What FFEL Needs to Do to Remain Viable

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What FFEL Needs to Do to Remain Viable

• Comments of John Dean
• Washington Partners, LLC
• September, 2008

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• These comments reflect the views of John Dean and
  should not be considered to reflect positions of
  the Consumer Bankers Associations or any other
  organization.

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Session Overview

• Situation Assessment.
• Inevitability of Change.
• Assessing our Assets.
• Making our Case.
• The Ten Commandments for Going Forward.

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Situation Assessment

• FFEL is in severe financial disarray. But for PL
  110-227, the program would be already out of
  business.
• The confidence of some schools in the reliability
  of FFEL has been shaken.
• Many schools see FFELs future as outside of the
  control of FFEL loan providers.

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Situation Assessment

• FFEL has not yet recovered from the damage done
  by the student loan marketing scandal (although
  the legitimacy of the investigations is largely
  dismissed by schools, FFEL loan providers remain
  radioactive on the Hill, undermining our
  ability to move legislation).

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Situation Assessment

• Politicians of both parties continue to refuse to
  support new investment in student loans,
  undermining efforts to restore the program.
• Student advocates continue to vent frustration
  over the cost of college and student debt by
  attacking loan providers, often with limited
  interest in accuracy or truth.

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Situation Assessment

• Higher education (in Washington, at least) sees
  the debate over student loans as a welcome
  diversion of attention from rising college costs.
  
• Many associations are unwilling to side with
  FFEL for fear of attack from Direct Loan
  interests which reportedly vilifies any school
  official supportive of FFEL.

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Situation Assessment Some Good News?

• The combination of the highly destructive pair of
  budget reconciliation bills of 2006 and 2007 cut
  the budget preference in favor of Direct Loans
  (as calculated by CBO and OMB).
• The industry has successfully (and legitimately)
  raised doubts about the accuracy of CBO and OMB
  budget scoring methodology.

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Situation Assessment Some Good News?

• The ARS market scandal and the sense of panic
  over the possibility of a loan access problem
  prompted bipartisan action on the ECASL Act. (PL
  110-227).
• Some see a new paradigm of student loan politics
  emerging with FFEL no longer seen as a source of
  funding for Pell Grants or other student aid but
  rather as a safety net assuring loan availability
  for students.

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Situation Assessment Some Good News?

• After evidencing some absence of support for
  private sector involvement in student loans,
  Republicans are now supporting the
  Public-private partnership that now offers
  students and their families a vibrant marketplace
  in selecting their student loan provider.
  (Obama supports repeal of FFEL but may reassess
  his position if there budget savings are largely
  gone).

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Inevitability of Change

• FFEL as we knew it in 2006 is gone. It will not
  return. The question is what will private
  sector involvement in student loans in the future
  look like?
• Direct Loan volume may eclipse that of FFEL by
  next year, but that is now unlikely due to the
  one-year extension of PL 110-227 just approved.

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Inevitability of Change

• The industry needs to decide whether it will
  create the program design, whether it will let
  others do it, or will simply let the program fade
  away and focus on non-federal student loans.
• In our view, it should be a collaborative
  effortwe need to adopt good ideas wherever we
  find them. The College Board, for example.

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Assessing our Assets

• Making a case for continued private sector
  involvement in student loans necessitates an
  honest assessment of what we do well, what we can
  do better, and how we work with others.
• Assets include not only what we are, but what we
  are not.

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Assessing our Assets

• Customer Service Borne of competition, we are
  better at customer service than our competition.
• Innovation As evidenced by initiatives like
  CommonLine, ELM, the Clearinghouse, CCI, and many
  others, FFEL can innovative without an act of
  Congress.

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Assessing our Assets

• Delinquency and Default Aversion This is a
  passion for many involved in the guarantor
  communityit is what they do. There is no FDSL
  equivalent.
• Financial Literacy Our members approach this
  goal with a broad array of approaches
  andproducts.

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Assessing our Assets

• Geography We are geographically diverse,
  offering employment and community involvement in
  many communities and virtually all states.
• Diversity of Product Offerings Many of us are
  involved in a multiplicity of product offerings
  supporting financing college, including savings
  programs.

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Assessing our Assets

• Human Resources Our people are experts in
  education finance. Many have devoted their lives
  to this.
• Ethics Despite the allegations of the Cuomo
  investigation, with very rare exceptions, FFEL is
  an ethical program, reflecting the priorities of
  the organizations in it.
• Reliability Until very recently, FFEL has
  highly reliable, supported by the strength of a
  competitive origination market.

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Assessing our Assets

• We are not the Federal Government Although many
  of us do not accept the questionable concept of
  the government being inherently inefficient and
  unreliable, the fact that FFEL loan providers are
  not part of the federal government is a plus for
  many in the student, school and Congressional
  communities.

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Making Our Case

• A compelling case must be developed based on the
  customer We must be the answer to the question
  of What is the best way to meet the credit needs
  of students seeking to attend college?
• The case must be simple We cannot get lost in
  the weeds.
• We must be honest We must continue to rebuild
  our credibility.

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Making our case

• Our case must be student-centric Other appeals,
  including to taxpayers are relevant but will not
  win the day.
• Our case must be made by people other than
  ourselves We must find champions outside of our
  industry who are with us because they believe
  they need us.
• We must be loud Why? Because our enemies are
  louder.

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The Ten Commandments

• Thou shall be student-focused in all aspects of
  your operations.
• Thou shall conduct business with the highest
  possible level of ethics avoiding conflicts of
  interest and the appearance of conflicts of
  interest.
• Thou shall actively promote college access and
  success. (Join NCAN).

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The Ten Commandments

• Thou shall do everything possible to discourage
  unnecessary borrowing.
• Thou shall promote financial literacy.
• Thou shall effectuate the highest possible level
  of customer service.
• Thou shall promote and support innovative
  technologies and procedures that make FFEL more
  efficient.

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The Ten Commandments

• Thou shall maintain an effective and engaged
  government relations effort reflecting the
  legislative basis of the student loan programs.
• Thou shall assure that schools and the public are
  aware of the contributions my organization in
  support of students and educational opportunity.
• Thou shall support my association and work
  collaboratively with my colleagues in student
  lending. (H.R. 6889 an excellent start).

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The 11th Comandment

• Thou shall not speak ill of another student loan
  provider.

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Thank YouQuestions?

• John Dean
• Washington Partners, LLC
• Jdean_at_wpllc.net
• 202.289.3900