2008 College Board Midwestern Regional Forum, Chicago, ILPage 1 The Preferred Lender List Controversy ___________________________________________ John Marcus Senior Vice President for Business Development The Education Resources Institute ___________________________________________ Rick Shipman Director of Financial Aid Michigan State University ____________________________________________ 2008 Midwestern Regional Forum

2008 College Board Midwestern Regional Forum, Chicago, ILPage 2 Goals of Session Speaker perspectives Review student loan landscape Evolution of student loan investigation Legislative response School, lender, guarantor response

2008 College Board Midwestern Regional Forum, Chicago, ILPage 3 About Michigan State University

2008 College Board Midwestern Regional Forum, Chicago, ILPage 4 MSU on the Map

2008 College Board Midwestern Regional Forum, Chicago, ILPage 5 Founded in 1855 Nation’s first land-grant institution Located in East Lansing, Michigan 5,200 acre campus Largest residence hall system in US 24 halls and 3 apartment villages Campus

2008 College Board Midwestern Regional Forum, Chicago, ILPage 6 Academics 200 academic programs 17 degree-granting colleges 3 medical colleges Private, affiliated law college 49,000 students from All 83 Michigan counties All 50 states 130 countries 240 study abroad programs in 60 countries/all continents 11,000 faculty/staff

2008 College Board Midwestern Regional Forum, Chicago, ILPage 7 The Office of Financial Aid has… 43 regular employees 3 full time/5 part time campus locations 72% of students receive financial aid $438 Million paid in $ 263 M – Loans $ 120 M – Grants/Scholarships $ 53 M – Fellowships/Sponsors/Educational Trusts $ 2 M – Work Study

2008 College Board Midwestern Regional Forum, Chicago, ILPage 8 Loans at MSU Joined FDSLP in Year 2 Rejoined FFELP for Fall 2003 Exercising School Lender Option

2008 College Board Midwestern Regional Forum, Chicago, ILPage 9 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 10 Loans at MSU Federal Loans 39 FFEL Lenders 3 account for 99% of loans 29,601 Loans for $100 Million Private Loans 11 Primary Lenders 6 account for 90% of loans 2,390 Loans for $12 Million

2008 College Board Midwestern Regional Forum, Chicago, ILPage 11 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 12 About Our Mission: Promoting educational opportunities to change people’s lives Established in 1985 as a 501(c)3 non-profit Located in Boston, MA Primary activities Promoting access to education for the underserved Guaranteeing private education loans

2008 College Board Midwestern Regional Forum, Chicago, ILPage 13 About Over 22 years of loan guarantee experience National reputation and significant expertise in college access, affordability and success Guarantee loans at over 6000 schools Guaranteed over $4 billion in 2007 and more than $18 billion since 1985

2008 College Board Midwestern Regional Forum, Chicago, ILPage 14 About Overview of the TERI Guarantee Programs Available at a broad base of schools Co-borrowers are strongly encouraged Widely used by respected lenders Loans are based on credit standing, not school of attendance Fair rates and fees for the entire student body

2008 College Board Midwestern Regional Forum, Chicago, ILPage 15 Student Loan Landscape Federal Loans FDSLP and FFELP Perkins Graduate and Parent PLUS Private Loans School Channel Direct to Consumer

2008 College Board Midwestern Regional Forum, Chicago, ILPage 16 Student Loan Landscape What Are Preferred Lender Lists? Why Do Schools Have Them? Apply to FFELP and Private Loans only Reduce confusion for borrowers Can reduce borrowing costs Improve processes for borrowers Improve administrative process for schools

2008 College Board Midwestern Regional Forum, Chicago, ILPage 17 Evolution of Student Loan Investigation Lender(s) complain of closed school doors New York Attorney General Andrew Cuomo opens a broad inquiry NASFAA chief issues denial Cuomo responds with evidence Congress/media/public take note

2008 College Board Midwestern Regional Forum, Chicago, ILPage 18 Evolution of Student Loan Investigation What did the investigation find? Very little but achieved major headlines Aid administrators received personal gain Students denied choice of lender Inappropriate lender/school arrangements Lender advisory boards Lender revenue sharing with schools Lender staffing assistance for schools Students steered to higher cost loans to benefit schools 56 schools out of 8,000 total have signed codes of conduct

2008 College Board Midwestern Regional Forum, Chicago, ILPage 19 Cuomo’s Reaction Code of conduct for schools/lenders Student Lending Accountability, Transparency, and Enforcement Act (SLATE) 11 lenders & 56 schools signed Some schools/lenders required to pay fines Push for new state regulations Push for new federal regulations

2008 College Board Midwestern Regional Forum, Chicago, ILPage 20 State/Media/NASFAA Reaction Media widely covered this as story of graft Schools were targeted Lenders/guarantors/ED were targeted NASFAA Statement of Ethical Principles and Code of Conduct for Institutional Financial Aid Professionals revised and approved on 5/3/07 “Commit to the highest level of ethical behavior and refrain from conflict of interest or the perception thereof.” “Commit to the highest level of ethical behavior and refrain from conflict of interest or the perception thereof.” 10 states instituted codes similar to NY’s SLATE Act Florida, Indiana, Nebraska, New Jersey, Texas …

2008 College Board Midwestern Regional Forum, Chicago, ILPage 21 Federal Reaction Congress Demands Action Kennedy launches own investigation Negotiated Rulemaking focus on ethical loan practices New Federal Regulations improve loan transparency College Cost Reduction and Access Act reduce profits Higher Education Act Reauthorization proposals Department of Education investigations 8/9/07 Spellings Letter to Schools

