Slide 1© Student Lending Analytics, LLC Navigating the Way Through: Preferred Lender Lists in a Time of Change

Slide 1© Student Lending Analytics, LLC

Navigating the Way Through: Preferred Lender Lists in a Time of Change


Agenda

Introduction

Recent Dept. of Education Regulations on Preferred Lender Lists

Development of Preferred Lender Lists– The Process – Selection Criteria– Disclosure of Lending Programs

Trends in Preferred Lender Lists– Stafford and Alternative Lender Lists– Lender Penetration by Loan Program– Geographical Nature of Lender Relationships

Feedback from Lender Community


Dept. of Education RegulationsImpact on Preferred Lender Lists

School may, at its option, make available a list of recommended or suggested lenders provided that the list:

– Not used to deny a borrower’s choice– Does not contain fewer than three lenders that are not affiliated with each other– Does not include lenders that have offered or have been solicited by the school to offer financial or

other benefits or any promise of a certain number of loan applications

School that provides such a list must:– Disclose the method and criteria used to select any lender– Provide comparative information about interest rates and other benefits offered by the

lenders– Include prominent statement that not required to use one of the lenders on the preferred list– For first-time borrowers, not assign borrower’s loan to a particular lender– Not cause unnecessary certification delays for borrowers who use lenders not on the list

Final regulations had two changes to earlier proposal– School must update its preferred lender list and the accompanying information at least

annually– Dropped clause requiring that benefits offered to borrowers by the lender had to be the same for all

borrowers at the school

Regulation and disclosure requirements of preferred lender lists will increase burden of schools by 141,625 hours (roughly 30 hours per FFEL school)


Dept. of Education RegulationsFollow-up

Guidelines on method and criteria are not meant to be prescriptive but rather act as guidelines– Expect that explanation of how the lender list was created as well as the

criteria will be disclosed with the preferred lender list

Have thought a lot about the form that will collect information on comparative loan terms – Will be presenting to OMB shortly with two separate comment periods (30

and 60 days) to follow thereafter– Mulling the use of APR as a way to create “apples to apples” comparison

and to standardize loan costs

Hoping that schools will abide by the spirit of the regulations prior to July 1, 2008 adoption date


Agenda

Introduction






Why Preferred Lender Lists?

Schools have leverage with lenders to negotiate favorable terms for their students– Opportunity for concentrated and large volume of loans through one

distribution point

Help students and parents who otherwise have innumerable number of lenders and loan products to choose from

Assist Financial Aid professionals with high volume of requests regarding lenders while also allowing for streamlined operations

Provides opportunity to educate students and parents rather than leave them at the whim of the marketplace


Top 10 Questions in the Lender Selection Process

Who needs to be involved in decision making process?

RFI vs. RFP vs. less formal process?

Which loan programs should be included in this process?

What are key criteria in evaluating lenders?

What is the relative value/importance of each criterion?

What questions will assist you in differentiating lenders and measure them against the criteria?

How will proposals be evaluated?

How many/which lenders should be invited to participate in the process?

How many lenders to select as preferred lenders?

How should information about process and preferred lenders be disclosed?


Case StudyCarleton College

Utilized case studies as means to ascertain full cost of loan– “…we developed a number of case studies and asked lenders specific questions

to ascertain the full cost of a loan and the benefits.”

Understand probability of given benefit being received– “We were also careful to ask about the proportion of borrowers who receive

certain benefits to test assertion against reality.”

Cast wide net to collect information from as many lenders as possible – “We received 20 proposals from lenders across the country.”

Utilize two step process to select lenders– “Determined six finalists based on the clarity of the proposal, benefits available

to our students, and cost of the loans over time.”– “We then invited all finalists to campus for a face-to-face meeting…eliminated

two lenders from consideration.”

Collect supplemental information on customer service in creative way– “The final four lenders were re-reviewed and we also made cold calls to their toll-

free phone numbers to determine the quality of their customer service.”


