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Debt Consolidation Loan in Texas

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					 Loan Consolidation

       Kevin Tharp, USA Funds
       Jon D. Shaver, DCS, Inc.
       Michael Sichmeller, SSSC
Bob Kling, U.S. Department of Education
 Trends In Collection of
Defaulted Student Loans:
    FY 2001 to 2003
        Moderator: Kevin Tharp, USA Funds
 Presenter: Jon D. Shaver, Vice Chairman, DCS, Inc.
Why Examine Collection Trends?
•   Financial Impact on Guarantors and ED
•   Helpful to Understand Industry Behavior
•   Anticipate Emerging Best Practices
•   Useful to Explain to Congress
•   Causes Us to Think About Program Policy
•   Permits Forecasting Future Events
                        Beginning Inventories for GA’s and ED: 2001 to 2004

   Overall inventories have increased. ED is up year over year, GA’s are down. For the first
   time in four years, ED’s inventory is larger than all guarantors combined.            CAGR
                                                                                        (01-04)


                          $28.8B        $27.8B        $29.1B           $30.2B           1.59%
           100%



                   80    ED $11.9B
                                       ED $12.7B     ED $14.0B                          10.14%
                                                                      ED $15.9B
   $ in Billions




                   60



                   40

                         GA's $16.9B
                                       GA's $15.1B   GA's $15.1B                        -5.42%
                                                                      GA's $14.3B
                   20



                    0
                           2001          2002          2003             2004

Source: US Department of Education Guaranty Agency Recovery Totals Reports: 2001—2003
                                             Collection of Defaulted Inventory By GA’s and ED

                                       Guarantors have made significant progress in liquidation of their default
                                       inventories, outpacing new defaults. ED was a strong performer in 2003,
                                       largely due to growth in rehabilitations.

                                       30%
      Percent of Beginning Inventory




                                                                     In Billions of Dollars
                                        25


                                        20                                                                           CAGR
                                                                                                                        (01-03)
                                        15                                                                         GA’s 10.31%
                                                                              GA's                  GA's
                                                                              23.4                  23.0
                                        10            GA's
                                                      18.9                           TOTAL                 TOTAL
                                                             TOTAL
                                                                                      16.2
                                                                                                                   ED      4.28%
                                                                                                            16.1
                                                              14.4
                                         5      ED                      ED                    ED
                                                8.0                     7.6                   8.7
                                                                                                                   Total   5.74%
                                         0
                                                      2001                    2002                  2003


Source: US Department of Education Guaranty Agency Recovery Totals Reports: 2001—2003
                      ED and Guarantor Gross Collections: FY 2001 to 2003
                  Overall gross dollar collections are up, with ED contributing the greatest
                  percentage gains. (Excludes Treasury Offsets).
                                                                                               CAGR
                                                                                               (01-03)

                  5
                                                                                  $4.7B        5.79%
                                                        $4.5B
                              $4.2B
                  4


                                                                                               4.58%
  $ in Billions




                  3                                                             GA's $3.5B
                                                      GA's $3.5B
                             GA's $3.2B

                  2



                  1
                                                                                 ED $1.2B      9.54%
                             ED $1.0B                  ED $1.0B

                  0
                               2001                     2002                      2003

Source: US Department of Education Guaranty Agency Recovery Totals Reports: 2001—2003
                                            Total By Collection Method
Excluding Treasury Offsets, gross collections have grown at 6.4% with a significant
decrease in consolidation and increase in rehabilitation collections.

                                                                                   CAGR
                                                                                   (01-03)
              $5.0B                                                                  6.4%
                                                                     $4.7B
                                                    $4.5B
                             $4.2B                                    AWG            9.2%
                                                     AWG
                    4.0       AWG
                                                                     Regular         4.2%
                                                    Regular
                            Regular
                    3.0
    $ in Billions




                                                 Rehabilitation
                           Rehabilitation                         Rehabilitation   108.4%


                    2.0

                          Consolidation          Consolidation
                                                                  Consolidation     -8.0%
                    1.0



                    0.0
                             2001                    2002             2003


Source: US Department of Education Guaranty Agency Recovery Totals Reports: 2001—2003
                           FY 2003 Total Collections: ED vs. Guarantors
There is a dramatic difference in collection methods between ED and GA’s. Since more
than half of Guarantor collections are consolidations, there is a significant opportunity for
the growth of rehabilitation within the framework of a “balanced collections” approach.