2008 College Board Midwestern Regional Forum, Chicago, ILPage 22 Spellings Letter Urges Schools 1. To protect the borrower’s choice of lenders; 2. To base lists of preferred, recommended, or suggested lenders, if provided by your institution, solely on the best interests of the student or parent borrowers, considering factors such as interest rates, fees, and loan benefits provided by the lender to the borrower; 3. To not request or accept any payments or benefits of any kind from a lender in exchange for being included on a preferred or recommended lender list or in exchange for the school recommending the lender to its students or parents; 4. To clearly and fully disclose to students and parents the criteria and process used to select the lenders for preferred, recommended, or suggested lender lists; 5. To ensure that employees of lenders who make loans to students or their parents do not identify themselves as employees of the institution of higher education and that employees or agents of a lender, servicer, or guaranty agency do not work in or provide staffing to an institution’s financial aid office unless they do so at fair market value; and 6. To ensure that the institution’s employees will not receive any gift, including travel gifts, of more than nominal value from any lender, servicer, or guaranty agency.

2008 College Board Midwestern Regional Forum, Chicago, ILPage 23 Spellings Letter Urges Lenders 1. To not provide any payments or benefits to an institution and its employees in exchange for being included on that institution’s preferred, recommended, or suggested lender list; 2. If included on a school’s list of preferred, recommended, or suggested lenders, to clearly and fully disclose any promises or offers relating to the terms of the loans or any services to borrowers that your organization made to be included on the list; 3. To ensure that the employees of your organization and its contractors do not identify themselves as employees of a school and to refrain from providing employees or agents to work in or provide staffing to a school’s financial aid office unless they do so at fair market value; 4. To refrain from offering anything of more than nominal value, including travel, to an employee of any institution; 5. To refrain from providing payment or gifts of more than nominal value to employees or agents of an institution who serve on an advisory board for your organization; and 6. To restrict use of the Department’s National Student Loan Data System to authorized personnel and for authorized purposes only.

2008 College Board Midwestern Regional Forum, Chicago, ILPage 24 So Where Are We Today? US House of Representatives HR 890, Student Loan Sunshine Act Passed 414 – 3 on 5/9/07 HR 4137, College Opp. and Affordability Act of 2007 Introduced 11/9/07; Vote scheduled for 2/7/08 US Senate S 1642, Higher Educ Amendments of 2007 Passed 95 – 0 on 7/24/07

2008 College Board Midwestern Regional Forum, Chicago, ILPage 25 So Where Are We Today? US Department of Education Published final regulations on 11/1/07, most effective 7/1/08 Borrower choice of lender (guarantor/servicer) absolute Minimum of 3 FFEL lenders on lists; minimum of 2 private lenders Selection criteria must clearly disclosed No payments, benefits, loan deals allowed Must provide comparative data No processing delays permitted for non-preferred lenders No automatic assignment of lender/guarantor/servicer for 1 st time borrower Loan benefits must survive sale Lender staffing of aid office prohibited Lender assistance to aid office must be transparent No opportunity loans or private loan agreements Aid officer participation on lender advisory boards regulated Must update list at least annually Note that some rules are less restrictive for guarantors/servicers

2008 College Board Midwestern Regional Forum, Chicago, ILPage 26 So Where Are We Today? Preferred Lender List HouseSenateEDNYNASFAA PLL Optional Yes 3 lender minimum Yes May use unlisted lender Yes Must disclose criteria Yes Must disclose benefits Yes Benefits survive sale Yes

2008 College Board Midwestern Regional Forum, Chicago, ILPage 27 So Where Are We Today? Permissible Activities LenderGuarantor Conduct default aversion activities NoYes Schools serve on advisory boards NoYes Pay travel/lodging for board meetings NoYes

2008 College Board Midwestern Regional Forum, Chicago, ILPage 28 How is Michigan State University Reacting?

2008 College Board Midwestern Regional Forum, Chicago, ILPage 29 Loans at MSU We previously provided limited information About suggested lenders About selection process About unfettered choice of lender We now provide enhanced information Highlight borrower choice Explain role of players in process Reveal selection process and criteria In process of identifying lenders for full list

2008 College Board Midwestern Regional Forum, Chicago, ILPage 30 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 31 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 32 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 33 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 34 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 35 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 36 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 37 Loans at MSU

2008 College Board Midwestern Regional Forum, Chicago, ILPage 38 Loans at MSU What is the result of the changes? Decreased trust Does the school benefit to the student’s deficit? Why does the school recommend so few? Commercial ads beat school endorsements Increased confusion How do you select the right lender? What are the differences between them? Can’t MSU just tell me what to do? Unpredictable processes and funds delivery More work Preparing to issue RFI for additional FFEL lenders

2008 College Board Midwestern Regional Forum, Chicago, ILPage 39 How is Lending Community Reacting? Some have instituted their own code of conduct or signed the NY AG code Taking a more cautious approach in dealing with school officials Cutting back on providing services to schools Reducing/eliminating borrower benefits Carefully watching what comes out of DC

2008 College Board Midwestern Regional Forum, Chicago, ILPage 40 How is TERI Reacting? Enhanced training of our sales team Working closely with lender partners and schools to convey any changes to our business Responding to many more RFIs/RFPs Promoting teri.org as a solution for schools who want multiple lenders

2008 College Board Midwestern Regional Forum, Chicago, ILPage 41 Questions and Discussion