Slide 1© Student Lending Analytics, LLC ISFFA Annual Conference Trends in Financial Aid And Private Student Loans December 7, 2009 This presentation does not constitute formal policy or legal advice and should not be relied upon as such.

Slide 2© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Agenda How are schools thinking about their federal student loan program for ? What are trends in federal student loan program? What is current state of private student loan market? –How are schools addressing this shortfall in private student loans? How can financial aid staff inform and educate students and help them improve their financial literacy skills?

Slide 3© Student Lending Analytics, LLC SLA Flash Survey: FFELP and DL Trends Current Plans For (Overall) Survey question #1: Please select the choice which best describes your institution's current plans for the academic year?

Slide 4© Student Lending Analytics, LLC SLA Flash Survey: FFELP and DL Trends Activities To Prepare for DL – Overall Survey question #2: CHECK ALL THAT APPLY. My institution (either myself or other staff members) has taken the following steps to prepare for Direct Lending should that become the platform for loan origination as well as servicing in :

Slide 5© Student Lending Analytics, LLC SLA Flash Survey: FFELP and DL Trends School Administration’s Interest In Direct Lending Survey question: COMMENT ON THIS STATEMENT. The administration at my institution is interested in having a contingency plan prepared to implement Direct Lending by the proposed July 1, 2010 start date.

Slide 6© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Agenda How are schools thinking about their federal student loan program for ? What are trends in federal student loan program? What is current state of private student loan market? –How are schools addressing this shortfall in private student loans? How can financial aid staff inform and educate students and help them improve their financial literacy skills?

Slide 7© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Trends in Federal Student Loans Loan Type (In Billions) (In Billions) Percent Change Stafford - Subsidized $29.5$30.64% Stafford - Unsubsidized $28.5$36.929% PLUS$7.7$7.4-4% GradPLUS$3.2$3.924% TOTAL$69.0$78.814% Source: SLA Analysis of Dept. of Education data on Data Center

Slide 8© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Private Student Loans Growth…And Decline Source: College Board: Trends in Student Aid

Slide 9© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans The Difference That Two Years Makes (estimates) Loan Volume$19 billion $10-$12 billion Avg. Loan MarginsLIBOR + 5%LIBOR + 9% to 9.5% Min. FICO score620 to to 700 Cosigners50-60%80-90% Quarterly Gross Defaults0.7%1.2% Number of LendersMultiple choicesLimited choices Sources: College Board data used for 2007 Loan Volumes and SLA estimates for 2009 Loan Volume estimates, reviewed securitization prospectus for Loan Margins, DBRS research for Quarterly Gross Defaults

Slide 10© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Private Loan Originations – Sallie Mae Source: SLA analysis of Sallie Mae loan originations disclosed in public SEC filings

Slide 11© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Lender List Penetration Rates Source: SLA Analysis of 425 private loan lender lists, August State alternative loan programs appeared 107 times on these lists.

Slide 12© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Interest Rate Ranges For Major Lenders Fees None None None 0% to 6% None None 0% to 6% 0% to 3% None Source: SLA analysis of repayment examples on lender websites, November 2009

Slide 13© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans How Are State Alternative Loan Programs Different? According to College Board, states originated almost $1 billion of private loan volume in or about 8% of non-federal loans Usually apply to both residents of a given state, as well as students who attend college in a specific state Apply early! –Complete bond offerings based on expected demand…but funds have run out on occasion when credit markets were difficult –Bond offering documents may limit percentage of loans in portfolio that can be deferred Often have broad-banded pricing in which all approved applications get the same rate Many provide differential interest rates based on repayment option selected

Slide 14© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Interest Rate Ranges For Variable-Rate State Programs Fees 0 to 2% None None 0% to 5% None 0 to 4% Source: SLA analysis of state alternative loan program websites, November 2009

Slide 15© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Interest Rate Ranges For Fixed-Rate State Programs Source: SLA analysis of state alternative loan program websites, November 2009 Fees 0-2% 3-5% 3% 5% 4-8% 2% 4% 0-4% 4%

Slide 16© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Repayment Options LenderDeferredIn-School Interest In-School Principal & Int. CitibankXXX ChaseXXX CitizensXXX DiscoverXXX PNCXXX Sallie MaeXX SunTrustXXX U.S. BankXXX Wells FargoXXX

Slide 17© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Borrower Benefits LenderEFT DiscountGraduation Benefit Cosigner Release (In Months) Citibank0.25%No24 Chase0.25%No36 Citizens0.50%No36 Discover0.25%2% rewardNone PNC0.25%No48 Sallie Mae0.25%NoDiscretion of SLM SunTrust0.25%$30048 U.S. Bank0.50%No36-48 Wells Fargo0.25%0.5% Rate Reduction 24

Slide 18© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Standard Loan Term Note: Sallie Mae repayment terms vary from 5 to 15 years depending on loan balance and year in school. PNC loan term is 20 years for loans under $40,000 Source: SLA review of lender websites, December 2009

