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CBA 2009 Student Lending Conference
Structure of Private Student Loans
This presentation does not constitute formal policy or legal
advice and should not be relied upon as such.
© Student Lending Analytics, LLC
Slide 1
CBA 2009 Student Lending Conference
Structure of Private Student Loans
Does loan structure matter to consumers?
Taking a look back…
Where are we today?
–
–
–
–
–
Interest rates
Value of cosigner
Repayment options
Loan term
Borrower benefits
Future developments/innovation
© Student Lending Analytics, LLC
Slide 2
CBA 2009 Student Lending Conference
Does Loan Structure Matter To Consumers?
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
© Student Lending Analytics, LLC
Slide 3
CBA 2009 Student Lending Conference
Prevalence of Private Loan Lender List
56%
34%
Overall
10%
69%
21%
4-year private
10%
Yes
No
Not Sure
42%
54%
4-year public
4%
12%
65%
2-year public
23%
0%
10%
20%
30%
40%
50%
60%
70%
Survey question: Is your institution planning to provide students with a lender list for private loans for the 2009-10 school year?
Source: SLA Flash Survey: Private Student Loans, June 2009 (187 respondents)
© Student Lending Analytics, LLC
Slide 4
CBA 2009 Student Lending Conference
Lender Selection Process for 2009-10
Percentage of Respondents With Lender List for 2009-10
40%
35%
32%
30%
20%
14%
12%
8%
10%
0%
Formal RFI
Keep List from
08-09
All Lenders Last Informal Process
3-5 Yrs
Other
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)
© Student Lending Analytics, LLC
Slide 5
CBA 2009 Student Lending Conference
The Way We Were…
1980s
– Request from COFHE Schools
– Law School Admissions Council
1990s
–
–
–
–
–
Term: Typically 10 years
Interest Rate: Tied to T-Bill
Origination Fees: Most had 6-9% origination fees
Average loan size: $3,500 - $5,000
Schools covered: High-priced, private non-profits
© Student Lending Analytics, LLC
Slide 6
CBA 2009 Student Lending Conference
The Difference That Two Years Makes
Loan Volume
Avg. Loan Margins
Min. FICO score
Cosigners
Quarterly Gross Defaults
Number of Lenders
2007
2009 (estimates)
Over $20 billion
$10-$12 billion
LIBOR + 5%
LIBOR + 9% to 9.5%
620 to 630
680 to 700
50-60%
80-90%
0.7%
1.2%
Multiple choices
Limited 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
© Student Lending Analytics, LLC
Slide 7
CBA 2009 Student Lending Conference
Lender List Penetration Rates
77%
72%
69%
65%
Chase
Wells Fargo
Sallie Mae
Citibank
36%
Discover
28%
24%
21%
US Bank
SunTrust Bank
PNC Bank
Fifth Third Bank
Citizens Bank
Regions Bank
Charter One
0.0%
9%
8%
7%
4%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Percentage of Total
Source: SLA Analysis of 425 private loan lender lists, August 2009. State alternative loan programs appeared 107 times on these lists.
© Student Lending Analytics, LLC
Slide 8
CBA 2009 Student Lending Conference
Interest Rate Ranges For Major Lenders
Current Starting Interest Rate Ranges
(Index + Margin)
15.0%
11.50%
11.03%
11.00% 11.24%
12.55% 12.20%
11.88%
13.24%
12.75%
10.0%
5.0%
4.25%
4.25%
4.50%
4.28%
4.70%
5.20%
5.13%
4.25%
3.24%
0.0%
Discover
Fees
None
Wells
Fargo
None
SunTrust
None
PNC
Bank
0% to 6%
Chase
None
U.S. Bank Citibank
None
0% to 6%
Sallie
Mae
0% to 3%
Citizens
None
Source: SLA analysis of repayment examples on lender websites, November 2009
© Student Lending Analytics, LLC
Slide 9
CBA 2009 Student Lending Conference
Interest Rate Ranges For Variable-Rate State Programs
Current Starting Interest Rate Ranges
(Index + Margin)
15.0%
10.0%
8.43%
7.71%
5.0%
7.00%
4.71%
3.90%
3.91%
2.79%
1.79%
0.0%
Fees
North
Dakota
Minnesota
Texas
0 to 2%
None
None
Vermont
0% to 5%
North
Carolina
None
Maine
0 to 4%
Source: SLA analysis of state alternative loan program websites, November 2009
© Student Lending Analytics, LLC
Slide 10
CBA 2009 Student Lending Conference
Interest Rate Ranges For Fixed-Rate State Programs
Current Starting Interest Rate Ranges
(Index + Margin)
15.0%
10.0%
8.89%
8.75%
7.60%
6.80%
5.99%
7.55%
7.30%
7.92%
7.62%
7.75%
8.49%
7.90%
7.75% 7.76%
6.00%
5.0%
0.0%
Fees
ND
TX
0-2%
3-5%
CT
AK
3%
5%
NY
4-8%
NJ
2%
MA
4%
IA
0-4%
RI
4%
Source: SLA analysis of state alternative loan program websites, November 2009
© Student Lending Analytics, LLC
Slide 11
CBA 2009 Student Lending Conference
Repayment Options
Lender
Deferred
In-School
Interest
In-School
Principal & Int.
Citibank
X
X
X
Chase
X
X
X
Citizens
X
X
X
Discover
X
X
X
PNC
X
X
X
X
X
Sallie Mae
SunTrust
X
X
X
U.S. Bank
X
X
X
Wells Fargo
X
X
X
© Student Lending Analytics, LLC
Slide 12
CBA 2009 Student Lending Conference
Borrower Benefits
Lender
EFT Discount
Graduation
Benefit
Cosigner Release
(In Months)
Citibank
0.25%
No
24
Chase
0.25%
No
36
Citizens
0.50%
No
36
Discover
0.25%
2% reward
None
PNC
0.25%
No
48
Sallie Mae
0.25%
No
Discretion of SLM
SunTrust
0.25%
$300
48
U.S. Bank
0.50%
No
36-48
Wells Fargo
0.25%
0.5% Rate
Reduction
24
© Student Lending Analytics, LLC
Slide 13
CBA 2009 Student Lending Conference
Standard Loan Term
PNC Bank
SunTrust Bank
Chase
Citibank
Citizens Bank
Discover
Sallie Mae
US Bank
Wells Fargo
0
5
10
15
20
25
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
© Student Lending Analytics, LLC
Slide 14
CBA 2009 Student Lending Conference
Nascent Developments To Keep An Eye On
Student Loan Marketplace
Peer-to-Peer
– Structural issues
– Capital sources
– Microloans from alumni
Consolidation
– Several years in repayment
Borrower default aversion products
– SafeStart for private loans
Using interest rates to nudge consumer behavior
– State private loan programs
Source: SLA Analysis of 425 private loan lender lists, August 2009. State alternative loan programs appeared 107 times on these lists.
© Student Lending Analytics, LLC
Slide 15
Student Lending Analytics
Contact Information
Tim Ranzetta
Student Lending Analytics LLC
650-218-8408
tranzetta@studentlendinganalytics.com
www.studentlendinganalytics.com
© Student Lending Analytics, LLC
Slide 16

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