New York Higher Education Loan Program for Students - NYHELPS

1. New York Higher Education Loan Program for Students - NYHELPS An alternative loan for New York students attending New York colleges

2. Financing Issues in Higher Education • Families have fewer options this year • Unemployment in New York State has escalated • Nest eggs have dwindled • Home equity has dropped • Demand for “second looks” has increased

3. SUNY Unmet Need SUNY 4-Year First-Time Full-Time Freshman: Unmet Need (New York State Residents Only) Financially Dependent Student Unmet Need After Financial Aid $2835 $2835 $6965 $12,165 $12,680 Total Cost of Attendance

4. Limited Private Options • Many lenders have stopped offering products • In the past, a 600 – 620 FICO would generate loan eligibility • Now, most lenders require at least a 700 FICO • Some lenders require in-school interest payment

5. NYHELPs vs. PLUS Loans • NYHELPs is not designed to compete with PLUS • More parents have adverse credit • Some parents will not become borrowers • Independent students

6. Alternative Loans vs. NYHELPs • Alternative Loans - variable only, average rates above 10%, high credit requirements; do students really know what they are getting • NYHELPs - fixed and variable options, lower costs, transparency, credit access

7. Why NYHELPs Is Needed • Bridges the gap • Students in all sectors have unmet need • Not all families can access Parent PLUS • NY is one of the few states without a state loan program • There is a 2 billion dollar demand for alternative loans in New York State • The private loan market is very expensive • Students should understand the obligation before they sign a P- note

8. Key Features of NYHELPs • Lower interest rates • Fixed and variable rate loans • Required web-based financial literacy educates the borrower • Online loan comparison and selection tool, based on loan terms and rates • Leverages a relatively small state investment

9. More Key Features • Lower FICO (underwriting will permit a floor of 640) • All NYHELPs are school certified • In-school payment of interest is optional • Students may borrow for a prior term

10. How NYHELPs Works • Borrower shops on HESC Student Loan Marketplace • Selects loan product • Fixed 7.25 - 8.5% +5% fee • Variable LIBOR +4 - 5% + 5% fee • If NYHELPs is selected, borrower completes a financial literacy module • Borrower completes P-note

11. Cosigner Requirement • In a credit based loan program, a creditworthy cosigner reduces the interest rate • With a cosigner a student is much more likely to be offered a loan

12. NYHELPs Financial Literacy • Online financial literacy course required • This course will provide: • A robust, web based experience • Learning paths used at the participants own pace • Tracking through HESC

13. NYHELPs Structure • Uses private capital backed by a default reserve fund • SONYMA issues bonds up to ($350 million /year) • Lender can hold loan or sell (fixed loans) to SONYMA after loan is fully disbursed • One servicer (loan remains with servicer) • Borrower payments repay bondholders

14. Purpose of Default Reserve Fund • Reassures ratings agencies • Provides assurance to lenders of the guarantee • Reassures bondholders • Lowers interest rates to borrowers

15. State Support Establishes Default Reserve Fund • The default reserve pays claims to the holder of the loan as a backstop • The funds that make up the default reserve are the appropriations from the State of New York ($50 million initially and $10 million in future years), all borrower fees, 1 percent college fee, and all default collections

16. NYHELPs Fixed Rate Loan • Lender loan total allocations determined • Borrower shops for private loan on Student Loan Marketplace • Borrower receives offers and selects NYHELPs product State makes contribution to Default Reserve Fund SONYMA bond sale; loan cost established • Borrower is directed to HESC financial literacy module • Borrower completes module • Borrower is directed to HESC’s servicer to complete electronic Promissory Note • Servicer collects all required documentation from borrower and co-signer Default Reserve Fund • Servicer sends Certification Request (CR) to school through AltLoan Connection • School certifies loan online or using FAMS • Updated CR returned to servicer by HESC • Lender funds disbursement roster through servicer • Loan fees sent to Default Reserve Fund • Schools receives funds through HESC Escrow EFT • HESC bills school for 1 percent loan fee • School pays 1 percent loan fee to add to default reserve fund • Lender sells loan to secondary market • Lender holds loan • Loan enters repayment • Loan enters repayment • Loan paid in full • Loan paid in full • Loan defaults • Loan defaults • SONYMA reimbursed • Lender reimbursed • HESC collects on defaulted loan

17. NYHELPs Provides Transparency • NYHELPs will only be offered in the HESC Student Loan Marketplace. • Students can choose NYHELPs or other offered products • Students will comprehend loan terms before they sign P-note • Students will see total cost of borrowing

18. Your input is requested • HESC is drafting regulations • There will be a public comment period, however you are welcome to send your comments and concerns to the nyhelps@hesc.org

19. When • Bond sales will begin in October 09 • Fixed rates will be determined at the time of sale • NYHELPs products should appear in the HESC Student Loan Marketplace in January 2010

20. Questions?