November 7 – 9, Sheraton Downtown, Nashville, TN Deciphering the “Mitchell Memo” – What Is Expected of Student Loan Servicers Moderator: Will Shaffner, Missouri Higher Education Loan Authority Speakers: Timothy Kaiser, Discover Financial Services Randy Kamm, Collection Quotient Consulting 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN

Tim Kaiser, Director and Senior Counsel Deciphering the “Mitchell Memo” Possible Impacts on Private Student Loan Servicers National Council of Higher Education Resources 2016 Knowledge Symposium, Nashville, TN November 2016 TK: Introduce all Tim Kaiser, Director and Senior Counsel

How We Got Here: The Administration’s Efforts on Student Loan Servicing 2015-2016 White House, “Student Aid Bill of Rights” (March 2015) Department of Education, Department of Treasury, CFPB, “Joint Statement of Principles on Student Loan Servicing” (September 2015) CFPB, “Student Loan Servicing: Analysis of Public Input and Recommendations for Reform” (September 2015) CFPB Announces Policy Priorities Over Next Two Years (February 2016) Department of Education Memo to the Office of Federal Student Aid, “Policy Direction on Student Loan Servicing” (July 2016)– The Mitchell Memo TK Add up front to DSL Reg training

Joint Statement of Principle on Student Loan Servicing & CFPB Analysis of Public Input/Recommendations for Reform “Borrower Expectations”: Consistent servicing, including payment processing, servicing transfers, requests for information, error resolution, disclosure of borrower repayment options and benefits Accurate and Actionable information Accountable– borrowers, federal and state regulators and law enforcement should have access to appropriate channels for recourse Transparency through periodic public reporting of servicer-level data on student loan performance TK Add up front to DSL Reg training

The Mitchell Memo Framed around the Joint Principles, providing recommendations under each of the four headings and adding a fifth– economic incentives. Appears to apply almost exclusively to federal student loans, but private servicers should be aware of the discussion (expressly incorporated in CFPB’s Fall 2016 Supervisory Highlights) : Processing of Payments Credit Reporting Access to Clear and Accurate Payment Histories and Billing Statements Consumer-Friendly Payoff Process Servicing Transfers TK Add up front to DSL Reg training

Borrower Expectations Around Payment Processing Mitchell Memo Borrower Expectations Around Payment Processing Credit payments as of date received – in borrower’s time zone when on-line Provide extra help when payment processing policies change Group loans in one account when borrowers have multiple student loans Overpayments (applied to highest interest loans) and underpayments (to minimize delinquency) applied to save borrowers most money Underpayments to be applied in manner to keep current maximum number of loans Explanations of allocation when borrowers do not provide instructions Simple, online method to tell servicer how to handle a single payment, extra payment, and/or standing extra payments Retroactive reallocation of payments Simple instructions around advance payments, taking a break from making upcoming payments and managing automatic payments online TK Add up front to DSL Reg training

Borrower Expectations Continued The Mitchell Memo Borrower Expectations Continued Consistent Credit Reporting Furnish consistently accurate information No reporting unless/until 90 days past due Special comment codes Consistent Access to Clear and Accurate Payment Histories and Billing Statements Upon request, borrowers can expect to receive a written payment history covering the life of the loan at no cost Borrowers can expect to regularly receive basic information about their loans TK Add up front to DSL Reg training

Borrower Expectations Continued The Mitchell Memo Borrower Expectations Continued Strengthening Consumer Protections for Borrowers through a Consistent and Consumer-Friendly Payoff Process. Borrower expectations: Online explanation about how to request a payoff statement Basic information about payoff balances and how to pay off a loan as part of a periodic billing statement Payoff statements are complete and accurate Access to a simple, online mechanism to initiate, track, and manage payoff requests TK Add up front to DSL Reg training

