NorthStar Returns $13 Million to Student Loan Borrowers in 2007
NorthStar is currently saving borrowers approximately $1.2 million a month with its T.H.E. Bonus, a repayment benefit delivered as an extra payment to the borrower’s account each month. NorthStar will make nearly $13 million in benefit payments to its borrowers in 2007, bringing the total repayment savings created for students and families in the last 10 years to $39 million. Borrowers using T.H.E. loans also realized an additional $168 million of fee savings, for a total savings of $207 million. By 2034, NorthStar estimates that it will have saved its current borrowers nearly $1.2 billion* over the life of their loans, thanks to generous, simple repayment benefits and the associated savings from avoiding further compounded interest.
* Forecasted savings based on existing $6 billion loan portfolio; does not include future new loans.
T.H.E. Bonus Savings Analysis
2001 - 2007 Actual 2008 - 2034 Forecasted
Year
Annual T.H.E. Bonus(1)
Compound Interest (2)
Annual Impact of Bonus (3)
Repayment Balance (4)
Outstanding Balance (5)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Cumulative Totals Cumulative Totals for 2007
$516,604 $1,358,477 $2,602,202 $4,391,011 $7,325,998 $10,332,386 $12,550,809 $18,897,476 $23,831,445 $28,319,891 $33,287,770 $38,167,698 $41,693,989 $42,923,698 $42,395,815 $39,469,599 $36,403,495 $33,195,799 $29,849,287 $26,381,798 $22,829,620 $19,256,385 $15,710,832 $12,323,174 $9,321,656 $6,700,450 $4,449,898 $2,654,011 $1,372,461 $584,068 $176,057 $35,854 $0 $0
$569,309,716 $39,077,490 +
$15,634 $49,573 $121,516 $271,641 $577,048 $1,009,949 $1,247,829 $2,871,162 $3,907,419 $5,609,413 $7,730,785 $10,319,015 $13,373,091 $16,783,425 $20,477,402 $24,307,403 $28,220,876 $32,176,757 $36,095,469 $39,799,779 $43,082,034 $45,677,263 $47,587,822 $48,498,229 $47,266,676 $44,111,277 $39,310,703 $33,560,087 $26,918,341 $19,427,189 $12,150,492 $6,108,751 $2,329,329 $393,614
$661,386,997 $3,293,193 = =
$532,239 $1,408,051 $2,723,719 $4,662,652 $7,903,046 $11,342,335 $13,798,638 $21,768,639 $27,738,864 $33,929,304 $41,018,555 $48,486,713 $55,067,079 $59,707,123 $62,873,217 $63,777,003 $64,624,372 $65,372,556 $65,944,756 $66,181,577 $65,911,654 $64,933,648 $63,298,654 $60,821,403 $56,588,332 $50,811,727 $43,760,601 $36,214,097 $28,290,801 $20,011,257 $12,326,549 $6,144,605 $2,329,329 $393,614
$1,230,696,713 $42,370,683
$41,911,717 $182,428,329 $436,901,178 $736,112,631 $1,154,580,865 $1,506,425,649 $2,028,663,487 $2,506,126,414 $2,926,394,808 $3,394,172,581 $3,863,649,963 $4,296,405,585 $4,425,142,584 $4,482,818,703 $4,183,631,133 $3,871,174,687 $3,544,972,680 $3,205,081,778 $2,852,175,284 $2,488,960,806 $2,122,087,536 $1,760,547,399 $1,409,051,558 $1,090,991,383 $813,666,102 $571,870,747 $369,276,499 $212,710,384 $105,013,843 $40,026,647 $10,758,267 $0 $0 $0
$948,433,717 $1,408,653,374 $2,070,711,073 $2,928,084,458 $3,916,161,721 $4,821,980,879 $6,028,637,169 $5,852,359,678 $5,667,118,124 $5,472,393,532 $5,267,633,227 $5,052,248,455 $4,825,611,822 $4,482,818,703 $4,183,631,133 $3,871,174,687 $3,544,972,680 $3,205,081,778 $2,852,175,284 $2,488,960,806 $2,122,087,536 $1,760,547,399 $1,409,051,558 $1,090,991,383 $813,666,102 $571,870,747 $369,276,499 $212,710,384 $105,013,843 $40,026,647 $10,758,267 $0 $0 $0
+
Annual T.H.E. Bonus Impact based on $6 Billion Outstanding as of 9/30/2007 with 240 Month Term
$70,000,000
Annual Savings
$60,000,000 $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0
T.H.E. Bonus Compound Interest Impact Peak T.H.E. Payout $42,923,698 Peak Interest Impact $48,498,229
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
$14 million in annual payments
2007
Year
Total Savings: $1,230,696,713
=
Total Bonus Payout: $569,309,716
+
Compound Interest Savings: $661,386,997
Explanation of medical school example used in press release: Typical Medical Student Currently In Repayment: Loan Type Consolidation Stafford Grad PLUS Private Balance $79,740 $46,080 $6,340 $17,790 $150,000 Rate 3.62% 6.75% 8.5% 8.18% Term 240 240 240 240 Bonus 0.75% 1.30% 1.30% 1.00% Savings $9,596.81 $13,694.88 $2,400.66 $5,239.88 $30,867.55
Footnotes:
1 Annual T.H.E. Bonus – The payment amount NorthStar is expecting to make on behalf of students who are in repayment and making on-time payments (less than 60 days past due). NorthStar has a $6 billion portfolio of loans of which only 30% is in repayment. The remainder of the portfolio is expected to go into repayment at various times over the next 7 to 8 years. This means that the amount of T.H.E. Bonus that Northstar will pay out will continue to rise until it reaches a peak in about 2014 when the outstanding amount of loans in repayment will reach its peak (i.e. the bonus amount is based upon a percentage of the loan balance). 2 Compound Interest – The annual impact of the T.H.E. bonus in excess of the annual bonus itself. This excess is the result from the previous bonus payments, which reduced the principal outstanding resulting in less interest due in the current month. The bonus payment plus the interest savings further reduces the principal, which contributes to a compounding effect the next month. 3 Annual Impact of Bonus – The savings impact to students from the T.H.E. bonus payments is far greater than the actual payments themselves because of the compounding effect. Therefore, the bonus payments, which reduce the principal outstanding, will continue reducing the amount of interest owed every month the loan is outstanding. This means that borrowers will still be reaping benefits in the last month of a loan from all previous bonus payments. 4 Repayment Balance – The principal amount due on loans that are in a repayment status. For this example, we included only the current principal plus the current accrued interest rather than including future accrued interest. This not only results in a more conservative estimate of T.H.E. Bonus saving since the bonus is based upon a lower principal balance, but it allows the illustration of the principal amortization to be clearer from an outstanding balance point of view. Therefore, the repayment balance will continue to increase until all loans are in repayment at which time the balance will begin to decrease along with the outstanding balance. 5 Outstanding Balance – The principal amount due on the loan portfolio at any given point in time. For this example, we included only the current principal plus the accrued interest. This allows the illustration of the principal amortization to be clearer because we can show how the outstanding balance decreases from year to year as loans are paid off rather than the outstanding balance increasing or remaining flat as interest is capitalized (added to principal) while students enter repayment over the next 7 years.
2034