final budget bill Slide 14 Slide 14 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Agenda Federal Student Loans Private Student Loans Financial Literacy programs Financial Aid Counseling Perkins Loan Program Slide 15 Slide 15 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Whos Taking Out Those Private Student Loans? From Project on Student Debt Analysis of NPSAS Data: Percentage of all undergraduate students who borrowed private student loans jumped from 5 percent in 2003-04, to 14 percent in 2007-08. At proprietary (for-profit) colleges and universities, the percentage of students who took out these loans skyrocketed from 13 percent in the 2003- 04 school year, to 42 percent last year. One in four private student loan borrowers in 2007-08 didnt take out any federal Stafford loans that year Slide 16 Slide 16 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think How Has The Supply of Private Student Loans Been Impacted by Credit Crunch? Supply of private loans declined rapidly in August-September 2008 Lenders representing 31-37% of private loan market stopped lending 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 credit quality has plagued student loans Sallie Mae expected to write-off over $1 billion in private student loans in 2009 Limited access to capital And new entrants have not added much new supply into market Discover entered market in 2007 Credit unions starting to increase their market presence Peer-to-peer lenders, Fynanz and GreenNote, met with limited success Slide 17 Slide 17 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think How Have Students Adjusted To The Decline in Availability of Private Loans? 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% growth 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 billion in incremental borrowing Parent PLUS loan growth appears to be flat Sallie Mae, the largest FFELP lender, saw 57% growth in Stafford volume in their internal brands for 2008 while Parent PLUS volume was flat over the same timeframe Leading indicator, FAFSA filings, are up 20.8% in first quarter, so expect this trend of increased federal loan borrowings to continue Slide 18 Slide 18 Student Lending Analytics, LLC In The Trenches: What Financial Aid Administrators Think Student Concern About Transparency Selected comments from SLA Private Student Loan Ratings survey: While the interest rate was not disclosed on the website after being approved without a cosigner, I called the customer service line and they were very helpful: they told me what my rate was, which was prime plus 2 or 3%. I asked if I could get a lower rate with a cosigner and they said I could try, so I did and got a much lower