The Future of Private Loans

1
The Future of Private Loans

• Dino Tsibouris,
• Founding Principal
• Tsibouris Associates, LLC

2
The Future of Private Loans

• Migration from prime to LIBOR
• In-school interest payments
• Tight credit markets/TALF
• Increased collection efforts
• Increased credit regulation

3
Migration from Prime to LIBOR

• Matching loan pricing with funding costs
• Minimum and maximum rates on variable loans
  increasing
• Only three major lenders using prime rate as
  their index
• Other indices may develop

4
In-School Interest Payments

• Costs increasing index and margin
• Provides in-school revenue stream for investors
• Trains the borrower to repay a portion of the
  loan when in school
• Deterrent effect on future borrowing?

5
Credit Market Challenges

• Securitizations may require more collateral and
  income streams
• TALF offers a 3 year term but most private loans
  have a 12 year maturity
• Pricing and allocation of risk important
• What if the law changes after the securitization
  takes place?

6
Increased Collection Efforts

• Proving Undue Hardship in a Ch. 13
• Challenges based on holder status
• Challenging electronic signature based on failed
  or inadequate security process
• New Reg. Z violation claims

7
Increased Credit Regulation

• Implementation of Reg. Z
• State regulation of lending process and new
  consumer disclosures (e.g., Iowa)

8
Collecting Private Student Loans in Troubled Times

• Presented by Todd Tallman
• March 31, 2009

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Times are Tough

• 8 Unemployment
• Consumers can no longer tap equity in their homes
  for cash
• Credit Crunch has eliminated many consolidation
  options
• Increased regulation of both Collection industry
  and Student Loan industry

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A Little Good News

• The Misery Index (Unemployment Rate
• Rate of Inflation) in the United States is down
• Misery Index was 7.63 in January of 2009
• It was more than twice that from 1974 to 1982
• All Recessions have 1 thing in common
• They eventually end!
• www.miseryindex.us

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Fewer delinquent borrowers

• Identify high risk borrowers before they enter
• repayment by analyzing those that default
• What characteristics did they share before
• they entered repayment?
• Application for additional loan was denied
• School separation date less than 4 years after
  date of first disbursement

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Contact high risk borrowers early

• People operate under the WIIFM principal so
• give them a reason to work with you
• Offer 1 additional month of grace period
• Free Resume Tips
• Free Job Interview Tips
• If you work with recruiters, see if they can help

13
Create budget give it to them

• Compare their income to their expenses see if
  they can afford their student loan payment
• If not, start counseling them immediately on ways
  to decrease their expenses and increase their
  income
• They arent in repayment yet, so they have time
  to change their situation

14
Eliminate Luxuries

• High speed internet
• Satellite/Cable television
• Net Flix Game Fly
• Internet/music subscription on cell phone
• iTunes expensive coffee drinks
• Show them how much money that will save
• them over time!

15
Reducing Expenses Increasing Income

• Suggest additional ways they can reduce
• their expenses or increase their income
• Roommates
• Put Utilities on Budget Billing
• Stop eating out
• Car pool or Use public transportation
• Get a part time job
• eBay

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Dont forget the basics

• Make sure they have all the information
• they need in order to pay you
• The amount due date of their payment
• All methods of payment
• Your website, Email, phone number address
• Make sure they know, you are here to help

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Increasing Right Party Contacts

• Ask borrowers how they prefer to Communicate
• Internet, Email, Web Chat
• Calls Text Messages to their cell phone
• Calls to landline phone
• Letters sent snail mail
• Use the communication channel they prefer

18
Capture historical data and use it

• Track every contact with each borrower and
• use that data to schedule collection attempts
• Best communication channel for each borrower
• On most successful day of week
• At most successful time of day

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Reduce the need for contact

• Delinquent borrowers dont want contact, so
• allow them to pay without it
• Inbound IVR with automated payment
• Outbound calls with automated payment
• Web payments
• Text Email with click to pay links
• Virtual Collector Website
• Constantly promote all options!

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Identify High Risk Borrowers

• Use scoring to identify high risk borrowers at
• 1 day past due
• Start collection attempts sooner
• Make more attempts
• Utilize all communication channels
• During best contact time and day of week

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Maximize impact of dialer calls

• Vary dialer campaigns by risk
• Low risk borrowers - Agent-less campaigns, AVM
  campaigns with automated payment option
• Medium risk borrowers Predictive campaigns
• High risk borrowers Individual work lists in
  power or preview mode

22
Vary Outbound Caller ID

• Dont use the same number on all outbound
• calls
• Your company has many numbers---use them
• Make sure the number is toll free or the area
  code where your office resides
• Make sure borrowers can reach you by calling that
  number

23
Be Creative with Letters

• Send Special Letters to highest risk
• borrowers with biggest balances no contact
• Lumpy Letter
• Loud Letter
• Business Reply Mail
• Use novelty stamps and colored envelopes
• Mail Tubes

24
Field Calls

• Send Agent to homes of high risk
• Borrowers with big balances no contact
• Dont ask for or accept payment
• Dont disclose existence of a debt
• Confirm address telephone number
• Try to get consumer to call you

25
Focus on Your Employees

• Collecting can be challenging Collecting
• during a recession can be difficult
• People are your greatest resource
• As well as your biggest expense
• Turnover is very expensive it ruins
  productivity

26
Solutions Based Collections

• Approach each call from the perspective
• How can I help this customer?
• Increase communication
• Focus on short term goals
• Offer more training keep it brief and specific
• Run more contests with immediate rewards

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We are all in this together!

• Make the most of your membership in industry
  groups Like NCHELP SLSA
• Join trade organizations like ACA International
  (www.acainternational.org)
• Network and share best practices

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Questions?