Thoughts on New Student Lending Legislation

Considerations from the legislation:

• Federal government will take over direct loans to students — by 2014 all new government-backed/subsidized loans will be direct loans (currently 80% of loans are direct);

• US Dept of Education will award contracts to service the loans;

• Servicing student loans will provide the servicers with unique access to loan recipients;

• Servicing student loans provides built-in touch points with loan recipients for up to 20 years (currently, 25 years); and

• Currently a guaranty agency can make 30+% of a loan’s balance for rehabilitating it after a default (vs. 1% of a pre-default balance) — there will now be less financial incentive to rescue a loan in default and more of an incentive to service a loan that avoids default.

Considerations for the industry:

• What will make the US Dept of Education more likely to choose one servicer over another?

• How can a financial service provider currently in the student loan business avoid losing relationships with college-aged consumers and by extension their parents/caregivers?

• How can financial service providers capitalize enterprise-wide on relationships with college-aged consumers and their parents/caregivers?

• Generally, how can financial service providers strengthen relationships with college-aged consumers and their parents/caregivers?

• How can compulsory financial aid counseling be used to strengthen relationships with stakeholders (loan recipients, parents/caregivers, US Dept of Education, campus financial aid offices, etc.)?