Using Third-Party Websites As Resources For
Private Student Loans
This presentation does not constitute formal policy or legal
advice and should not be relied upon as such.
© Student Lending Analytics, LLC
Slide 1
Five Misconceptions About Private Student Loans
Since interest rates offered by lenders are basically the same,
there is not much value to a preferred lender list.
Applying for multiple student loans will harm your credit score, so
borrowers should take the first loan for which they are approved.
Borrowers should use the same lender for their private loans
throughout their college careers.
Given the wealth of information on the internet, families will do
just fine if my school does not develop a preferred lender list.
Borrowers shouldn’t worry so much about the rates on their
private student loans, since they can always consolidate them at
lower rates later.
© Student Lending Analytics, LLC
Slide 2
Agenda
The Market
The Choices
The Rules
Third-Party Options
SLA’s Offerings
© Student Lending Analytics, LLC
Slide 3
From Subprime to Superprime
Loan Volume
Avg. Loan Margins
Min. FICO score
Cosigners
Quarterly Gross Defaults
Number of Lenders
2007
Today
$23 billion
$7 to $8 billion
LIBOR + 5%
LIBOR + 9% to 9.5%
Below 600
700+
50-60%
80-90%
0.7%
1.6%
Multiple choices
Limited choices
Sources: College Board data used for 2007 Loan Volumes; SLA estimates for current Loan Volume, estimates, Loan
Margin data analyzed from securitization documents, DBRS research for 4Q 2009 Quarterly Gross Defaults
© Student Lending Analytics, LLC
Slide 4
Credit Risk: Rules Of Thumb
Importance of cosigners: "Non-cosigned loans default
at 2 times the rate of cosigned loans."
School matters: “You can see 30% differences in
default rates with a borrower with a 700 score depending
on what school that student attends."
On-time monthly payments: "Once a borrower makes
6 on-time monthly payments, incidence of default drops
dramatically."
First two years matter: "All risk in first 2 years of
repayment.”
Source: Sallie Mae executives speaking at investor conference in February 2010
© Student Lending Analytics, LLC
Slide 5
Private Student Loans Precipitous Rise… And Fall
Total Student Loans (In Millions of Constant 2008 Dollars)
$30,000
$20,000
$10,000
$0
9596
9697
9798
9899
9900
0001
0102
0203
0304
0405
0506
0607
0708
0809
Source: College Board: Trends in Student Aid
© Student Lending Analytics, LLC
Slide 6
Federal Loans Up 24% In 1Q 2009-10
Loan Type
2007-08
(In Billions)
2008-09
(In Billions)
Annual
Change
1Q 2009-10
Change
Stafford Subsidized
$29.5
$30.6
4%
21%
Stafford Unsubsidized
$28.5
$36.9
29%
26%
PLUS
$7.7
$7.4
-4%
21%
GradPLUS
$3.2
$3.9
24%
40%
TOTAL
$69.0
$78.8
14%
24%
Source: SLA analysis of Dept. of Education Data Center data
© Student Lending Analytics, LLC
Slide 7
Pell Grants Up Over 50% In 2009-10
Year
Average
Grants Recipients
Grant
(In $MM)
(In MM)
Size
Y/O/Y
Y/O/Y
Change in
Change in Change in Avg. Grant
Grants
Recipients
Size
3Q 07-08
$5,679
3.81
$1,489
15%
8%
7%
4Q 07-08
$1,659
1.37
$1,215
22%
14%
7%
1Q 08-09
$5,826
3.44
$1,695
19%
6%
13%
2Q 08-09
$3,035
1.94
$1,568
24%
10%
13%
3Q 08-09
$7,136
4.25
$1,680
26%
11%
13%
4Q 08-09
$2,286
1.66
$1,380
38%
21%
14%
1Q 09-10
$9,184
4.61
$1,993
58%
34%
18%
2Q 09-10
$4,724
2.57
$1,839
56%
33%
17%
Source: SLA Analysis of Dept. of Education Pell Grant data on Data Center
© Student Lending Analytics, LLC
Slide 8
2009-10 Market Share Projections
2008-09
(In $MM)
2009-10
Estimate
Market
Share
Annual
Change
$4,870
$2,300
32%
-53%
Wells Fargo
$900
$1,050
15%
17%
Chase
$800
$1,000
14%
25%
Citibank
$1,700
$875
12%
-49%
Discover
$200
$750
11%
275%
Credit Unions
$150
$325
5%
117%
PNC
$250
$325
5%
30%
U.S. Bank
$200
$200
3%
0%
SunTrust
$150
$175
2%
17%
Citizens
$150
$125
2%
-17%
Lender
Sallie Mae
Source: SLA analysis of earnings conference calls, quarterly (10-Q) and annual (10-K) company SEC filings, review of ECASLA financing
data and school lender lists.