Case StudyUniversity of Connecticut

Issued Request for Proposal for Student Loan Services on July 3, 2007

Provided detailed criteria to evaluate Stafford Loan Proposals– Thirteen criteria listed including:

• Front-end fees and borrower benefits• Back-end borrower benefits• Telephone customer service• Technical support • Ease of loan processing for school• Customer service for school

– Assign maximum points available for each criterion from 5 to 25 points

Relative importance of criteria out of 215 points total– Back and front-end fees and borrower benefits 50 points– Loan Processing (school and borrower) 40 points– Customer service (school and borrower) 40 points


Insights from SLA’s Lender Selection Study

Successful processes require an investment of time and resources; there are no shortcuts

– Face to face meetings– Student surveys– Invite large group of lenders into the process

Maintain an attitude of continuous improvement– Tweak their proposals every year; adding and deleting items– Constantly rating their incumbent lenders – If you don’t measure it, you cannot control it

Set expectations for the relationship in the proposal itself– Many set minimum requirements about service levels, problem resolution turnaround

and other issues

Once lenders are selected, they see this as the beginning rather than the end of the process

– Constantly monitoring the program; many rate their lenders on ongoing basis and share the information with them


Polling Question #1

Please indicate the method you used to select lenders for the 2007-08 processing year:

• Request for Proposal (RFP)

• Request for Information (RFI)

• Asked existing lenders for their new terms and borrower benefits

• Less formal approach

• None of the above


Polling Question #2

Please indicate the method you intend to use to select lenders for the 2008-09 processing year:

• Request for Proposal (RFP)

• Request for Information (RFI)

• Asked existing lenders for their new terms and borrower benefits

• Less formal approach

• None of the above


Agenda

Introduction






Lender Selection Criteria

Reviewed the websites of a sample of 30 schools which had disclosure around the criteria used in lender selection process

Specific criteria: 46.7% of the schools had specific disclosure rather than vague language on the criteria considered– Most common practice shared by the schools with specific disclosure is to

separate the criteria into different categories (borrower benefits, customer service, etc.)

Lender selection process: only 13.3% of schools provide some level of detail around the process; however more schools disclosed at least how often they go through the process– 46.7% review the process annually– 6.7% review the process every two years– 46.7% did not disclose timing

Following page shows the prevalence of some of the more common, interesting criteria disclosed by the schools


General criteria such as borrower benefits and customer service were disclosed in 100% of those schools analyzed.

More specific disclosure is provided in the charts below:

Lender Selection Criteria

56.7%

36.7%23.3% 20.0%

10.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Origination Fees

Default Rates Principal reductions

Interest Reduction for Auto-

Debits

Likilhood of Attaining Benefits

Lender Selection Criteria Prevalence

Borrower Benefits

73.3%

53.3%

30.0%23.3% 20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Ease of Application

Customer Service -

Timing

Lender Reputation

Input from students and

parents

Default Education / Prevention

Lender Selection Criteria Prevalence

Other


Disclosure Examples

Quinnipiac University despite not going through an RFI process, provides detailed disclosure on their process and criteria considered

– http://www.quinnipiac.edu/x3343.xml

Carleton College goes through a very specific description of their process

– http://apps.carleton.edu/campus/sfs/Useful_links/lender_statement/

Stanford University provides a solid model of disclosure amongst the schools that have specific criteria disclosure

– http://www.stanford.edu/dept/finaid/loanprocessing/lenderselection.html

SUNY – Maritime College also provides detailed, categorized criteria

– http://www.sunymaritime.edu/Business%20and%20Enrollment%20Services/Financial%20Aid/PreferredLenderChoosing.aspx


Polling Question #3

For those with a preferred lender list, what is the SINGLE most important criterion in your selection process:

• Automatic borrower benefits

• Customer service

• Repayment benefits

• Loan servicing

• Web-based services


Agenda

Introduction






Disclosure of Stafford Loan Information Varies Widely

Analyzed 991 schools websites for Stafford Loan Information

Measured disclosure using seven distinct categories

While 38% provided information on lender and benefits, 30% provided no information on lenders.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Lend

ers +

Bene

fits

+ Loa

n Cos

t

Lend

er + B

enefits

Specif

ic Lin

ks

Gen

eral L

inks

Lend

er

No In

form

atio

n

No M

entio

n of L

oan

No Pre

ferre

d Lend

er

Level of Disclosure (Most to Least)

