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Life of Loan/Loan Basics (FFELP & Private). Brenda Dillon VP, Product Management KeyBank. Federal and Private Process Overview. Agenda FFELP Loan Overview FFELP Process Private Loan Overview Private Loan Process Processing Methods Loan Sales. FFELP Overview. Federal Stafford Loan

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Life of Loan/Loan Basics (FFELP & Private)

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Life of Loan/Loan Basics(FFELP & Private)

Brenda Dillon

VP, Product Management

KeyBank


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Federal and Private Process Overview

  • Agenda

    • FFELP Loan Overview

    • FFELP Process

    • Private Loan Overview

    • Private Loan Process

    • Processing Methods

    • Loan Sales


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FFELP Overview

  • Federal Stafford Loan

    • Student is the borrower

    • Subsidized & unsubsidized (student responsible for interest on unsub)

    • No credit check required

    • Loan is deferred while the student is enrolled at least half time

    • 6 month grace period

    • Annual and aggregate loan limits based on grade level and dependency status


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FFELP Overview

  • Federal PLUS Loan

    • Parent is the borrower for Federal PLUS Loan for Parents

    • Student is the borrower for Federal PLUS Loan for Graduate & Professional Students

    • Immediate Repayment

      • Unless borrower is enrolled at least half time or

        • unless parent requests an in-school deferment based on the students enrollment status

      • 6 months additional deferment is available after in-school deferment (acts like a Grace Period)

        • Upon request for Parent PLUS

        • Automatic for GradPLUS

      • Credit Check is required

      • No annual or aggregate loan limits

        • (COA less Aid)


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FFELP Overview

  • CommonLine

    • CommonLine standardizes electronic loan certification formats, response files, disbursements, change transactions, and error messages.

    • The goal of CommonLine is to simplify the loan origination, disbursement, and change process for schools by:

      • Establishing common formats used by all participants.

      • Allowing schools to use just one school-based software system to communicate with all CommonLine participants.

      • Allowing schools to use their current software systems to communicate with organizations with which they currently have no electronic connection.


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FFELP Overview

  • How Does Your School Flow?

    • Guarantor Flow

      • School sends data to guarantor, guarantor sends to lender

    • Lender Flow

      • School sends data to lender, lender forwards data to guarantor

    • Borrower Initiated Flow

      • Student applies through the lender and initiates sequence. School then certifies loans after receipt of cert request sent by lender

  • The Guarantee Agency is essentially an

    insurance agency for the federal loan.


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FFELP Overview

Many guarantors and lenders work together to handle pieces of the loan originations process.

  • HESC Schools

    • HESC collects MPN / Cert, pulls credit for PLUS Credit Check participants, guarantees loan, then sends file to lender setting loan for disbursement.

  • EdFund Slate Process

    • Similar to above for schools who choose to participate

    • Schools determine which flow works best for them and their students


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FFELP Overview

  • 3rd Party Flows

  • Loans originated outside of the lenders system

    • Lender pays the 3rd party to originate on their behalf collecting the MPN, Cert, Guarantee, and performing disbursement activities

    • Examples:

      • American Education Services

      • American Student Assistance

      • Great Lakes


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FFELP Process

  • Life of Loan Stages

    • Origination

    • Interim period

    • Repayment


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FFELP Origination


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FFELP Origination

  • Free Application for Federal Student Aid (FAFSA)

    • Generates a Student Aid Report (SAR) that contains the Expected Family Contribution (EFC)

    • The Financial Aid Office must determine student eligibility for all TIV aid programs including loans

      • Eligibility is communicated to student in Award Letter


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FFELP Origination

  • Certification

    • The act of attesting that something is true or meets a certain standard. For example, the school certifies the borrower’s eligibility for a loan and, if applicable, interest benefits. The borrower completes an application, promissory note, or deferment form, thereby certifying that certain eligibility criteria have been met.

    • CommonLine (lender sites, open platforms,etc), paper or phone


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FFELP Origination

Loan Guarantee

  • A conditional legal obligation, as defined in an agreement by and between a guarantor and a lender, for the guarantor to reimburse the lender for some portion of a loan that is not repaid by the borrower due to default, death, disability, bankruptcy, borrower ineligibility, false certification of borrower eligibility, or school closure.

  • Guarantee is transmitted via CommonLine

    to the school and the lender


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FFELP Origination

Credit Check ( PLUS Loans Only)

  • Credit check is not FICO score based but rather a list of items that cannot appear on the credit report. Bankruptcy, 90 days delinquent, charge off, etc. There are new provisions surrounding foreclosures – detail can be found in the Common Manual.


