Debt Management in the Private Loan Market

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Debt Management in the Private Loan Market

• Presented by Dave Lubets
• Vice President, Post Default Collections
• First Marblehead Education Resources

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Loan Characteristics

• In order to effectively manage delinquencies and
  default, we must understand the loan makeup as
  well as the borrower profile
• Credit-ready / Credit-worthy
• Single Borrower / Co-borrower
• Type of School - Private, Public, Graduate,
  Non-Title IV eligible
• Demographic profile
• Underlying loans

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Percentage of Growth in Private vs. Federal
Borrowing
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Debt Management Begins Early

• School Channel, Direct to Consumer, or other
  origination facilities Early education and
  awareness helping borrowers make informed
  decisions to their needs and their future
  responsibilities for repayment
• Working with loan servicers to inform and educate
  borrowers very early in the lifecycle of the
  loan. Identify borrowers well before their loans
  come due for debt counseling
• The Private Loan industry has adopted many facets
  of the FFELP early awareness/early intervention,
  default aversion and prevention programs. We have
  truly been on a path of Best Practices in
  developing a successful pre-default program for
  our lender partners and guarantor

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Pre-Default / Early Awareness

• Early outreach programs
• Partnering with servicers / lenders, and schools
  to deliver a consistent message
• Student Counseling / Financial Literacy
• Technology Web-based tools and online courses
  to teach fiscal responsibility
• Payment relief can be achieved through education
  and debt management with the borrower and other
  responsible parties

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Default Collections

• Educate.Inform.Resolve
• Information and data are key in quickly
  identifying what may be the best route for
  delinquency and default resolution
• Again, we have taken a page from the FFELP
  program and implemented some of the more
  successful strategies that have been proven and
  published over time. A best practice approach,
  modified to fit the private loan model, has
  allowed the market to manage defaults
• In several markets, the private loan is insured
  in a similar way to the FFELP loan - but this is
  also where some of the parallels of the two
  programs begin to move away from each other.

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Default Management

• Payment Relief is paramount in default management
• For those borrowers who cant pay their balance
  in full, and settling the account is not
  affordable to either party, we must look to other
  areas of default resolution
• Payment Arrangements
• Refinance
• Reasonable and affordable repayment terms
• Educating, informing the borrowers and fitting
  them into a default resolution plan that is
  attainable is what we strive for
• Utilizing technology through business
  partnerships to maximize all available
  methodology in recovery, skiptracing and account
  resolution
• In the event that the borrower will not enter
  into a repayment plan that is presented
  voluntarily, the market has few other options
  other then to take legal action

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Summary

• Private Student Loans are a supplement to the
  Federal Program. Growth is driven by flat federal
  lending limits and the increase in cost of
  education
• Delinquency and default must be managed to ensure
  that we can provide a cost effective product to
  student borrowers
• Early education and awareness along with
  financial literacy counseling and outreach
  programs will reinforce repayment obligations.
• Adopting best practice approach not only
  effectively uses existing recovery sources but
  sends a consistent message to borrowers who are
  delinquent or defaulted in their student loan
  obligations
• Having the ability offer a choice of repayment
  options and terms may allow delinquent and
  defaulted borrowers a resolution that fits their
  financial situation