Pe

rce

nt o

f T

ota

l Sc

ho

ol W

ebs

ite

s


Disclosure Varies Between 2 and 4 Year Programs

Four year programs disclose lender and benefit information more frequently than two year programs

– 41.3% of 4 year schools vs. 29.9% of 2 year schools disclose such information

Over 40% of two year schools provide no information on Stafford Loan program

One possible explanation would be lower loan volumes at two year programs.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Pe

rce

nt

of

To

tal

Sc

ho

ol

We

bs

ites

Associates

Bachelors


Higher Volume FFELP Schools Provide Greater Disclosure

45.2% of schools with over $100MM in Stafford and Plus Loans disclosed Lender + Benefit information….

While only 26.0% of schools with less than $5MM in loan volume provided a similar level of disclosure 0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Under $5MM Between $5-$9MM

Between$10-$24MM

Between$25-$49MM

Between$50-$99MM

Over$100MM

FFELP Loan Volumes

Perc

enta

ge o

f Sch

ools

Dis

clos

ing

Lend

er a

nd B

enef

its

Info

rmat

ion


Low Default Schools Provide More Disclosure

Over 45% of schools with default rates less than 2.5% disclose lender and benefit information

27.1% of schools with a default rate greater than 10% provided similar level of disclosure

0.0%

5.0%

10.0%15.0%

20.0%

25.0%

30.0%

35.0%40.0%

45.0%

50.0%

Less than1%

Between 1and 2.49%

Between2.5% and

4.99%

Between5.0 and7.49%

Between7.5 and9.9%

Over 10%

Range of Cohort Default Values (2005)

Per

cent

age

of S

choo

ls D

iscl

osin

g Le

nder

and

B

enef

its In

form

atio

n


Maintenance of Preferred Lender Lists

0%

10%

20%

30%

40%

50%

60%

70%

School Site Third Party

Perc

ent of Schools

wit

h Lender and B

enefi

t In

form

ati

on

0%

10%

20%

30%

40%

Perc

enta

ge o

f Th

ird P

art

y Sit

es

Source: SLA analysis of 390 school websites with data on lenders and benefits.


Youngstown State – Lender Comparison Tool

Legend

- Zero fee lender

- Front end benefits

- Back end benefits

- Auto debit reduction

Tip: Look for lenders that offer zero fees and front end repayment benefits. Statistics show a lower probability of borrowers achieving benefits contingent on a high number of on-time payments. Back end benefits are also usually lost if a borrower chooses to consolidate.

Click the "View" button to learn more about the requirements that must be met, if any, to receive the savings listed. Detailed information about the lender and a repayment schedule are also provided. Calculations are based on benefit information reported to YSU by its lenders for the academic year 2007-2008. It is the lender's responsibility to notify YSU when their program changes. Sorted by Savings. This sort highlights potential savings. Loan savings assume all of the lender's criteria are met.

Lender

Type

of Benefit

Fees

Interest

Principal

Total Paid

Benefits

No Fee

Savings

Details

Base Stafford Loan

$450.00 $5,714.46 $15,000.00 $20,714.46 $0.00 $0.00 $0.00

Fifth Third Bank

$0.00 $4,849.22 $14,100.00 $18,949.22 $1,765.24 $450.00 $2,215.24

View

Student Loan Funding

$0.00 $4,308.28 $14,662.50 $18,970.78 $1,743.68 $450.00 $2,193.68

View


Polling Question #4

How many lenders do you intend to include on your preferred lender list?• 3-4

• 5-7

• 8-10

• 11-20

• Over 20


Agenda

Introduction






Preferred Lenders for Stafford Loansby Loan Volume

Median Number of Preferred Lenders

6.0 6.0 6.0 6.0

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

25th Percentile

4.0 4.0 4.0 4.0

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

Average Number of Preferred Lenders

6.6 6.58.2

6.9

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

75th Percentile

9.08.0 8.0

9.0

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

Source: SLA Analysis of 540 FFELP Schools that disclose preferred lender list information for their undergraduate Stafford Loan Program.


