FFELP or Direct Lending: A Comparison of the Decision-Making Process at two Universities

1. FFELP or Direct Lending:A Comparison of the Decision-Making Process at two Universities Presented at the MASFAA Conference November 7, 2007 by Debra J. Chromy, Ed.D.

2. Agenda • Background & Experience • Rationale for Study • Primary Research Questions • Methodology • Mabelane University – FFELP • Cresswell University – Direct Lending • Comparison of Process & Findings • Recommendations for Additional Research

3. Background & Experience • 23 years in the student loan industry • 13 years with a lender & servicer • 10 years with a guarantor • VP of Business Development for ASA • A student federal loans • AB in Economics from Smith College • MBA from Boston University Graduate School of Management • Ed.D. from the University of Pennsylvania

4. Rationale for this Study • Various theories about why some institutions stayed in FFELP and others moved to DL—how did they choose? • The goal of this study was to: • Add to the existing literature by documenting the process used by two universities • Identify the factors that led to the different decisions • Document those factors • Interest in this Study • Literature exists on the loan programs, pros & cons, costs & benefits, etc. • Very little on the decision-making process

5. Primary Research Questions • How did two private research universities decide which loan options they will make available to their students and families who use the federal loan program to finance their college education? • What factors drove them to make different decisions? • What is the process these institutions use today to decide whether to stay with their current program or switch? • And, did the decision making process drive the decision?

6. Methodology • Qualitative – case study of 2 institutions • Research Process • Identified & located individuals involved in the decision making process • Single interview protocol for both institutions • All interviews were recorded and transcribed for coding • Anonymity granted to individuals interviewed as well as institutions

7. Methodology • Cresswell University – Direct Lending (DL) • 26,000 students • 16,000 UG; 10,000 Grad • Annual UG tuition = $32,000 • Entered DL in year 2 • $162 Million in DL in FFY2004 • Centralized financial aid office • Participated in SAL before entering DL

8. Methodology • Mabelane University (MU) - FFELP • 8,500 students • 5,000 UG; 3,500 Grad • Annual UG tuition = $32,000 • $84M in FFELP ($42M in SAL) in FFY2004 • Decentralized Financial Aid Office • 3 separate health profession campuses with their own FAO and Bursars • Main campus FAO handles UG & all other Grad Schools

9. Methodology • Validation Strategies • Tested themes & theories that developed throughout the study • Triangulated data from various sources • Member checking • Checking my biases at the door • Peer debriefing – 4 FAD from DL & FFELP • Dissertation Committee

10. Methodology • Limitations of the Study • Case study only included 2 large private research institutions • Reliant on memory • Lack of documentation • Anonymity

11. Cresswell University Direct Lending

12. Cresswell University - DL • Why explore DL? • Streamline process at the school • Improve customer service to borrowers • Cash flow to students

13. Cresswell University - DL “The frustration, the phone calls, the waiting….that was part of what I did when I was an aid officer. The opening of school was a nightmare. You spent all that time trying to track down a loan, giving them [students] short-term loans—they didn’t typically get their money until the middle of October, if not later.” -Director of Enrollment Services, former FAO “Most of the state guarantors believed this [FFELP] was a program for banks. They didn’t see us [schools] as customers, and they didn’t see students as customers. They [the guarantors] all had different policies. I mean you couldn’t remember, you had to go to different policy manuals to find out how you this done or that done.” - Former DFA at Main Campus

14. Creswell University - DL

15. Cresswell University - DL • Decision-making process • Step 1 – Meeting of the Primary Decision Makers • FAD, Systems, Analyst, Bursar, VP of Finance, Enrollment Planning, & other FAO • What are the benefits from a customer service perspective? • Step 2 – Evaluation of Internal Process • Determined that they would have to build a new, internal system – could not be PC-based • Interviewed & listened to everyone who would be impacted by the change • Cost-benefit analysis • Flow charted the whole process

16. Cresswell University - DL • Step 3 – Talking with DL (year one) Schools • Schools of the same size – important from an implementation perspective • Open sharing of information about systems, infrastructure, integration, disbursement process, etc. • Learnings from Year 1 schools – site visits, conference calls, etc. • Step 4 – Talking with Students • FA work study students • Informal surveys

17. Creswell University - DL

18. Cresswell University - DL

19. Cresswell University - DL • Step 5 – Exploring Implementation • Understanding what it meant from a systems perspective • Developing contacts/relationships with the Federal Student Aid (FSA) Office • Step 6 – Washington Watch • “We couldn’t make this decision if we weren’t going to make for the long haul. We wanted to make sure the federal government was going to stay with it, because as we all know, it was DL, FFELP, DL, FFELP.” • Senior Assistant Director of Enrollment Services