© Student Lending Analytics, LLC
Slide 9
Lender List Penetration Rates
77%
Chase
72%
Wells Fargo
69%
Sallie Mae
65%
Citibank
36%
Discover
28%
US Bank
24%
SunTrust Bank
21%
PNC Bank
8%
Citizens Bank
Charter One
0.0%
4%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Percentage of Total
Source: SLA Analysis of 425 private loan lender lists, August 2009. State alternative loan programs appeared 107 times on these lists. 4% of
lists had a credit union listed.
© Student Lending Analytics, LLC
Slide 10
Agenda
The Market
The Choices
The Rules
Third-Party Options
SLA’s Offerings
© Student Lending Analytics, LLC
Slide 11
Option #1
This Page Intentionally Left Blank
© Student Lending Analytics, LLC
Slide 12
Option #2
Chase Select
CitiAssist
Citizens TruFit Student Loan
Complete Ed Loan
Credit Union Ed Access Private Student Loan
Credit Union Student Choice
Discover Student Loans
PNC Solutions Loans
Sallie Mae Smart Option Loan
SunTrust Academic Answer Loan
US Bank No Fee Education Loan
Wells Fargo Collegiate Loan
Connecticut Higher Education Supplemental Loan Authority (CHESLA)
Maine Educational Loan Authority (MELA)
Massachusetts Educational Financing Authority (MEFA)
New Jersey Class Loan
Vermont Student Assistance Corporation (VSAC) Advantage Loan
© Student Lending Analytics, LLC
Slide 13
Option #3
Cooperative Center FCU
Wells Fargo
Discover
SunTrust
Sallie Mae
© Student Lending Analytics, LLC
Slide 14
Option #4: Usage Of Third-Party Websites
Percentage of Total Respondents Indicating
Plans to Use Third-Party Website
100%
90%
80%
70%
60%
55%
50%
40%
34%
30%
15%
20%
10%
0%
4-year Private
4-Year Public
2-year Public
Survey question: Is your school planning to provide link(s) to third-party website(s) to assist students and their
families with selecting a private student loan for 2010-11?
© Student Lending Analytics, LLC
Slide 15
The Paradox of Choice
"The first effect is with all these options to choose from,
people end up choosing none. They simply pass."
"Second effect is that if people overcome this indecision
and paralysis and choose, they may choose badly."
"The third thing, which is in some ways the most
surprising, is if you overcome paralysis and manage to
choose, and you manage to choose well, you’ll be less
satisfied with what you’ve chosen if you’ve chosen from
a large set than if you’ve chosen from a small one."
Source: Interview with Barry Schwartz, author of Paradox of Choice
© Student Lending Analytics, LLC
Slide 16
Dependent On Schools For Help
Decision makers: Parents of undergraduates
Sources for information about private loans: Rely
heavily on schools
Importance of name recognition: Many chose based
on this factor
Frequency of comparison shopping: Many went with
the first loan offered to them
Source: Federal Reserve Consumer Research and Testing, 2009
© Student Lending Analytics, LLC
Slide 17
Plans for Private Loan Lender List for 2010-11 (Overall)
29%
NOT Providing A Lender List
24%
List All Private Lenders
10%
Formal RFI Process
4%
Third-party sites
Other
3%
30%
Not sure
0%
10%
20%
30%
40%
Percentage of Total Respondents
Survey question: Please describe your institution’s current plan for developing a lender list for private student loans
for 2010-11.
© Student Lending Analytics, LLC
Slide 18
Plans for Private Loan Lender List for 2010-11: 4-Year Private
20%
NOT Providing A Lender List
27%
List All Private Lenders
15%
Formal RFI Process
5%
Third-party Website
Other
2%
31%
Not sure
0%
10%
20%
30%
40%
Percentage of Total Respondents
Survey question: Please describe your institution’s current plan for developing a lender list for private student
loans for 2010-11.