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FFELP Origination

  • Master Promissory Note (MPN)

    • Mailed to borrower or completed online

    • Valid for 10 years from signature date

      • If no disbursement within 12 months of initial sign date, MPN is no longer valid

    • Can change schools, guarantors and maintain MPN

      • Change lender, need new MPN

    • Can be E-Signed or wet signed

      • If E-signed, must verify identity

        (STAN – Student Authentication Network)


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FFELP Origination

  • Disbursement

    • Paper check

      • Single pay or Co-payable sent to the school

    • Electronic Funds Transfer (EFT)

      • Electronically disburse funds into school account

    • Central Disbursement Agency (CDA)

      • Central agency (usually through an

        Open Platform) disburses funds

        on lender’s behalf


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FFELP Interim & Repayment Status


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FFELP Interim & Repayment

  • Interim

    • Stafford & PLUS In-School deferment (student at least half-time)

    • 6 month Grace Period on Stafford after student graduates or drops below ½ time

    • 6 month Deferment now available for PLUS loans after student graduates or

      drops below ½ time


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FFELP Interim & Repayment

  • Repayment

    • Stafford, first payment due within 45 days of grace period end date

    • PLUS first payment due within 60 days of full disbursement unless in-school deferment is applied (GradPLUS) or requested (Parent PLUS)


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Questions?


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Private Loans Overview

  • There are two types of private loans available to students

    • School Channel

      • School certification is built into the loan process

      • Generally limited to COA less Aid

      • Funds sent to the school

    • Direct to Consumer

      • No school certification required

        • Borrower Certification is new in 2009

      • Funds sent directly to the borrower


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Private Loans - Overview

  • Why do students and families use them?

    • To cover Estimated Family Contribution (EFC)

    • To fund the gap between their aid package + EFC and the total cost of attendance

    • Allow borrower to obtain funds without a FAFSA

    • Place debt with student not parent


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Private Loans

  • Origination

  • Interim Period

  • Repayment


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Private Loans - Origination


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Private Loans Origination

  • Borrower Applies

    • Web, phone or paper

      • Typically borrower initiated

      • Web most commonly used channel

  • Disclosures issued at the time of application


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Private Loan Origination

  • Loan is Credit Decisioned

    • Approved

      • Lender issues approval disclosures

      • Acceptance period begins

    • Declined

      • Letter sent to customer

      • Appeals Process

    • Request for Additional Information

      • Patriot Act

      • Income verification

      • Other


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Private Loan Origination


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Private Loan Origination

  • Certification

    • School Certification

      • Loan Amount

      • Loan Period

      • Disbursement dates

    • Borrower Self Certification

      • Lender issues disclosures upon receipt of Borrower Self Certification


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Private Loan Origination

  • Promissory Note

    • Paper “wet signature”

    • e-signature (not STAN)

    • Could be an MLN (Master Loan Note)

    • May or may not contain terms


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Private Loan Origination

  • Lender has collected all necessary items to book the loan

    • Borrower acceptance

    • Borrower Self Cert

    • School Cert

    • Credit Approval

    • Promissory Note

  • Loan is booked

  • 3 Day Cooling Off Period Begins

  • Loan Disburses


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Private Loan Origination

  • Disbursement Options

    • Paper check

      • Single or Copayable to school

      • DTC sends funds to borrower

    • Electronic Funds Transfer (EFT)

      • Electronically disburse funds into school account

    • Central Disbursement Agency (CDA)

      • Central agency (usually through an Open Platform) disburses funds to school on lenders behalf


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Private Loans Origination


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Private Loan - Interim and Repayment Status

  • Interim

    • In school deferment for students enrolled at least half time – This is changing!

    • Some loans may have a grace period

  • Repayment

    • Immediate or deferred

    • Grace periods can vary from 4 – 12 months, depending on loan product guidelines


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Federal and Private Processing Methods

  • What Open Platforms Do

    • Allow schools to process all loans on the same “system,” regardless of lender or guarantor

    • Provide data exchange, status information, education, certification, and disbursement services


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Federal and Private Processing Methods

  • Types of Open Platforms

    • ELM – ELM Resources

    • ScholarNet – Great Lakes Higher Education Corporation

    • TG Online – Texas Guaranty Agency

    • Open Net – Sallie Mae

    • eCourier (open platform characteristics) – American Education Services


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Questions?


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Loan Sale Options

  • Student Loan Asset Backed Securitization (SLABS)

  • ECASLA – Ensuring Continued Access to Student Loans Act

    • Federal Loan Participation Agreement

    • Federal Loan Purchase Program

      • Congress passed an extension for loans disbursed through July 1, 2010

  • New! Possible Federal Loan Conduit under the Treasury TARP

  • New! Possible–

    Private Loan Purchase Program


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Questions?


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Thank You and

Happy Holidays!


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