Post on 20-Sep-2020
Slide 1© Student Lending Analytics, LLC
Request for Information: Cornerstone of An Effective Lender Selection Process
This presentation does not constitute formal policy or legal advice and should not be relied upon as such.
Slide 2© Student Lending Analytics, LLC
Agenda
Increasing usage of RFIs
Planning for an effective RFI
Categories and questions
Evaluating financial health of lenders
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Use of RFIs Increasing In Popularity
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RFI New Info.From
Exis tingLenders
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RFP None ofthe abov e
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Source: Student Lending Analytics Webinar, November 15, 2007Note: Sample size of 57 for 2008-09 question (#4), 49 for 2006-07 question (#3)Polling Question #3/4: Please indicate the method you used to select lenders for the 2007-08 (intend to use for 2008-09) processing year.
Slide 4© Student Lending Analytics, LLC
Popularity of RFIs
Department of Education regulations requiring disclosure of method and criteria
Creates an objective, more rigorous, competitive method to select lenders
Protect and enhance reputation of financial aid team and the educational institution
Opportunity to open up the process beyond existing lenders to test the marketplace
Provides financial aid office with method to set expectations/manage relationship beyond the RFI process
Opportunity to collect updated information on lenders to determine impact of credit crunch on their financial position
RFPs perceived as more binding on than RFI
Slide 5© Student Lending Analytics, LLC
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)
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Polling Question #1
What information sources have you previously turned to for information regarding RFIs? (check all that apply)– Financial Aid peers– NASFAA site– Guarantors/Lenders– Department of Education– General Internet search
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Agenda
Increasing usage of RFIs
Planning for an effective RFI
Categories and questions
Evaluating financial health of lenders
Slide 8© Student Lending Analytics, LLC
Considerations Prior to RFI CreationStart with the End in Mind
The Team
Loan Programs– Should Alternative Loans be included in separate analysis?– Specific features of loans require different set of questions
Key Criteria
Value/Importance of Each Criterion
Questions should flow from key criteria identified
Format of RFI
Number of Lenders
Importance of Lender Evaluation
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The Lender Selection Team
Include broad, diverse group that has either lender specific expertise or RFI process expertise
Typical group might include:– Financial Aid Director– Manager of Loan Programs– Loan Counselor– Business Office representative– General Counsel (if not on team, might review RFI and process)– Purchasing department– Other University Administration– Student Representatives?
Given recent events, this issue has clearly been elevated beyond Financial Aid
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Preferred Lender List Disclosure
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ALL Stafford + Plus Stafford Only Other
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Source: SLA Analysis of 558 FFELP Schools that disclose preferred lender list information for their undergraduate Stafford, Plus or Alternative Loan Programs.
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Most Important Criterion
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Automaticborrowerbenefits
Cus tomers erv ice
Loans erv icing
Repaymentbenefits
Web-bas eds erv ices
Source: Student Lending Analytics Webinar, November 15, 2007Note: Sample size of 51 respondentsPolling Question #2: For those with a preferred lender list, what is the SINGLE most important criterion in your selection process?
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Lender Selection Criteria and Weightings
Most common criteria include:– Borrower Benefits– Customer Service
Considerations– Be sure to go beyond just borrower benefits to understand other loan terms
that may be advantageous to your students– How to measure customer service?
