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

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

2. 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

3. 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)

4. 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

5. 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

6. 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

7. 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?

8. 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.”

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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.

20. 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.

21. 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

22. 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

23. Maintenance of Preferred Lender Lists Source: SLA analysis of 390 school websites with data on lenders and benefits.

24. Youngstown State – Lender Comparison Tool

25. 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

26. 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

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

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

29. Preferred Lenders for Alternative Loans by Loan Volume Source: SLA Analysis of 501 FFELP and Direct Schools that disclose preferred lender list information for their undergraduate Alternative Loan Program.

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

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

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

33. 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

34. 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.

35. Stafford Loan Lender List Penetration (by Geography) Source: SLA Analysis of 656 FFELP schools with preferred list of Stafford Lenders.

36. 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.

37. 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

38. 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

39. 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

40. Free Consultation to All Webinar Participants • Providing 25 hours of pro-bono consulting over the next month • Send email to tranzetta@studentlendinganalytics.com • In subject line, put “Consultation: SLA Webinar” • We will get back immediately to you to schedule a consultation • Thank you for your participation!

41. 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

42. 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.

43. 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