© Student Lending Analytics, LLC
Slide 19
Plans for Private Loan Lender List for 2010-11: 4-Year Public
32%
NOT Providing A Lender List
19%
List All Private Lenders
6%
Formal RFI Process
Third-party sites
5%
Other
5%
32%
Not sure
0%
10%
20%
30%
40%
Percentage of Total Respondents
Survey question: Please describe your institution’s current plan for developing a lender list for private student
loans for 2010-11.
© Student Lending Analytics, LLC
Slide 20
Agenda
The Market
The Choices
The Rules
Third-Party Options
SLA’s Offerings
© Student Lending Analytics, LLC
Slide 21
Preferred Lender Arrangements
“Lender list that does not have all lenders who
lend to students at schools IS A “preferred
lender arrangement.”
© Student Lending Analytics, LLC
Slide 22
Third-Party Websites
“[Not a PLA] as long as the institution ensures that
the listing is broad in scope, does not endorse
or recommend any of the lenders on the list
and the lenders on the list do not pay the third
party entity to be placed on the list or pay the
third party entity a fee based on any loan
volume generated.”
© Student Lending Analytics, LLC
Slide 23
Institutional Requirements If Enters Into PLA
Establish and enforce code of conduct
Provide borrowers at least two choices for private loans
Provide TILA-required loan disclosures for each loan
listed
– Lenders in PLA with school required to provide by April 1st
Describe method and criteria for lender selection
including reason that each lender was selected
Provide annual report to the Department of Education
Note: Not intended to be a complete list of institutional requirements.
© Student Lending Analytics, LLC
Slide 24
Disclosure Requirements: Application Process
© Student Lending Analytics, LLC
Slide 25
Disclosure Requirements: Application Process
© Student Lending Analytics, LLC
Slide 26
Disclosure Requirements: Application Process
© Student Lending Analytics, LLC
Slide 27
Agenda
The Market
The Choices
The Rules
Third-Party Options
SLA’s Offerings
© Student Lending Analytics, LLC
Slide 28
SimpleTuition
Preferred lender list: SimpleTuition will continue to offer the ability for
schools to create a customized lender list for private loans that will meet the
compliance conditions of the current regulations.
– These lists will only contain the lenders that the school has selected
through its RFP/vendor selection process and SimpleTuition will not be
paid in any way by the student loan lenders who appear on those lists.
“Safe Harbor” list: Schools could also use SimpleTuition to power a
version of the "neutral list" of all lenders that have previously provided loans
to the students at their schools. We could provide the random rotation of
results, etc. so that it was not a static "alpha" list that will only benefit the
first lenders on the list.
Third-party hosted list: SimpleTuition will develop and release at least
one generic, comprehensive list this spring that will reside at a new URL
that schools can directly link to for the benefit of its students. It is intended
that this list will contain all known products and that SimpleTuition will not be
compensated for student loan leads from that site.
© Student Lending Analytics, LLC
Slide 29
FinAid Private Student Loan List
Website: http://www.finaid.org/loans/privatestudentloans.phtml
Comprehensive list of lenders
– Currently twenty-two lenders listed
– Includes several state/non-profit lenders (MEFA, South Carolina, NYHELPs)
Captures the following information on loans:
–
–
–
–
Lender loan limits
Rates (Min/Avg./Max)
Fees
Term
No charge for lenders to appear on the list
Lenders must disclose the same sort of information as the other lenders
supply
Lists provided in alphabetical order
© Student Lending Analytics, LLC
Slide 30
Overture’s Student Loan Marketplace
Allows borrowers to compare upfront, accurate private education
loan rates and terms from multiple lenders side-by-side
– Borrower will still need to submit application directly with lender
Currently have seven lenders participating, including for-profit
lenders and credit unions
Currently have Marketplaces established in eleven states including
the following:
–
–
–
–
–
–
–
–
Alabama Student Loan Marketplace (AL) (http://www.alabamamarketplace.com)
California Student Loan Marketplace (CA) (http://california.privateloanmarketplace.com)
HESC Student Loan Marketplace (NY) (http://www.hescmarketplace.com
ISM Student Loan Marketplace (IN) (http://www.ismmarketplace.com)
KHEAA Student Loan Marketplace (KY) (http://www.kheaamarketplace.com)
Maryland Student Loan Marketplace (MD) (http://www.marylandstudentloanmarketplace.com)
Overture Student Loan Marketplace (National) (http://www.overturemarketplace.com)
Ohio Private Loan Marketplace (OH) (http://ohio.privateloanmarketplace.com)
© Student Lending Analytics, LLC
Slide 31
SLA Private Student Loan Options
Focus on Compliance
Broad in scope:
– Identified leading lenders based on SLA analysis of over 400 school
lender lists
– Added other national/regional lenders upon request
Does not endorse or recommend any of the lenders on the list:
– Comparative table lists terms and conditions of loans
– Dynamic list changes order of lenders each time page is refreshed
– No lender advertisements on site
No payments between lenders and SLA:
– Lenders on the list do not pay SLA to be placed on the list
– Lenders do not pay SLA a fee based on any loan volume generated
Removing all references to “Ratings” from this page, including
the navigation bar
© Student Lending Analytics, LLC
Slide 32
SLA Private Student Loan Options
Features
Website: http://studentlendinganalytics.com/alternative_loan_options.html
Over 100 schools currently linking to SLA private loan sites (it’s free!)