                                     $1.2B                    $3.5B
      100.0%
                                      AWG                      AWG


                    80.0
                                  Consolidation
    $ in Billions




                                                           Consolidation
                    60.0

                                     Regular
                    40.0

                                                              Regular
                    20.0
                                  Rehabilitation
                                                           Rehabilitation

                     0.0
                                       ED                      GAs

Source: US Department of Education Guaranty Agency Recovery Totals Reports: 2001—2003
                       Top Defaulted Loan Rehabilitators: Federal FY 2001 Through 2003
       Number    Name of Guarantor                                       2001     2002     2003    TREND

           1     Great Lakes Higher Education Guaranty Corporation      29.64%   49.54%   66.66%     Up

           2     American Student Assistance                            16.60%   28.67%   39.24%     Up

           3     Georgia Student Finance Commission                     11.71%   19.57%   38.14%     Up

           4     Finance Authority of Maine                             2.98%    3.31%    34.85%     Up

           5     Northwest Education Loan Association                   25.30%   29.24%   31.62%     Up

           6     United Student Aid Funds                               6.11%    5.54%    27.41%     Up

           7     National Student Loan Program (Nebraska)               10.51%   14.10%   22.97%     Up

           8     Vermont Student Assistance Corporation                 20.26%   21.12%   21.26%   Neutral

           9     New Hampshire Higher Education Assistance Foundation   6.28%    22.89%   21.07%     Up

          10     Utah Higher Education Assistance Authority 2002        28.18%   23.12%   19.60%   Down

          11     Student Loans of North Dakota                          43.11%   14.63%   11.59%   Down



                 National Average of All Guarantors                     6.20%    9.54%    17.36%     Up

                 U.S. Department of Education Total                     2.70%    10.61%   30.24%     Up



                 <=10% of Resolutions By Rehabilitation

                 >=25% of Resolutions By Rehabilitation



                 Number of Red Guarantors                                 3        2        0      Down

                 Number of Green Guarantors                               3        3        6        Up




Source: US Department of Education Guaranty Agency Recovery Totals Reports: 2001—2003
       Top Defaulted Loan Consolidators: Federal FY 2001 Through 2003
Number    Name of Guarantor                                      2001     2002     2003    TREND

  1       Educational Credit Management Corporation             88.15%   87.99%   83.72%   Down

  2       California Student Aid Commission                     66.13%   74.64%   81.65%    Up

  3       New Mexico Student Loan Guarantee Corporation         65.06%   87.47%   78.61%   Down

  4       Student Loan Guarantee Foundation of Arkansas         63.32%   68.06%   75.13%    Up

  5       Rhode Island Higher Education Assistance Authority    56.55%   59.56%   67.84%    Up

  6       North Carolina State Education Assistance Authority   81.94%   77.60%   67.74%   Down

  7       Oklahoma Guaranteed Student Loan Program              58.27%   66.00%   66.89%    Up

  8       Missouri Higher Education Loan Authority              45.43%   61.07%   65.05%    Up

  9       Kentucky Higher Education Assistance Agency           68.95%   65.54%   64.39%   Down

  10      South Carolina Student Loan Corporation               60.47%   49.83%   63.29%    Up

  11      Iowa College Student Aid Commission                   61.97%   66.73%   62.70%   Down

  12      Michigan Higher Education Assistance Authority        76.90%   70.73%   62.31%   Down

  13      Texas Guaranteed Student Loan Corporation             56.66%   60.34%   61.90%    Up

  14      Finance Authority of Maine                            87.74%   81.09%   49.35%   Down

  15      United Student Aid Funds                              83.24%   80.32%   54.45%   Down

  16      Florida Department of Education OSFA                  82.67%   74.13%   58.12%   Down

  17      Montana Guaranteed Student Loan Program               74.69%   69.81%   55.91%   Down

  18      National Student Loan Program (Nebraska)              71.44%   68.45%   51.85%   Down

  19      Illinois Student Assistance Commission                63.49%   60.84%   56.85%   Down

  20      Connecticut Student Loan Foundation                   73.57%   47.53%   40.91%   Down

          New Hampshire Higher Education Assistance
  21      Foundation                                            64.71%   42.28%   52.48%    Up

  22      Education Assistance Corporation (South Dakota)       62.58%   59.15%   57.30%   Down

  23      Georgia Student Finance Commission                    62.46%   55.50%   30.57%   Down

          National Average of All Guarantors                    55.78%   55.61%   52.24%   Down

          U.S. Department of Education Total                    48.82%   37.97%   23.78%   Down

          Number of Red Guarantors                                9        8        4      Down

          Number of Green Guarantors                              1        3        3       Up
              Consolidation and Rehab as Percent of Inventory
    No matter how you look at defaulted student loan collections, the shift from
    consolidation to rehabilitation is clear.

