New York Higher Education Loan Program for Students - NYHELPS

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New York Higher Education Loan Program for
Students - NYHELPS

• An alternative loan for New York students
  attending New York colleges

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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

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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
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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Purpose of Default Reserve Fund

• Reassures ratings agencies
• Provides assurance to lenders of the guarantee
• Reassures bondholders
• Lowers interest rates to borrowers

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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

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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 HESCs 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

• Lender reimbursed

• SONYMA reimbursed

• HESC collects on defaulted loan

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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

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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_at_hesc.org

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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

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Questions?