Life of Loan/Loan Basics (FFELP & Private)

1. Life of Loan/Loan Basics(FFELP & Private) Brenda Dillon VP, Product Management KeyBank

2. Federal and Private Process Overview • Agenda • FFELP Loan Overview • FFELP Process • Private Loan Overview • Private Loan Process • Processing Methods • Loan Sales

3. FFELP Overview • Federal Stafford Loan • Student is the borrower • Subsidized & unsubsidized (student responsible for interest on unsub) • No credit check required • Loan is deferred while the student is enrolled at least half time • 6 month grace period • Annual and aggregate loan limits based on grade level and dependency status

4. FFELP Overview • Federal PLUS Loan • Parent is the borrower for Federal PLUS Loan for Parents • Student is the borrower for Federal PLUS Loan for Graduate & Professional Students • Immediate Repayment • Unless borrower is enrolled at least half time or • unless parent requests an in-school deferment based on the students enrollment status • 6 months additional deferment is available after in-school deferment (acts like a Grace Period) • Upon request for Parent PLUS • Automatic for GradPLUS • Credit Check is required • No annual or aggregate loan limits • (COA less Aid)

5. FFELP Overview • CommonLine • CommonLine standardizes electronic loan certification formats, response files, disbursements, change transactions, and error messages. • The goal of CommonLine is to simplify the loan origination, disbursement, and change process for schools by: • Establishing common formats used by all participants. • Allowing schools to use just one school-based software system to communicate with all CommonLine participants. • Allowing schools to use their current software systems to communicate with organizations with which they currently have no electronic connection.

6. FFELP Overview • How Does Your School Flow? • Guarantor Flow • School sends data to guarantor, guarantor sends to lender • Lender Flow • School sends data to lender, lender forwards data to guarantor • Borrower Initiated Flow • Student applies through the lender and initiates sequence. School then certifies loans after receipt of cert request sent by lender • The Guarantee Agency is essentially an insurance agency for the federal loan.

7. FFELP Overview Many guarantors and lenders work together to handle pieces of the loan originations process. • HESC Schools • HESC collects MPN / Cert, pulls credit for PLUS Credit Check participants, guarantees loan, then sends file to lender setting loan for disbursement. • EdFund Slate Process • Similar to above for schools who choose to participate • Schools determine which flow works best for them and their students

8. FFELP Overview • 3rd Party Flows • Loans originated outside of the lenders system • Lender pays the 3rd party to originate on their behalf collecting the MPN, Cert, Guarantee, and performing disbursement activities • Examples: • American Education Services • American Student Assistance • Great Lakes

9. FFELP Process • Life of Loan Stages • Origination • Interim period • Repayment

10. FFELP Origination

11. FFELP Origination • Free Application for Federal Student Aid (FAFSA) • Generates a Student Aid Report (SAR) that contains the Expected Family Contribution (EFC) • The Financial Aid Office must determine student eligibility for all TIV aid programs including loans • Eligibility is communicated to student in Award Letter

12. FFELP Origination • Certification • The act of attesting that something is true or meets a certain standard. For example, the school certifies the borrower’s eligibility for a loan and, if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met. • CommonLine (lender sites, open platforms,etc), paper or phone

13. FFELP Origination Loan Guarantee • A conditional legal obligation, as defined in an agreement by and between a guarantor and a lender, for the guarantor to reimburse the lender for some portion of a loan that is not repaid by the borrower due to default, death, disability, bankruptcy, borrower ineligibility, false certification of borrower eligibility, or school closure. • Guarantee is transmitted via CommonLine to the school and the lender

14. FFELP Origination Credit Check ( PLUS Loans Only) • Credit check is not FICO score based but rather a list of items that cannot appear on the credit report. Bankruptcy, 90 days delinquent, charge off, etc. There are new provisions surrounding foreclosures – detail can be found in the Common Manual.