• Students/Graduates• Financial Aid staff
– For private loans, access to capital will become critical as credit crunch in subprime has spilled over into other consumer credit areas including student loans
– Be sure that questions will help you differentiate lenders for a given criteria
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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
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RFI DevelopmentFormat
Spreadsheet format more flexible in terms of creating comparison tables – Need to structure questions to allow for specific, standardized responses– Ensure that information not provided in PDF format that does not allow for
“cut and paste”– Devote time to Quality Control to ensure information was copied properly
Most seem to prefer electronic communication– Timeliness– Less taxing from administrative standpoint– Creates paper trail regarding communication
Often receive accompanying hard copies of supporting materials from lenders
Considerations– Boilerplate proposals that do not directly address your questions– Including lender presentations in overall ratings
Slide 15© Student Lending Analytics, LLC
Lender Invitations to RFI Process
Department of Education’s Pamela Moran speaking at recent Consumer Banking Conference
– Schools should “cast a wide net” with their RFI process– Cannot limit potential lenders based on guarantor or servicer relationships– None of the lenders on your preferred lending list can be affiliates
No single source available to determine appropriate lenders and contact information
– SLA has developed comprehensive database to put together thorough list• LenderInsight database with information on existing lender relationships at over
2,000 schools• Contact information on 100 largest lenders representing over 95% of FFEL
volume
Anecdotal evidence from lenders suggests two trends– Increased usage of RFIs– Receiving RFIs from schools that they do not have existing relationships with
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Polling Question #2 and #3
Do you plan to invite lenders that are not currently originating loans/on the preferred list at your school?– Yes– No
How many lenders do you plan on inviting to respond to your RFI?– 3-5– 5-9– 10-24– 24-49– Over 50
Slide 17© Student Lending Analytics, LLC
Agenda
Increasing usage of RFIs
Planning for an effective RFI
Categories and questions
Evaluating financial health of lenders
Slide 18© Student Lending Analytics, LLC
Categories in RFI
School Information
Loan Terms/Borrower Benefits– Specific to loan type
Customer Service– Financial Aid office– Student/Parent
Loan Processing Flow
Degree of Automation/Self-Service
Default Prevention
Lender Information and Reputation– Includes analysis of financial condition
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Marketing Your School Loans to Lenders
School characteristics– Number of students (undergraduate vs. graduate)– International population– School reputation important
Volume by Loan Program– Growth rates over past few years (if applicable)– Provide information on all loan types included in RFI – Loan volume relative to other schools (if in upper quartile)
Default rate
Average salary of recent undergraduate/graduate student
Publicize your RFI through news release– Example: EMU Invites FFEL Lender Responses To RFI (posted
November 27, 2007 on NASFAA website)
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Loan Terms/Borrower Benefits Questions
General– What types of borrower benefits do you provide students, what conditions must they
meet and when do they earn them?– What fees do you charge students? Please describe all fees.
Other considerations– Utilization rates for specific benefits
• Average and comparable schools• Try and get actual school data from current servicer
– Impact of certain events on benefits• Consolidation• Deferment• Forbearance• Sale of loan
– Grace period/Benefit restoration policies– Situations where benefits are paid back if certain conditions not met– Loan approval rates for credit-based loans (PLUS and Private Loans)
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Borrower BenefitsIncreasing Use of Scenarios
Many create case study/scenario to get cost of loan information
Include information on:– Loan type– Principal amount– Timing of disbursement– Timing of repayment– With borrower benefits– Without borrower benefits– Assumes no consolidation
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Customer Service Issues
Financial Aid office– Timing to process/disburse loans– Technical support– Processes to handle common issues (i.e. incomplete applications, guarantor rejects,
pending borrower suggestions)– Dedicated representative effective at problem solving– Other value-added customer service benefits
Students– Web-based services for various aspects of loan from origination through processing to
repayment– Quality/Operating measures for call centers
• Years of experience• Single point of contact for all loan information (“avoid the handoff”)• Average wait time
Slide 23© Student Lending Analytics, LLC
Customer Service RatingsBeyond the RFI
Financial Aid Customer Service Survey – Coming Soon!– As institutions consider new lenders, this survey will provide useful
information regarding lender service levels
Mystery calling to school/parent customer service lines
Survey students who recently completed borrowing process for first time
Survey recent graduates to collect information on quality of repayment experience
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RFI DevelopmentRisk Management Issues
Detail any and all current and ongoing investigations
Comply with existing Codes of Conduct (e.g. NASFAA) and Dept of Education regulations (inducements) and state law (if applicable)
Commitment to borrower benefits for life of the loan
Lender information– Experience– Subsidiaries– Financial condition – Access to capital
Privacy/information security practices
Direct-to-consumer marketing
Business continuity/disaster recovery
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Agenda
Increasing usage of RFIs
Planning for an effective RFI
Categories and questions
Evaluating financial health of lenders
Slide 26© Student Lending Analytics, LLC
Student LendersInsights from CBA Conference/Recent Headlines
FFELP Loan Analysis: Subsidy cuts for FFEL loans having dramatic impact on lender yields
• 60% reduction in loan value for For-Profit Stafford lender• 62.9% reduction in loan value for For-Profit Consolidation lenders
Source: Citibank presentation at CBA conference and excludes lender acquisition and origination costs and prior to August 2007 credit market disruption.