                 Trends In Consolidation and Rehabilitation Collections: FY 2001 Through 2003
                                        Total Consolidations (millions)           Total Rehabilitations (millions)
                                        2001          2002         2003           2001           2002         2003
     Guaranty Agencies              $ 2,526.3     $ 2,298.4    $ 1,977.6      $    312.6     $    336.5   $    604.1
     U.S. Department of Education   $    464.9    $    365.9   $    289.9     $     25.7     $    102.3   $    368.8
     TOTAL                          $ 2,991.2     $ 2,664.3    $ 2,267.5      $    338.4     $    438.7   $    972.9


     Beginning Inventory            $ 28,154.4    $ 27,807.5   $ 29,110.2     $ 28,154.4     $ 27,807.5   $ 29,110.2
     As Percentage of Inventory         10.62%         9.58%        7.79%           1.20%         1.58%        3.34%


     Percent Change in Inventory
                                                                          3.39%
     2001 to 2003
     Percent Change 2001 to 2003                   -26.65%                                    178.33%




Source: US Department of Education Guaranty Agency Recovery Totals Reports: 2001—2003
                 Forecast for 2004
• Rehabilitation Up Significantly
   –   Balance sensitive rehab a consolidation substitute
   –   Adopted by many GA’s in 2003, effects in 2004
   –   Better income to GA’s, lower redefault risk
   –   Better service, more choice for borrowers
• Consolidation Down
• Overall Default Inventory Up
   – ED up, Guarantors steady
• Trend Is Toward “Balanced Collections”
Questions?
Consolidation Loans
A Lender’s Perspective
     Michael Sichmeller
Acquisition Marketing Manager
 Southwest Student Services
         Corporation
                Potential Risks
• Consolidating previously defaulted loans

  –   Borrower may Re-Default on Loan
  –   Higher Delinquency and Default Rates
  –   2% Risk Share on the Loan
  –   Loss of Asset/Income to the Corporation
         Reducing the Risks
• Referred Consolidation Loan Policy
  – Pro-active Prevention
• Quick Processing
  – Eliminates time between payments
• On-line Account Access
  – Deferment, Forbearance and Income Sensitive
  – Bill Payment
  – Auto-Debit
• Due Diligence
  – Delinquency and Default Aversion
 Referred Consolidation Loan Policy
• Borrower must be employed, self-employed, or
  indicate, if unemployed, a method of support (e.g.,
  husband/wife). Public assistance support does not
  constitute employment.
• Borrower must make three, or such greater number as
  shall be required by the applicable guarantor,
  consecutive on time monthly qualifying payments
  which is at least 1% of the defaulted loan principal
  balance and interest including collection costs or a
  minimum of $50, whichever is greater.
 Referred Consolidation Loan Policy
• Borrower must remain current and continue
  making payments during the consolidation
  processing period.
  – Qualifying payments received by the agency must be
    posted to the borrower’s account within 15 days of the
    payment due dates, with the last qualifying payment no
    more than 45 days from date of the consolidation loan
    funding.
• The minimum Referred Consolidation Loan
  balance is determined by a signed letter of
  agreement between the referring agency and
  Southwest Student Services Corporation.
   Referred Consolidation Loan Policy

• Referred Consolidation Documents sent to
  Southwest for processing must include:
  – Completed and executed Promissory Note
     • (The borrower’s signature date must be 180 days or less from
       funding date.)
  – Completed Loan Verification Certificates
  – Completed Borrower Acknowledgement Statement
     • Used to advise the borrower of the upcoming consolidation
       terms, interest rate and payment amount
  – Completed borrower’s qualifying payment history
                Processing Consolidation Loans
                                Southwest receives app from Agency or
                                Borrower
   Upload to Southwest’s
   servicing system from Loan



                                                                        2
   Cons
                                                                         Batch in consolidation
                                                                         department & manually
                                                                         work & put into loan
                                                                         cons
                                         Southwest