Borrower Expectations Continued The Mitchell Memo Borrower Expectations Continued Servicing Transfers Borrower Expectations: To get notice from current servicer when servicer is going to change To get a “welcome letter” from new servicer To get a “goodbye” letter from old servicer prior to transfer To receive extra help if borrower sends payment to old servicer To be protected from negative consequences following servicing transfers For servicer to maintain a complete and accurate record of account For servicer to maintain information about account, even after account is closed or transferred For servicer to compile payment history and provide it to new servicer, before servicer changes TK Add up front to DSL Reg training

Other Borrower Expectations The Mitchell Memo Other Borrower Expectations User Testing Requirements: All disclosures/channels Independent consultant Initially and every 24 months ADA requirements Mobile, chat and text functionality Complaint and dispute resolution SLAs TK Add up front to DSL Reg training

Collection Quotient Consulting NCHER Knowledge Symposium November 7, 2016 Collection Quotient Consulting The Mitchell Memo: What can student loan debt collectors expect? Prepared exclusively for National Council of Higher Education Resources 2016 Knowledge Symposium, Nashville, TN November 2016 Randy Kamm, Principal I Collection Quotient Consulting I rkamm@fuse.net I 513.478.2096 Collection Quotient Consulting -- All Rights Reserved

NCHER Knowledge Symposium November 7, 2016 The Mitchell Memo The Mitchell Memo: What can Student Loan Debt Collectors expect? Policy Direction on Federal Student Loan Servicing What borrowers can expect… A Blueprint: Implications for PCAs Three examples of policy implementation ED’s default collection contract procurement Treasury Pilot Program for collection of defaulted student loans New Contractor Performance Monitoring Evaluation (CMPE) scorecard and allocation model Conclusion: So, what to do? Collection Quotient Consulting -- All Rights Reserved

NCHER Knowledge Symposium November 7, 2016 The Mitchell Memo Policy Direction on Federal Student Loan Servicing “High-Touch” (31) “Customer Experience” (11x) “Action” (44x) “Alternatives” (16x) “CFPB” (22x) “Resolution” (43x) “High-Quality” (21) “Automatic” (15x) “Complaints” (70x) “Feedback” (7x) “Forgiveness” (16x) “Quality” (34x) “Oversight” (14x) “Borrowers can expect…” (107x) “Enforcement” (10x) “Transparency” (14x) “Accuracy” (29x) “Ecosystem” (6x) “Taxpayer” (6x) “Student Aid Bill of Rights” (7x) “Consistency” (31x) “Department of Treasury” (14x) “Incentives” (34x) “Protection” (59x) “Procurement (8x) “Simple” (9x) “Compliance” (11x) Collection Quotient Consulting -- All Rights Reserved

Blueprint: Implications for PCAs Expand publicly available data about student loans in default Publish quarterly data updates on PCA performance Public dashboard with 12-, 24- and 36-month Cohort Redefault Rates on previously-defaulted loans that have been rehabilitated or consolidated from default More rigorous and centralized complaint handling and dispute resolution processes Stronger oversight and enforcement mechanisms to ensure compliance Continuing focus and attention on compensation plans and incentives Keeping borrowers current and servicing borrowers at greatest risk Single servicer platform with PCAs potentially part of new servicing ‘ecosystem’ See ED-FSA-17-R-0001 solicitation, 10/26/16

Current Policy Implementation Delayed PCA procurement result of ongoing paradigm shift and debate within ED (and future Administration?) Influence of CFPB, other regulators and consumer groups Past Performance experience of PCA network Unrestricted (Large) PCAs Restricted (Small) PCAs PCA Subcontractors Service Quality vs. competitive financial results Implementation of ‘resolution’ & ‘forgiveness’ model? Stronger contract termination provisions Treasury’s 2-year default collection pilot program explores what could be ‘potential improvements’ in the collection process Initial ‘Observations Report’ issued by Treasury in July 2016