Number of Stafford Preferred Lenders

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 Over10

Source: SLA Analysis of 540 FFELP Schools that disclose preferred lender list information for their undergraduate Stafford Loan Program.


Preferred Lenders for Alternative Loans by Loan Volume

Median Number of Preferred Lenders

5.04.0

5.0 5.0

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

25th Percentile

3.0 3.04.0 4.0

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

Average Number of Preferred Lenders

5.4 4.65.8 6.4

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

75th Percentile

7.06.0

7.09.0

0

24

68

10

Under $5MM $5MM to

$24.9MM

$25MM to

$99.9MM

Over $100MM

Loan Volume

Num

ber o

f Pre

ferr

ed Le

nder

s

Source: SLA Analysis of 501 FFELP and Direct Schools that disclose preferred lender list information for their undergraduate Alternative Loan Program.


Number of Alternative Preferred Lenders

0

10

20

30

4050

60

70

80

90

100

1 2 3 4 5 6 7 8 9 10 Over10

Source: SLA Analysis of 501 FFELP and Direct Schools that disclose preferred lender list information for their undergraduate Alternative Loan Program.


Preferred Lender List Disclosure

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

ALL Stafford + Plus Stafford Only Other

Perc

ent o

f Tot

al S

choo

ls

Source: SLA Analysis of 558 FFELP Schools that disclose preferred lender list information for their undergraduate Stafford, Plus or Alternative Loan Programs.


Similarity of Lenders Across Loan Programs

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Stafford + Plus + Alternative Stafford + PlusFreq

uen

cy th

at S

am

e Nu

mber

of L

end

ers

Occu

rred

at

Giv

en

Scho

ol fo

r Diff

ere

nt Loan

Pro

gram

s

Source: SLA Analysis of 558 FFELP Schools that disclose preferred lender list information for their undergraduate Stafford, Plus and/or Alternative Loan Programs.


Agenda

Introduction






Stafford Loan Lender List Penetration (by Loan Volume)

Source: SLA Analysis of 540 FFELP schools with preferred list of Stafford Lenders.

Note: Sallie Mae including Academic Management Services, Nellie Mae, Sallie Mae Education Trust, Southwest Student Services Corporation, Student Loan Finance Association and Student Loan Funding would be 40% overall and 30%, 37%, 46% and 43% respectively for each of the other columns.

Overall Under $5MM $5-$24.9MM $25-$99.9MM Over $100MM

Citibank 63% 66% 60% 65% 68%

Bank of America 39% 45% 34% 44% 35%

Wachovia Bank 37% 39% 32% 43% 46%

Chase 36% 22% 33% 42% 43%

Wells Fargo Bank 34% 34% 31% 36% 38%

EdAmerica 29% 31% 27% 34% 22%

US Bank 25% 24% 30% 24% 8%

Student Loan Xpress 22% 25% 20% 25% 16%

College Loan Corporation 21% 10% 21% 22% 41%

SunTrust Bank 19% 24% 19% 17% 19%Sample size 540 67 241 195 37


Stafford Loan Lender List Penetration (by Geography)

Source: SLA Analysis of 656 FFELP schools with preferred list of Stafford Lenders.

Overall West East Midwest South

Citibank 62% 76% 51% 60% 64%

Wachovia Bank 38% 42% 26% 30% 49%

Bank of America 36% 50% 22% 20% 48%

Chase 33% 32% 15% 34% 43%

Wells Fargo Bank 33% 73% 0% 44% 21%

EdAmerica 28% 7% 19% 27% 45%

US Bank 24% 42% 1% 50% 5%

College Loan Corp. 22% 29% 23% 21% 19%

Student Loan Xpress 21% 16% 13% 38% 14%

Sallie Mae 20% 29% 17% 16% 19%Sample size 656 125 130 179 222


Private Loan Lender List PenetrationBy FFELP Loan Volume

Source: SLA Analysis of 501 FFELP and DIRECT schools with preferred list of Alternative Lenders.

Note: Sallie Mae figures including Academic Management Services, Nellie Mae, Sallie Mae Education Trust, Southwest Student Services Corporation, Student Loan Finance Association and Student Loan Funding would be 58% Overall and 48%, 53%, 61% and 70% respectively if all brands were included.

