Guide to Developing a Preferred Lender List

Guide to Developing a Preferred Lender List SASFAA Conference February, 2006 Presented by: David D. Mohning, Ph.D. Director of Student Financial Aid, Vanderbilt University and David L. Gruen Director of Student Financial Aid, University of Wyoming [Excerpted from our published work as members of the 2004-05 NASFAA Institutional Program Management Committee] Developing a Preferred Lender List Discussion Topics • • • • • • • • Criteria and Factors to Consider Institutional Preparation Identifying Potential Lenders Gathering Input Developing and RFI or RFP Evaluating Lender Responses Displaying the Lender List Building the Lender List Display Developing a Preferred Lender List Important to Remember!! Schools cannot deny student borrowers a choice in selecting a FFELP lender, even if the school itself serves as a FFELP lender. Criteria and Factors to Consider Benefits -- Pricing -- Fees -- Repayment Incentives Offered “Front End” Fees and to Whom Are They Assessed “Front End” Benefits and Who Qualifies “Back End” Repayment Incentives/Benefits and Who Qualifies Bottom Line “Savings” to the Borrower Effect of Potential Consolidation on Benefits Offered Default Rate of the Lender(s) • COHORT Default History of Lender(s) Considered • • • • • • Criteria and Factors to Consider Reputation -- Track Record -- Customer Service • Name Recognition • Experience of Professional Peers with the Lender(s) • Customer Service “Track Record” of the Lender(s) – Responsiveness – Processing Errors – Flexibility – “On-Time Delivery” • Market Position • Market Initiative(s) Criteria and Factors to Consider Stability of the Lender(s) • Length of Tenure in Student Loan Industry • Proof of Commitment to Stay in the Business • Source of Capital for Loans • Ability to Adapt to Industry Changes – Regulatory – Economic – Market Dynamics Criteria and Factors to Consider Lender Operations: Hold -- Sell -- Service its Loan Portfolio • Life of Loan Servicing? • Are Loans Sold Sometime After Origination? – When? – To Whom? – Reputation of New Owner – Reputation of Servicer Used by the Lender(s) Criteria and Factors to Consider Guarantee Agency Relationships of the Lender(s) • • • • • Agency Relationships – Contracts on File Contract with Your State Agency Guarantee Fee Charged Default Prevention Initiatives Influence and Control of Agencies Used Criteria and Factors to Consider Loan Processing Options/Operations • • • • • Lender Flow Guarantor Flow Offers Acceptable EFT Options? Compatible with Your Institutional System Infrastructure? Electronic Signature Options • Stafford MPN • PLUS MPN Criteria and Factors to Consider PLUS and Other Pre-Approval Options • Phone/Fax • Internet Web-Based Services Offered to Borrowers • Monitors Cumulative Borrowing • Debt Management/Counseling Offered • Financial Literacy/Educational Products Criteria and Factors to Consider Marketing Techniques Used • Direct Mail Solicitation Used? – Parent and/or Alternative Loan – Other Products and Services • Sells Borrower Names? Support Provided to Institutions • Dedicated Marketing/Service Representative • Customer Service – Single Point of Contact • Training Offered • Technical Support Offered Criteria and Factors to Consider Loan Consolidation Options Offered • Program Offerings • Operational Structure Entity Marketing “Testimony” from the Lender(s) • “Uniqueness” Does Not Always Equal “Better” Other Value-Added Products and Services • Conditions/Agreements/Requirements? Criteria and Factors to Consider Alternative/Private Loan Considerations Does the Lender Offer a Competitive Alternative Loan Product? • Fees Charged • Interest Rate Charged • Student Population/Segment Targeted • Co-Signer Requirement(s) • Repayment Incentives Offered • Credit Scoring or Assessment Used (and How) • Method(s) of Credit Pre-Screening • School Certification Requirement(s) • Level of Automated Processing Offered • Combined Servicing/Billing Provided • Consolidation Options Criteria and Factors to Consider Default Management • Web-based Materials and Debt Counseling Presentations • Educating Borrowers on Debt Management • Early Intervention with Delinquent Borrowers • Communications during Non-Repayment Periods • Training Offered to Institutions and/or Their Staff • Expertise of the Lender’s Employees • Availability of Institution-Specific Loan Statistics Institutional Preparation Identifying Student Needs and Expectations • Financial intelligence and experience (level of financial literacy) • Aversion to debt, or preconceived notions of appropriate debt levels • Need for loan assistance beyond the available federal programs • Affinity for “big-box” financial institutions (lenders) versus local lending institutions • Affinity for “packaged” services (e.g., student loan, checking account, credit card, car loan, home mortgage, etc. at same institution) versus value shopping for a single product or service only • The role of the school in influencing or assisting in a student’s selection of a lender Institutional Preparation Identifying Institutional Student Financial Aid Office and Other Relevant Operational Needs vis-à-vis Performance Criteria • Application assistance • Financial advising (entrance and exit counseling, financial planning, etc.) to be provided to potential as well as current borrowers • Loan certification process • Disbursement options • Requests for additional or reduced loan amounts and loan cancellations • Refunds/Return of loan funds • Post-graduation and withdrawal activities • Collection assistance Identifying Candidates Criteria Important to the Institution • • • • • Ability to meet the identified needs of the institution Existing relationships Minimum level of Borrower Benefits/Services Number of lenders on list Favorable recommendation from colleagues Gathering Input Options for Institutions • • • • Request for Information (RFI) Request for proposals (RFP) Presentations from lenders Site visits (of lenders) Developing an RFI or RFP Provide Detailed Specific Questions Provide a Submission Deadline Develop and Provide a Process Timetable Evaluating Lender Responses • Recommend Committee to Review Responses • Identify Criteria and their Importance to the Institution • Developing a Scorecard – Assign priority rating to criteria – Assign Performance rating – Compare scores (See following scorecard sample) Displaying the List Display Topics • • • • • • • • • Types of Loans Lender Contact Information How to Apply Special Benefits/Borrower Incentives Deadlines Sample Repayment Charts Other Relevant Information Unlisted Lenders FAQ’s Building the Display Site Location • Static or strategic • Availability to public Lender Information • Who writes and maintains • Limitation on size • External links Identify Display Information Other Considerations Unlisted Lenders FAQ’s Customer Service Questions/Comments/Discussion Reference, and for more specific information and details, see: NASFAA Monograph Number 15 May, 2005 (A copyrighted publication prepared by the 2004-05 NASFAA Institutional Program Management Committee)