Navigating the Private Student Loan Waters

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Navigating the Private Student Loan Waters

• November 5, 2007

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Private Student Loan Marketing

• Private Student Loan Market
• Density of Private Student Loan marketplace
  participants
• Populated by hundreds of lenders, marketers and
  others
• Commoditized marketing environment
• Participants offer hundreds of products that have
  similar characteristics

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Private Student Loan Marketing

• How do I become a private loan participant?
• Determine your business and marketing strategy
  (s)
• Determine how you will market your products and
  through what channel (s)
• School
• DTC
• Both School and DTC
• Determine who will market your products
• In-house
• Outsource

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Private Student Loan Marketing

• Business and Marketing Strategy (s)
• Do I understand the private student loan
  marketplace well enough or do I need to seek
  outside assistance?
• Marketing Channels
• School
• Staffing to work with FAOs
• Interest rates and fees may be lower than DTC
  products
• Reporting requirements may be different
• Barrier to entry may be higher

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Private Student Loan Marketing

• Marketing Channels
• DTC
• Private loan direct mail expertise will be
  required
• Program performance metrics should be established
• Marketing Your Products
• School Hire seasoned private loan staff
• DTC Private Student Loan DTC Marketing
  Experience is a must

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DTC Marketing

• Marketing Functions
• Marketing Budget Development
• Sourcing Potential Borrowers
• Data Processing and Fulfillment
• Response Modeling
• Marketing Collateral Development
• Customer Interface
• Program Analysis

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DTC Marketing

• Sourcing Potential Borrowers
• Determine Solicitation Universe Size
• Determine Solicitation Universe Source
• Data Processing and Fulfillment
• Data Mining
• Data Quality
• Mail Drop Strategy
• Bulk Mail Strategy

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DTC Marketing

• Response Modeling
• Adds a scientific approach to all marketing
  efforts
• Assists in the development of the collateral
  messaging content
• Assists in the delivery of the right collateral,
  at the right time to the right audience

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DTC Marketing

• Current Direct Mail models are outmoded
• Produce long runs of multiple collateral sheets
  and inventory awaiting fulfillment
• They are too costly, take too long to develop and
  execute and lack clarity about the true ROI

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DTC Marketing

• Forward thinking marketing organizations want
  integrated direct marketing solutions that are
  fast, flexible, targeted and are measurable
• New Model Variable Data
• Mail less for the same money
• Improve response rates by 3X
• Message relevance is emerging as the single most
  important factor in generating superior response
  rates

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DTC Marketing

• Web to print templates are available online
  allowing
• Variable Data
• Small Runs
• Short Lead Times

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DTC Marketing

• Marketing Collateral Development
• Employ Your Current Brand Awareness Strategy or
  Develop an Easily Recognizable Identity
• Messaging, Design and Print
• Understand Your Target Audience and Speak in
  Their Voice
• Customer Interface
• The entire marketing campaign must be seamless
  and heavily integrated in order to support brand
  presence with a consistent theme

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DTC Marketing

• Program Analysis
• Campaign Effectiveness Tracking
• Data Analysis

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Private Student Loan Marketing

• Thank You!
• Additional Questions
• Contact Mary Polsley Williams at
• mary_at_srallc.net or 469-384-2470

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A Loan is a Loan

• Regulations
• Application Process
• Approval/Disbursement
• Repayment/Servicing
• Collections

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Regulations

• No HEA
• No DOE
• No DCL
• No Common Manual

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Regulations (contd)

• Governing Bodies-
• OTS
• OCC
• FRB
• FDIC
• FTC

• Laws/Regs
• GLB
• FCRA/FACT ACT
• ECOA/Reg B
• FDCPA
• TIL/Reg Z
• State Laws

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To Be Determined

• Guarantee or securitization
• School Communication
• Cost minus aid
• Prom note or credit agreement
• Due Diligence schedule
• Term, interest rates, credit criteria
• Co-borrower
• Grace, forbearance, capping interest

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Application Process

• More complex
• Typically more questions
• Requires highly trained staff
• Credit pulls, credit denials?
• Eligibility criteria?
• MPN or single year note?
• Fees and interest rates for each tier?

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Approval/Disbursement

• Credit denials and re-apps
• Required disclosures
• Communication w/ co-borrs
• Communication with school
• Counseling

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Repayment/Servicing

• No deferments
• Forbearances may be different
• DD cycle may be different
• Grace period/capping interest
• Borrower Benefits
• Co-signer release clause
• Delinquency

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Navigating the Private Student Loan Waters

• Dino Tsibouris dino_at_tsibouris.com
• [phone] www.tsibouris.com

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Licensing

• Licensing requirements to do business
• Limits to interest rates and loan fees
• National banks and thrifts dont need a license
  from the state
• Non-bank lenders and purchasers of loans may need
  a license to make or enforce a loan
• Are you in the business of lending?

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Interest Rates and Fees

• State licensed lender laws establish permitted
  rates and fees
• Interest rates
• Late fees
• Loan origination fees of 1-2
• Prepayment fees
• Refund of unearned charges

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Interest Rates and Fees

• National Bank Act (12 USC 85)
• A national bank located in a state may charge
  interest at the maximum rate permitted to any
  state-chartered or licensed lending institution
  by the law of that state

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Interest Rates and Fees

• National Bank Act (12 USC 85)
• Interest" includes, among other things
• Numerical periodic rates
• Late fees
• Creditor-imposed NSF fees

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Interest Rates and Fees

• National Bank Act (12 USC 85)
• Interest" does not ordinarily include
• Premiums/commissions for insurance guaranteeing
  repayment of any extension of credit
• Document preparation
• Fees incurred to obtain credit reports

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Loan Pricing Tied to State Law

• Ohio RC 1109.20 Interest
• Charges for late payments
• NSF fees
• Application, processing, origination fees
• Guarantee fees
• Prepayment fees

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Important Considerations

• Make sure rates and fees are properly structured
• Within legal limits
• Business case for each fee
• Challenges to the relationship between lenders
  those who buy their loans

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The Future Federal Legislation

• Truth-in-Lending new disclosures
• Suggest Federal loans
• No co-branding
• No prepayment fees
• 3-day right to cancel
• Financial literacy

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Collections of Private Loans

• FDCPA and State Laws
• What is your delinquency cycle?
• Is there a collection fee
• When to default
• Who will collect
• What is primary objective

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Collections

• Who will collect
• What is primary objective
• Show me the money
• No rehabilitation, Tax offset, AWG
• When to charge off

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Outsourcing Complexity

• Use of Collection Agencies
• No training confusion for staff
• No concerns with collection laws
• Contract management
• Lack of counseling
• Fees generally higher

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THANK YOU!Please be sure to complete your
conference evaluation forms after the conference!