Slide 19© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans What About Credit Unions? Credit Union Student Choice –Network of over 80 credit unions nationwide –Variable-rate loans usually based on one-month LIBOR –Average funded rate of 6.0% with no origination fees –Structured as credit line –Loan limits up to $75,000 –Requires membership in credit union to apply –Cosigner recommended Individual credit unions in college towns often provide competitive student loans and transparent disclosures too –University of Southern California Credit Union (3.3% to 6.8%) –University of Wisconsin Credit Union (4.0% to 9.5%) –University Credit Union serving University of Maine system (3.25% to 7.75%) Do not assume credit unions ALWAYS offer better rates and terms

Slide 20© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Nascent Developments To Keep An Eye On Source: SLA Analysis of 425 private loan lender lists, August State alternative loan programs appeared 107 times on these lists. Student Loan Marketplace Peer-to-Peer –Structural issues –Capital sources –Microloans from alumni Borrower default aversion products –SafeStart for private loans Using interest rates to nudge consumer behavior –State private loan programs

Slide 21© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Agenda How are schools thinking about their federal student loan program for ? What are trends in federal student loan program? What is current state of private student loan market? –How are schools addressing this shortfall in private student loans? How can financial aid staff inform and educate students and help them improve their financial literacy skills?

Slide 22© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Strategies for Dealing with Private Loan Issues Survey question: What are your current strategies to help students find private, nonfederal loans for the school year? Source: SLA Flash Survey: Private Student Loans, June 2009 (187 respondents)

Slide 23© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Will Multiple Applications Harm Your Credit Score? Research shows that students spend more time researching federal loan options than private student loan options New policy from Fair Isaac (FICO score) on student loan shopping –“In general, student loan shopping inquiries made during a focused time period (for example 30 days) will have little to no impact on your score.” Advice from Fair Isaac on myfico.com site:myfico.com –Doing a little homework first is always a good idea no matter what type of credit you're seeking. –You can generally avoid having those inquiries affect your score if you finish your rate shopping in a reasonable amount of time. –Then try to finish your rate shopping and finalize your loan within 30 days. –Not only will loan rates be easier to compare when the quotes come only a few days apart, but you also will protect your FICO score. SLA research found loan interest rates varied from 7% to 12% based on recent shopping of 6 major lenders

Slide 24© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans The Purchasing Decision Decision makers: Parents of undergraduates Federal funding options: Aware but confused Rationale for choosing private loans: –Time constraints –Incomplete funding to cover all costs of education –Ineligibility for Federal aid Sources for information about private loans: Rely heavily on schools Importance of name recognition: Many chose based on this factor Frequency of comparison shopping: Many went with the first loan offered to them Source: Federal Reserve Consumer Research and Testing, 2009

Slide 25© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Prevalence of Private Loan Lender List Survey question: Is your institution planning to provide students with a lender list for private loans for the school year? Source: SLA Flash Survey: Private Student Loans, June 2009 (187 respondents)

Slide 26© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Lender Selection Process for Survey question: Please describe your institution's process for developing a lender list for private student loans. Source: SLA Flash Survey: Private Student Loans, June 2009 (187 respondents)

Slide 27© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans What Is a “Preferred Lender Arrangement”? Definition of preferred lender arrangement (from HEOA) –Preferred lender arrangement.--The term `preferred lender arrangement'-- (A) means an arrangement or agreement between a lender and a covered institution or an institution- affiliated organization of such covered institution (i) under which a lender provides or otherwise issues education loans to the students attending such covered institution or the families of such students; and (ii) that relates to such covered institution or such institution- affiliated organization recommending, promoting, or endorsing the education loan products of the lender; NPRM: Lender list that does not have all lenders who lend to students at schools IS A “preferred lender arrangement”

Slide 28© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Paradox of Choice "The first effect is with all these options to choose from, people end up choosing none. They simply pass." "Second effect is that if people overcome this indecision and paralysis and choose, they may choose badly." "The third thing, which is in some ways the most surprising, is if you overcome paralysis and manage to choose, and you manage to choose well, you’ll be less satisfied with what you’ve chosen if you’ve chosen from a large set than if you’ve chosen from a small one." Source: Interview with Barry Schwartz, author of Paradox of Choice

Slide 29© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Requirements If You Have A PLA Disclosures on preferred lender list –Boilerplate language –Model disclosure forms with details on loans, provided by lenders –Description of process Process –Describe method and criteria for lender selection process –Identify reasons for selecting each lender Delivery of information to students/families –Timing –Placement of information Administrative –File Annual Report –Develop a Code of Conduct –Update Program Participation Agreement

Slide 30© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Agenda How are schools thinking about their federal student loan program for ? What are trends in federal student loan program? What is current state of private student loan market? –How are schools addressing this shortfall in private student loans? How can financial aid staff inform and educate students and help them improve their financial literacy skills?