15. FFELP Origination • Master Promissory Note (MPN) • Mailed to borrower or completed online • Valid for 10 years from signature date • If no disbursement within 12 months of initial sign date, MPN is no longer valid • Can change schools, guarantors and maintain MPN • Change lender, need new MPN • Can be E-Signed or wet signed • If E-signed, must verify identity (STAN – Student Authentication Network)

16. FFELP Origination • Disbursement • Paper check • Single pay or Co-payable sent to the school • Electronic Funds Transfer (EFT) • Electronically disburse funds into school account • Central Disbursement Agency (CDA) • Central agency (usually through an Open Platform) disburses funds on lender’s behalf

17. FFELP Interim & Repayment Status

18. FFELP Interim & Repayment • Interim • Stafford & PLUS In-School deferment (student at least half-time) • 6 month Grace Period on Stafford after student graduates or drops below ½ time • 6 month Deferment now available for PLUS loans after student graduates or drops below ½ time

19. FFELP Interim & Repayment • Repayment • Stafford, first payment due within 45 days of grace period end date • PLUS first payment due within 60 days of full disbursement unless in-school deferment is applied (GradPLUS) or requested (Parent PLUS)

20. Questions?

21. Private Loans Overview • There are two types of private loans available to students • School Channel • School certification is built into the loan process • Generally limited to COA less Aid • Funds sent to the school • Direct to Consumer • No school certification required • Borrower Certification is new in 2009 • Funds sent directly to the borrower

22. Private Loans - Overview • Why do students and families use them? • To cover Estimated Family Contribution (EFC) • To fund the gap between their aid package + EFC and the total cost of attendance • Allow borrower to obtain funds without a FAFSA • Place debt with student not parent

23. Private Loans • Origination • Interim Period • Repayment

24. Private Loans - Origination

25. Private Loans Origination • Borrower Applies • Web, phone or paper • Typically borrower initiated • Web most commonly used channel • Disclosures issued at the time of application

26. Private Loan Origination • Loan is Credit Decisioned • Approved • Lender issues approval disclosures • Acceptance period begins • Declined • Letter sent to customer • Appeals Process • Request for Additional Information • Patriot Act • Income verification • Other

27. Private Loan Origination

28. Private Loan Origination • Certification • School Certification • Loan Amount • Loan Period • Disbursement dates • Borrower Self Certification • Lender issues disclosures upon receipt of Borrower Self Certification

29. Private Loan Origination • Promissory Note • Paper “wet signature” • e-signature (not STAN) • Could be an MLN (Master Loan Note) • May or may not contain terms

30. Private Loan Origination • Lender has collected all necessary items to book the loan • Borrower acceptance • Borrower Self Cert • School Cert • Credit Approval • Promissory Note • Loan is booked • 3 Day Cooling Off Period Begins • Loan Disburses

31. Private Loan Origination • Disbursement Options • Paper check • Single or Copayable to school • DTC sends funds to borrower • Electronic Funds Transfer (EFT) • Electronically disburse funds into school account • Central Disbursement Agency (CDA) • Central agency (usually through an Open Platform) disburses funds to school on lenders behalf

32. Private Loans Origination

33. Private Loan - Interim and Repayment Status • Interim • In school deferment for students enrolled at least half time – This is changing! • Some loans may have a grace period • Repayment • Immediate or deferred • Grace periods can vary from 4 – 12 months, depending on loan product guidelines

34. Federal and Private Processing Methods • What Open Platforms Do • Allow schools to process all loans on the same “system,” regardless of lender or guarantor • Provide data exchange, status information, education, certification, and disbursement services

35. Federal and Private Processing Methods • Types of Open Platforms • ELM – ELM Resources • ScholarNet – Great Lakes Higher Education Corporation • TG Online – Texas Guaranty Agency • Open Net – Sallie Mae • eCourier (open platform characteristics) – American Education Services

36. Questions?

37. Loan Sale Options • Student Loan Asset Backed Securitization (SLABS) • ECASLA – Ensuring Continued Access to Student Loans Act • Federal Loan Participation Agreement • Federal Loan Purchase Program • Congress passed an extension for loans disbursed through July 1, 2010 • New! Possible Federal Loan Conduit under the Treasury TARP • New! Possible– Private Loan Purchase Program

38. Questions?

39. Thank You and Happy Holidays!