Overall Under $5MM $5-$24.9MM $25-$99.9MM Over $100MM

Citibank 79% 55% 72% 84% 90%

Sallie Mae 46% 38% 41% 49% 56%

Wells Fargo 40% 41% 32% 44% 49%

Key Bank 39% 41% 37% 39% 41%

Wachovia Bank 32% 38% 27% 34% 35%

Bank of America 31% 45% 24% 34% 33%

Chase 28% 28% 27% 28% 30%

Nellie Mae 21% 28% 16% 23% 29%

US Bank 21% 7% 22% 21% 29%

Campus Door 21% 17% 18% 20% 32%Sample size 501 29 186 223 63


Private Loan Lender List PenetrationGeographical Analysis

Source: SLA Analysis of 683 FFELP and DIRECT schools with preferred list of Alternative Lenders.

Note: Sallie Mae includes Academic Management Services, Nellie Mae, Sallie Mae Education Trust, Southwest Student Services Corporation, Student Loan Finance Association and Student Loan Funding

TOTAL West East Midwest South

Citibank 74% 85% 73% 72% 71%

Sallie Mae 46% 51% 49% 35% 53%

Wells Fargo Bank 39% 80% 7% 51% 37%

Key Bank 38% 41% 40% 43% 28%

Wachovia Bank 31% 38% 25% 27% 38%

Bank of America 28% 43% 23% 17% 36%

Chase 27% 30% 16% 25% 37%

Nellie Mae 20% 27% 20% 12% 26%

US Bank 20% 34% 0% 46% 2%

Campus Door 19% 23% 14% 20% 23%Sample size 683 106 192 205 180


Agenda

Introduction






Lender Feedback

Broadly speaking, many expect that borrower benefits will be reduced given the reduction in subsidies…however others taking a “wait and see” approach

– Wells Fargo was first major lender to reduce borrower benefits in significant way– FinanSure has stopped accepting applications for federal loans as of 11/1/2007

Volume of RFI/RFPs has increased significantly; receiving calls from schools that they had not heard from before

RFI/RFP questions have become more sophisticated and seem to have gotten much longer

– Lenders prefer proposals that clearly identify key criteria that will be used to judge proposals

University of Phoenix RFP will be early indicator in evaluating future direction of loan terms and borrower benefits

– Largest FFELP borrower at over $2.3BN in loan commitments in 2006-07– Proposals due back on November 15, 2007


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Send email to [email protected]

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Student Lending Analytics – Consulting Services

Lender Selection Criteria development

RFI/RFP Proposals– Drafting– Review and consultation

LenderInsight reports– Provides market penetration data to understand regional strengths– Catalog of borrower benefits provided by given lender at comparable schools– Contact information speeds time to market with proposal

Borrower Satisfaction Surveys– Measure performance of existing lenders – Provide data-driven approach to key element of program

Proposal Evaluation– Valuation of lender benefits– Lender Scorecard enables rigorous, objective method to review proposal

Management Presentation


Student Lending Analytics – Lender Insight

Captures information on lender relationships with over 2,500 schools– Origination and federal default fees – Valuation of various borrower benefits

Query Page allows for robust benchmarking analysis– Student population– Annual FFELP loan volume– Default rates– Ownership structure

Versatile report structure allows for meaningful comparisons– Lender Report allows you to compare the deals that your lenders are

providing at comparable schools– School Report allows you to see the lending arrangements that comparable

schools have with ALL of their lenders.


Student Lending Analytics – Background

Unbiased, objective, independent consultant and research firm serving the financial aid community

Consult with financial aid directors to create an objective, unbiased and effective lender selection process to ensure compliance while maximizing potential loan benefits to students.

Full suite of research and services– Lender Selection Consulting– Borrower Satisfaction Surveys – Inside Student Lending Newsletter (monthly)– Frequent Webinars – In-Depth Reports – LenderInsight Database

Documents

Slide 1© Student Lending Analytics, LLC Navigating the Way Through: Preferred Lender Lists in a Time of Change