Potential result: Borrower benefits will see dramatic drop for 2008-09 school year
Private Loan Analysis: Private student loan portfolios have seen increasing default rates recently leading to review by ratings agencies
• “Student debt latest asset type to go south: Liquidity scarce for securities without federal backing (Financial Week, December 10, 2007)”
• “Student-Loan Problems Add to Debt Worry (Wall Street Journal, December 8, 2007)”• First Marblehead “elected not to execute a securitization transaction this fiscal quarter…Steps
have been taken to tighten underwriting criteria related to lower credit tiers.” (Company press release, December 7, 2007)
Potential result: Unless current credit trends improve dramatically, the reduced appetite for student loan asset backed securities and increased defaults will impact privatestudent loan pricing and availability.
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Rising Defaults of Student Loans
FFEL Loans– USAF: 22% increase in default claims for 2007– American Student Assistance Corp: 14% increase in its annual default rate
in 2007 from .98% to 1.12%
Private Loans– First Marblehead securitized loans defaulting at nearly twice the rate
• 2005 package: 2.0% defaulted after 17 months• 2006 package: 3.98% defaulted after 17 months
– Sallie Mae• 3rd quarter 2007: charge-offs were $110 million, nearly double the
amount a year before.
Source: “Student-Loan Problems Add to Debt Worry (WSJ, December 8, 2007)”“First Marblehead Shares Battered By Possible Student-Loan Defaults (WSJ, December 6, 2007)”
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Polling Question #4
Are you currently planning to schedule lender meetings at any point of the RFI process?– Yes– No
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Lender EvaluationFinancial Condition
Key point: Ask for current and trend information
Volume of loans processed (by type, last three years)
Loan approval rates (for credit based loans) by loan tier
Default rates/Chargeoffs over time (quarterly ideally)
Hold/sell loans
Strategy in dealing with credit crunch– Availability of credit for lower credit tiers– Ability/appetite to originate new loans
Underwriting standards
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RFI DevelopmentAnticipating Hot Button Issues
Access to capital (particularly for private loans)– With securitization door closed, how will they fund their loan program?– Monitoring loan approval rates and volumes will be critical
• Past approval ratings not effective guide in new environment
Default aversion and education efforts– Defaults rising quickly; Moody reviewing student loan securitizations
Customer service– Reduction in borrower benefits will narrow differences between lenders– Without objective criteria in place for customer service leads to questions
regarding process
Private Loan decision must stand apart from FFEL loans– State that decision on private loans made independently of FFEL loans– Ensure lenders comply with upcoming HERA regulations around private
loan transparency
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Student Lending AnalyticsService Model
Develop RFI
Provide Lender
List
Analyze Proposals
Evaluate Customer Service
Compare to Other Schools
Design Disclosure
Slide 32© Student Lending Analytics, LLC
RFInsight Description
With increased time constraints, financial aid professionals need a way to simplify the RFI process
RFInsight saves you time by putting all the information you need at your fingertips. RFInsight represents the collective wisdom that we have gained by analyzing dozens of proposals.
RFInsight allows you to: – Select from comprehensive list of questions categorized by topical area– Identify the most commonly used questions – Review additional detailed questions to address more specialized concerns– Customize the proposal by inserting your own questions – Create the RFI document that you can send to lenders
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RFInsight Sample Screen Shot