New Performance Scorecard NCHER Knowledge Symposium November 7, 2016 New Performance Scorecard New scorecard and placement allocation formula weighted to borrower satisfaction, service quality, and compliance scores New Contractor Performance Monitoring Evaluation (CPME) weighted toward Service Quality scores   Call Counseling Compliance & Borrower Satisfaction scores (60%) Dollars Collected score (40%)  Old CPCS (Competitive Performance and Continuous Surveillance) eliminated after more than 30-years Dollars Collected Percentage (70%) Accounts Serviced Percentage (20%) Administrative Resolution Percentage (10%) Use of Small Business Subcontractors (5%)   See ED’s proposed CMPE scorecard on next slide Chart and data provided in ED-FSA-16-R-0009 Q&A, January 2016 Collection Quotient Consulting -- All Rights Reserved

NCHER Knowledge Symposium November 7, 2016 Allocation Rate Dollars Collected Score 50% Total Base Score 70% Base Allocation Service Quality (SQ) Final Allocation Weight: 50% Min. Acceptable Ratio 70% Min. Acceptable Points 40 Points Dollars Collected Total Inventory Balance Unweighted Score Weighted Score Unadjusted Adjusted Score Service Quality Score Allocation Modifier Adjusted Allocation Score Final Allocation % $ 40,000 $ 100,000 40.00 20.00 (1) 40.00 (1) 36.64 32.35 (4) -100.00% 0.00 0% $ 22,000 22.00 11.00 (2) 26.00 (4) 00.00 (4) 00.00 38.27 (3) $ 20,000 20.00 10.00 (3) 31.67 (3) 29.01 54.47 (1) 4.47% 30.30 49% (2) $ 15,000 15.00 7.50 (4) 37.50 (2) 34.35 43.41 (2) -6.59% 32.09 51% (1)   Allocation Total: 62.39 Minimum Acceptable Score: 28.00 % 40.00 Points Service Quality Score   Call Counseling Compliance Score 50% Borrower Satisfaction Score 50% Service Quality (SQ)   Agency Calls With No Errors Total Calls Monitored Unweighted Score Weighted Score Borrower Complaints Share of Complaints Share of Portfolio Vendor 1 70 100 70.00 35.00 (4) 50 30% 25% -5.30 -2.65 (3) 32.35 (4) Vendor 2 97 97.00 48.50 (1) 75 45% -20.45 -10.23 (4) 38.27 (3) Vendor 3 90 90.00 45.00 (2) 10 6% 18.94 9.47 (1) 54.47 (1) Vendor 4 80 80.00 40.00 (3) 30 18% 6.82 3.41 (2) 43.41 (2) Evaluation Score Comparative Performance Score 40% Comparative Service Quality 60% Total Score  Unadjusted Total Base Score Unweighted Weighted SQ Score Vendor 1 40.00 100.00 40.00 (1) 32.35 59.39 35.63 (4) 75.63 (3) Vendor 2 26.00 65.00 26.00 (4) 38.27 70.26 42.16 (3) 68.16 (4) Vendor 3 31.67 79.17 31.67 (3) 54.47 60.00 (1) 91.67 (1) Vendor 4 37.50 93.75 37.50 (2) 43.41 79.69 47.82 (2) 85.32 (2) Top Score Collection Quotient Consulting -- All Rights Reserved

Conclusion: So, what to do? NCHER Knowledge Symposium November 7, 2016 Conclusion: So, what to do? Borrowers encounter a tremendous number of problems related to their student loan debt PCAs must identify affordable and sustainable payments or most appropriate administrative resolution based on individual borrower circumstances – regardless of compensation paid ED will continue to engage PCA contractors – the question is: How will PCAs be engaged under ED’s new vision of the future? ED will only retain PCAs that efficiently and effectively promote borrower success and protect federal fiscal interest Strive to be “Best of the Best”: Deliver compliant, ethical and borrower-focused collection and resolution solutions with low complaints Collection Quotient Consulting -- All Rights Reserved

November 7 – 9, Sheraton Downtown, Nashville, TN Questions? 2016 Knowledge Symposium November 7 – 9, Sheraton Downtown, Nashville, TN