Slide 31© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Exhibit A: Need For Financial Literacy Programs Source: Sallie Mae/Gallup survey on How America Pays For College, Note: 27% of survey respondents could not answer the question.

Slide 32© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Exhibit B: Private Loan Borrowers And Federal Aid Source: Project on Student Debt analysis of NPSAS data, August % 64%

Slide 33© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Definitions “The process by which people improve their understanding of financial products, services and concepts, so they are empowered to make informed choices, avoid pitfalls, know where to go for help and take other actions to improve their present and long-term financial well-being.” OECD, “Improving Financial Literacy: Analysis of Issues and Policies”

Slide 34© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Financial Literacy Scores Have Fallen Over 10 Year Period Source: JumpStart Coalition Biennial Test of Personal Financial Literacy given to high-school seniors. Notes: From 2007 Press Release: “The 1997 survey results provide a baseline measurement by which to gauge progress toward the coalition's goal of financial competency among all 12th graders by the year “

Slide 35© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Student Debt Growing By 8.4% Annually Source: College Board: Trends in Student Aid Federal Loans Private Loans

Slide 36© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Defaulted Student Loan Portfolio Balance Source: SLA Analysis of FSA Collections Report, August 2009 Annual Growth: 6.2% 1.9% 16.5% 16.7%

Slide 37© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Prevalence of Programs Survey question #1: Does your institution currently offer a financial literacy program beyond standard entrance and exit loan counseling to your students?

Slide 38© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Financial Literacy Topics Survey question #9: What are the topic(s) covered by your financial literacy training? Please select ALL that apply.

Slide 39© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Program Delivery Survey question #6: How does your institution administer the financial literacy program?

Slide 40© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Self-Evaluation Survey question #12: How would you rate the current financial literacy program at your institution?

Slide 41© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Popular Financial Literacy Programs Survey question: What source(s) would you recommend for a financial aid administrator interested in developing a financial literacy program for his/her institution?

Slide 42© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Entrance Counseling for Private Loans Take out federal loans before ever considering these “last resort” loans –Generally higher interest rates and less repayment flexibility than federal loans –Based on SLA research, the average private loan interest rate is 10%-11% Cosigners almost always required Know your interest rate before signing anything –Index (Prime or LIBOR) + Margin Know that your interest rate will go up –Since 1990, 1 month LIBOR has ranged from 0.3% (current) to 9.125% (11/90) –“Tyranny of calculators” Shop around! –SLA research in April 2009 found that for the same student and cosigner pairing interest rates varied from 7% to 12%

Slide 43© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Entrance Counseling for Private Loans Study the details in the promissory note –Can the lender increase your interest rate if you are late with one payment? –How many days after the due date is a payment considered late? –What fees does the lender charge beyond the origination/repayment fee? –How frequently will your interest rate change? Monthly payment change? Borrowers have option to cancel the loan If you can pay interest only during while you are in school, DO IT! –It can save you thousands of dollars in loan repayment Expand your alternatives by considering credit unions or state-run alternative loan programs DO NOT take out a private loan if you can avoid it!

Slide 44© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Exit Counseling for Private Student Loans Congratulations on your upcoming graduation…now it is time to repay your student loans! These loans will not go away if you don’t pay them –May not be dischargeable in bankruptcy –Stay with you even in death Once you have settled down to your new address, notify your lender so coupon books/statements will reach you Find your original paperwork, including your promissory note and Disclosure Statement –Contact lender if you can’t find it Be pro-active with the borrower benefits that you were promised Confirm the date that your first payment will be due –Typically have 6 month grace period after graduation

Slide 45© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Exit Counseling for Private Student Loans Do not be surprised that your current loan balance is higher than the amount of your original loan If you are concerned about your ability to make payments on your loans, contact the lender immediately to discuss your options –Forbearance allows you to postpone payments Your monthly payment will typically be adjusted quarterly or annually by the lender –Expect that interest rates and therefore your monthly payment will increase as the economy improves Set up your monthly student loan payment on auto-pay –Earn a reduction in interest rates from 0.25% to 0.50% –Eliminate potential for late fees, which can run as high as $30 If you are ready to pay down some extra principal, contact the lender in case you need to make any special notation on the payment

Slide 46© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Questions ?????

Slide 47© Student Lending Analytics, LLC Student Lending Analytics Contact Information Tim Ranzetta Student Lending Analytics LLC

Slide 48© Student Lending Analytics, LLC Trends in Financial Aid And Private Student Loans Student Lending Analytics: Resources Available SLA Private Student Loan Ratings 2009 SLA Private Loan Series –Ten part series on topics ranging from finding a cosigner to reading the promissory note Student Lending Analytics Blog –Timely, insightful information about the student loan market Private Loan Insight Survey Student Satisfaction Surveys