Send check or
wire to                                                                       Support Services
Agencies or                                                                   prep and verifies
Guarantors                                                                    scans index & QA
                                                                              documents


    Give check requests
    to Accounting                                                       QA Process



                                     Submit Funding Request to
                                     Finance
Keep the Borrower Paying
• Different Repayment Options
  –   Level
  –   Gradated
  –   Extended
  –   Income Sensitive
• Payment Options
  – Auto-Debit
  – EasyPay
  – OnePay
 Keep the Borrower Paying
• Representatives are trained to counsel
  Borrowers
  – Repayment Options
  – Deferment Options
  – Forbearance Options
           Due Diligence
• Delinquency and Default Aversion
  – “Friendly” Call made at 16 days
  – Increased Calls in the 31-120 Days Past Due
    Range
  – Strong Focus on the 90 – 120 Days Past Due
    Range
Thank You!
      _____
 Michael Sichmeller
    (480) 461-6590
msichmeller@sssc.com
           DIRECT LOAN
          CONSOLIDATION
         PROGRAM UPDATE
             Moderator - Kevin Tharp, USA Funds
Presenter – Bob Kling, Lender Liaison DLCP U.S. Department of
                          Education
      Growth in Federal and Direct
$70,000,000,000
$60,000,000,000
$50,000,000,000
$40,000,000,000
                                                                          1995
$30,000,000,000                                                           2003
$20,000,000,000                                                           3-D Column 4
$10,000,000,000
            $0
                     Total       Total         FFEL           DL
                  FFEL/Direct Consolidation Consolidation Consolidation
                  Loan Volume   Volume        Volume        Volume
    Sources of Loan Volume - DLCP
                              Dollar Volume by Loan Holder Type
                                         January 2004

   $600,000,000

   $500,000,000

   $400,000,000

   $300,000,000

   $200,000,000

   $100,000,000

            $0
                  FFEL (Private)    GA         Direct         DCS          HHS         Total

Jan-04            $117,615,156 $162,017,237 $206,410,175   $12,705,775   $10,357    $498,758,700
13-Month Average $103,229,293 $160,344,795 $271,124,150    $18,366,693   $160,511   $553,225,443
    New Products to Reduce
  Lender/GA Costs and Increase
    Operational Efficiencies

     • Electronic Funds Transfer (EFT)

• Electronic Verification Certification (EVC)
      Consolidation Process Refresher                                             Payoff Calculated
                           Consolidation Originator


                  Certs Sent

                                                     Certs Returned
                                        Certs Sent

               “EVC”
  Borrower
  Applies
                                                                                  Payoff Amts
                       Certs Returned                                                Sent


                                                             Payoff Amounts   Loans Consolidated !
                                                             Disbursed




Current Loan Holders                                                      “EFT”
         Why should I Participate in
                EFT ?
   1996 Debt Reduction Act
   Eliminates Manual Check Processing
   Facilitates posting
   Reduces Over/Under Payment Adjustments
   Selective Access improves audit controls
   Funds received faster via ACH or Fed Wire
         Why should I Participate in
                EVC?
   Eliminates Manual Completion of LVCs
   Edits prevent entering erroneous information
   Eliminates Postage Costs
   Ensures Regulatory Compliance
   More accuracy reduces payment adjustments
   Choice of on-line or batch processing
How can I get more information ?
            EFT/EVC Contacts
             EFT                         EVC
Greg McCoy, LCC Acct. Mgr.   Scott Ahrendt, LCC Ops. Mgr.
      (334) 206-6848                (334) 206-7782
  Greg.McCoy@eds.com             Scott.Ahrendt@eds.com



                 Bob Kling, Lender Liaison
               Direct Loan Consolidation Group
                U.S. Department of Education
               202) 377-3292 Robert.Kling@ed.gov
        Why are there funding
           suspensions?
• Applications are held from applicable T-Bill auction
  date until July 1st to allow borrowers to benefit from a
  lower interest rate.
• Department’s “GAPS” disbursement system closes for
  upgrades
• To determine the cause and duration of funding
  suspensions call our lender hotline 1 (888)-799-2474
 What does the future hold for the
Direct Consolidation Loan Program?
    Common Services for Borrowers
    •Seamless integration of all existing services.
    •Better service for our borrowers
    •Better service for our trading partners.
    •More value for taxpayers
Questions ?

				
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