ALTERNATIVE LOANS

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ALTERNATIVE LOANS
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I. Introduction to Alternative Loans

• What is an alternative loan?
• Are alternative loans different from FFELP loans?
  
• The rise of alternative loans
• The need today for alternative loans (Cost of
  education minus aid unmet need)
• The variety of alternative loans (MBA, law,
  medical, school specific (private label),
  international, law exam, etc.)

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II. What Is the Difference Between FFELP and
Alternative Loans?

• FFELP loans are insured by a guarantee agency and
  re-insured by the U.S. Department of Education
• Alternative loans may be self-insured by holder
  or guaranteed by private insurance entity
• Alternative loans are more vulnerable to state
  laws
• Alternative loans must comply with Regulation Z
  FFELP loans are exempt
• Different mindset
• Collections
• Extensions (forbearances)

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III. Who Makes Alternative Loans?

• Financial Institutions
• Community banks
• State banks
• National banks
• Savings and Loans
• Credit Unions
• Family Members (First National Bank of Dad)

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Makers (cont.)

• Does type of lender matter?
• State law differences
• Different regulators
• Restrictions, such as credit union membership

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IV. What Are the Risks Associated With Making
and Owning Alternative Loans?

• No federal guarantee
• Reserve fund
• Borrower fees
• School setup
• Private insurer

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Risks (cont.)

• Price risk
• Without guarantee,
• Origination and repayment fees are much higher
• Interest rates are higher
• Which index to use for interest rate

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Risks (cont.)

• Competition
• Competition can undercut rates
• No inducements risk
• Many different loans available now

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Risks (cont.)

• Consumer Laws
• Fair Debt Collection
• Truth in Lending
• ECOA
• Individual state laws

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V. Alternative Loan Benefits

• Competition
• Not limited by federal program restrictions
• Can customize to a given school or school type
• Can tie rate to actual credit risk
• Actual lending decisions

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Benefits (cont.)

• Attract FFELP and Private
• Combined marketing for dual customer
• Servicing savings if both
• May drive FFELP volume

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VI. Originating Alternative Loans

• Underwriting the application
• Credit Scoring
• Credit reports
• Co-borrowers/Co-signers
• Guarantee/origination fee

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Originating (cont.)

• Where does the check go?
• Issues related to online applications and
  E-signatures
• The joys of Gramm-Leach-Bliley
• Documentation
• Promissory note
• Disclosure statement

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VII. Servicing the Alternative Loan

• Disclosure
• Privacy Notification
• Fee Payment to Private Insurers (if applicable)
• Due Diligence
• Skip Tracing
• Private Insurer Reporting (if applicable)
• Claim Filing with private insurer (if applicable)

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VIII. Collecting the Alternative Loan

• Difference between FFELP and Alternative Loan
  collections
• FFELP regulations versus state/federal collection
  laws
• Entitlements versus incentives
• Bankruptcy
• Litigation

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Collection (cont.)

• Are you a holder or a servicer?
• Applicability of consumer collection laws

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Collection (cont.)

• To collect or to contract, that is the question
• In-house collection versus collection agency
• Do you do FFELP?
• Cost/Benefit Analysis

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Collection (cont.)

• Evaluation and selection of a collection agency
• Licensing
• Strategy, experience and recovery rates
• Contractual requirements

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The Future of Private Education Loan Programs