20. Cresswell University - DL • The decision to move to Direct Lending • a unanimous recommendation “Ultimately, I think it was the president who had to sign off on our decision to go with Direct Lending. A very strong case was made for the decision. The president was convinced that this was the way to go based on all the presentations.” • Senior Assistant Director of Enrollment Services

21. Cresswell University - DL • Step 7 – Re-evaluation • Year one was a challenge—Stafford only • Year two added PLUS • Challenges working with ED – it was new to them too • Always evaluating what is best for students “There is no regular calendar, but it must have been 3 or maybe 5 years ago when the EVP said to me, you need to keep your eye on this because we want to get out at a good time. That was when there was talk that DL might go away. We want to protect our students from a closing program” • Former DFA – Main Campus

22. Cresswell University - DL • Summary of Decision-Making Process • Streamline the process & Improve Customer Service • DL looked like the solution; but meant major changes • systemic, process, financial, etc. • Talked to other schools & learned from their experiences • Kept an eye on Washington politics • Continue to re-evaluate their options for “what is in the best interest of the student”

23. Mabelane UniversityFFELP

24. Mabelane University - FFELP • Why explore DL? • Concern that FFELP lenders were taking advantage of schools & students – HP vs. other campuses • Offered some benefits that were worth exploring • Improved cash flows • Fee from ED for loan application processing

25. Mabelane University - FFELP • Decision-Making Process • Step 1 - Meeting of primary decision-makers • FAD from 3 grad campuses, FAD at main campus, & Bursar/Finance • Step 2 - Evaluation of internal processes • Documented existing process flows at each FAO • Concerns about centralization • Potential loss of lender services

26. Mabelane University - FFELP

27. Mabelane University - FFELP

28. Mabelane University - FFELP

29. Mabelane University - FFELP • Step 3 - Talking with DL Schools – early adapters • Large investment in money, time, and other resources required • HP campuses withdrew; main campus continued • Health professions campuses feared loss of special deals; not true at main campus • Step 4 - Exploring Implementation • Staff attends a Beta Site seminar • Reinforces concerns regarding implementation costs, implementation issues, systems development, etc.

30. Mabelane University - FFELP • Step 5 – Washington Watch • Student Loan Privatization Act of 1995 – DL at risk • Decision Made – Stay in FFELP (for now) “Let’s not go [into Direct Lending] and see what happens. I don’t know if we closed the door 100%, but I think in my mind I pretty much closed the door. I don’t know if we said, that does it, we are never going into this program. I think it was more that this doesn’t look good [now]. Let’s hold off a while longer to see what happens [to Direct Lending].” - Former DFA at Main Campus

31. Mabelane University - FFELP • Step 6 – Re-evaluation • Innovations in FFELP – Commonline, ELM, etc. • Reasons to look at DL had dissipated “The longer we put off getting into DL, the more you could see that the guaranteed loan program [FFELP] was gearing up to compete and already starting to put in all kinds of innovations and perks and incentives and all kinds of things to compete with DL” - Former DFA at main campus School as Lender • University Board of Directors recommended exploration

32. Mabelane University - FFELP • Summary of the Decision-Making Process • Governance Structure played a role in the decision-making process “The fact that we are decentralized [the financial aid office/function] made the process much more difficult. Not only did I work with the financial aid directors, but I also had to meet with each of the graduate school deans and they were listening to their financial aid officers.” • VP of Finance

33. Mabelane University - FFELP “If we had gotten our act together sooner and made the decision more quickly, we probably would have gone in year two, except I’m not sure that the wheels turned fast enough. As I think about us folks on the front lines…we had more of a ‘let’s wait and see’ attitude. I think the impetus really came more from the finance side and then the graduate schools, you know, wanted nothing to do with DL.” • Former DFA at the main campus

34. Comparison of Two Processes • Similarities • A multitude of loan applications and processes • VP of Finance started the investigation at both institutions • Followed a similar evaluation process

35. Comparison of Two Processes Four primary differences • Centralized vs. Decentralized FAO • Complexity of Problem differed • Ability to come to consensus • Timing • Evaluation & Decision time-line • Agreement & Level of Commitment by all Parties • Unanimous decision vs. partial commitment • Customer Service as a Driver • Customer service vs. saving money

36. Conclusions from this Research • Governance • Centralized FAO • Greater complexity for one office to manage; • easier to come to consensus • Decentralized FAO • “divide & conquer” – complexity not as big an issue; • more difficult to come to consensus

37. Recommendations for Additional Research • Are the findings from this study unique to these two universities? • Is the decision-making process standard? • Were there different factors impacting the decision elsewhere? • What about schools that have moved from FFELP to DL, then back to FFELP? • What was the process? Drivers? • Is the experience different at public universities? Smaller institutions?

38. Questions?