Includes language to encourage responsible borrowing:
– Exhaust all federal grants and loans available to you before considering a
private (alternative) loan
– You are free to borrow from any lender of your choice
Captures the following information on loans:
–
–
–
–
–
Interest rate ranges
Fees
Borrower benefits
Terms of cosigner release
Interest capitalization
Provides link with details on state/non-profit private loan programs
Updated frequently with date of last update listed prominently
Links to SLA Private Loan Buying Guide also has loan glossary
© Student Lending Analytics, LLC
Slide 33
SLA Private Student Loan Options
Coming Soon
Website specifically for Graduate Loans
Links to more detailed information on each loan
– One pager for each loan before clicking through to lender’s site
More detailed information about state/non-profit private loan
programs
© Student Lending Analytics, LLC
Slide 34
SLA Private Student Loan Ratings
Available at http://www.studentlendinganalytics.com/ratings.html
Featured on front page of New York Times Business
Focused on evaluating eight lenders that appeared most frequently on over
400 school lender lists and added several credit unions given the
competitiveness of their offerings
Includes the following criteria in rating the lenders:
–
–
–
–
–
–
Expected loan cost
Borrower benefit savings
Fee structure
Flexibility of repayment options
Customer service
Financial stability
© Student Lending Analytics, LLC
Slide 35
SLA Private Loan Ratings Site - Features
Ratings reviewed upon change in lender interest rates/fees
No payments between lenders and SLA:
– Lenders on the list do not pay SLA to be placed on the list
– Lenders do not pay SLA a fee based on any loan volume generated
Since the site recommends lenders it DOES constitute a “Preferred
Lending Arrangement”
– For those schools interested in linking to this site, SLA will provide
checklist of all required activities to comply with new regulations
Will be adding several lenders shortly
© Student Lending Analytics, LLC
Slide 36
Other SLA Resources Available
SLA Private Loan Series
– Shopping for Private Student Loans Makes a Difference!
• Results from six student loan applications yields interest rates between
7% - 12%
– What Ingredients Go Into the "Secret Sauce"?
• Insights into the factors that lenders consider in making their credit
decisions
– Does It Make Sense To Shop Around For Private Student Loans?
• Provides details on new Fair Isaac policy describing how applying for
multiple student loans in a given window will not harm your credit score
– The Promissory Note
• Highlights the key terms to be aware of when evaluating lender
promissory notes
Student Satisfaction Surveys
– Understand experience from borrower’s perspective
© Student Lending Analytics, LLC
Slide 37
Lender Approval Ratings
88%
Lender 1
86%
Lender 2
Lender 3
80%
Lender 4
80%
75%
Lender 5
35%
Lender 6
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Percentage of Total Respondents
Survey question: Would you recommend this loan to a friend?
© Student Lending Analytics, LLC
Slide 38
Selection Criteria for Borrowers
4.8
Interest rate of loan
Borrower benefits (e.g. .25%
interest rate reduction)
4.3
Customer service
3.9
Application process
3.9
Lender reputation
3.9
User-friendliness of website
3.8
Financial strength of lender
3.8
0
1
2
3
4
5
Importance of Given Criteria (5 = Most Important)
Survey question: Indicate the importance of each of these items in selecting a lender.
© Student Lending Analytics, LLC
Slide 39
Questions
?????????
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Slide 40
Contact Information
Tim Ranzetta
Student Lending Analytics
tranzetta@studentlendinganalytics.com
650-218-8408
© Student Lending Analytics, LLC
Slide 41