Only 1 in 7 Schools Created Preferred Lender List for Private Loans for 2010-11: SLA Flash Survey

Here are the highlights from the recent SLA Flash Survey on Private Loan Lender Lists, which had 170 respondents:

• In findings that mirrored the results of an SLA flash survey last December, only 1 in 7 survey respondents created a private loan lender list for 2010-11 through a formal selection process.  The most popular strategy:  listing all lenders that students have used in the last 3-5 years, which certainly will not make life easy for new entrants into the marketplace.  Almost 1 in 3 of the survey respondents are not providing a list to students. Here are various lender list strategies with the frequency they were selected by survey respondents:

Lender List Strategy
School is listing all private student loan lenders used by students in the last 3-5 years (that are still making loans)	34.1%
School is NOT providing a list of private loan lenders	30.6%
School created private loan lender list through a formal selection process	15.4%
School IS providing a list of private loan lenders by linking to a third party website	11.2%
School has not made a decision	2.9%
Other	5.9%

 

 

 

 

 

 

 

 

• For those respondents who created a preferred lender list for private student loans, the reasons cited include (from most to least important):  the importance of helping families find lower-cost private loans, the value of providing a shorter list of lenders to select from and the opportunity to minimize staff time answering questions about private loans.  Over 73% of respondents with a preferred lender list had 4-7 lenders on their list. 

• As for the reasons schools shied away from using a formal selection process to select lenders, the top three reasons cited were:  the new HEOA and Federal Reserve regulations pertaining to preferred lender lists and the time required to create and maintain such lists.

• Almost 40% of respondents link to a third-party website for private loan lender lists and/or information with ELM, FinAid, Great Lakes (appeared in Other), Overture's Marketplace, Simple Tuition and Student Lending Analytics cited most frequently. 

• Financial aid administrators indicated that they were less concerned about the availability of private student loans.  The percentage of financial aid administrators concerned about the availability of private student loans dropped from 72% in December of 2009 to 48% in the recent survey. 

• One of the more interesting comments regarding trends in private loans came from a financial aid administrator who noted:  "We sure do have fewer of them [private loans] than we did a year ago. Now that everyone gets a PLUS approval, our private loan volume is down by 30%."  Anyone else care to comment whether this has been a trend on your campus also? 

• Description of survey sample:  The sample was skewed toward higher cost of attendance private schools with private non-profit institutions constituting 58% of respondents with 60% of survey participants having a cost of attendance greater than $30,000.  In terms of private loan volume, 44% of respondents processed less than 100 loans with 38% processing between 100 and 499 private loans for the fall semester. 

These findings on the sharp reduction in preferred lender lists should not be too surprising.  As the Dept. of Education indicated on page 74 of the Notice of Proposed Rulemaking:

"To a large extent, the cost of many of these requirements can be avoided if institutions choose not to maintain a preferred lender arrangement.  Given that there is little data indicating that the absence of such an agreement imposes a significant cost on institutions or their students--particularly given the alternative of simply listing all lenders who have provided loans to an institution, the Department expects few institutions to enter into these arrangements."

Are students really better off having no lender list (30.6% of respondents) or having a laundry list of all lenders used at school over last 3-5 years (34.1% of respondents)?  SLA estimates this regulation is costing students upwards of $600 million by discouraging schools from learning more about the lenders their students borrow from.  This cost estimate assumes that students at schools with a preferred lender list save 100bp on average compared to students at schools that don't have a PLL (see this post for more details and rants on the topic).  Recall that my most recent private loan shopping trip yielded results that ranged from 6.00% to 12.25%, so a 100bp savings by eliminating high-cost lenders certainly does not seem a stretch.