Private Loan Rehabilitation Programs

1. Private Loan Rehabilitation Programs Doug St. Peters – Sallie Mae Tom Glanfield – Boston Portfolio Advisors Larry Chiavaro – First Associates Loan Servicing, LLC

2. Private Loans Overview • Total Student loan indebtedness made headlines this year as it approached $1 trillion • Source of funds for college • Awards – financial gov. support – scholarships • Savings • Parents/relatives • Loans • Government • Private Navigating the Sea of Change 2012 NCHER Knowledge Symposium

3. How a typical family pays for college Navigating the Sea of Change 2012 NCHER Knowledge Symposium

4. Private student – new loans • Growth has slowed: +2% last year (SLM) • SLM New products – SMART Option • Pay while in school • Shorten loan term • Save interest • Increase student connectivity • Borrower can choose and choices result in interest options • Interest rate - Fixed rate private loans in market, competitive against non-subsidized government rates Navigating the Sea of Change 2012 NCHER Knowledge Symposium

5. Private student loans underwriting • Underwriting guidelines increase quality focus • Co-borrowers • 64% of portfolio (+3% vs. prior year) • 94% of SMART Option • Loan/School mix changing • Less for profit schools loans down -2% of the mix last year Navigating the Sea of Change 2012 NCHER Knowledge Symposium

6. Private loan - defaults • Protected form bankruptcy • Characteristics require different work effort/strategy • Average balances are increasing • More co-borrowers 37% vs. 34% py • Pre-default more aggressive worked • Settlement, repayment programs, less use of forbearance, pre-default pre-litigation talk offs Navigating the Sea of Change 2012 NCHER Knowledge Symposium

7. Private LoansDefault profile Top 5 Reasons Overextended 44% Unemployed 29% Under employed 10% Medical 7% Unaware 4% Navigating the Sea of Change 2012 NCHER Knowledge Symposium

8. Private Loans Default Profile 46% withdrew from School 40% graduated 59% have a FICO score under 600 9% never used forbearance vs. 21% PY 54% made between 25-60 months of payments Navigating the Sea of Change 2012 NCHER Knowledge Symposium

9. Private loansDefault collections • Volume - monthly defaults are dropping - under $100MM in September • Larger balances = less settlements • More co-borrowers • Work both borrowers • More skip work • Co-borrower release programs Navigating the Sea of Change 2012 NCHER Knowledge Symposium

10. Private loansDefault collections • More collection programs • Settlement campaign • Reduced interest pay • 0% interest • Report to Credit Bureau – paying as agreed • Litigation (pre-default and post default) • Segmentation of inventory • Contingency fee rate impact • Competition • Contests • Collection agency – Collect it fast, Collect it right Navigating the Sea of Change 2012 NCHER Knowledge Symposium

11. Private loans future Demand College costs more Government not raising loan limits Direct loans adds to national debt Competitive interest rate vs. other government backed loans Flexible – ability to provide GAP financing as well as other supporting products Navigating the Sea of Change 2012 NCHER Knowledge Symposium

12. A Successful Rehabilitation Story The Problem Analysis and Approach Servicing Overall Solution Navigating the Sea of Change 2012 NCHER Knowledge Symposium

13. The Problem is Multifaceted No Payments – Following the economic crisis, many private student loan borrowers stopped paying loans altogether or reduced the monthly payments. Loan Share of wallet – Average person has about 15 monthly payments to make (car, housing, insurance, etc). Student loans have dropped from about 9th in priority of the 15 to almost dead last. Increased transiency – Moved home, to other states, etc., becoming harder to track. Servicing operations were not prepared for the volume of delinquencies and defaults. Many similarities to the mortgage business. Increasing % of drops – Some students left the workforce to gain better skills for their next job. Many left school before finishing and do not believe they owe money or just do not pay. Navigating the Sea of Change 2012 NCHER Knowledge Symposium

14. Boston Portfolio Analyzed the Situation • Numerous pieces to the problem were analyzed and then modeled into a comprehensive contact and settlement strategy: • Historical payment performance • Economic conditions and credit migration • Portfolio segmentation by numerous categories • Servicing effectiveness vs. cost of service • Estimate rehab success levels • Based on the above, BPA selected the optimal pool that addressed the issues. First Associates took over from there. Navigating the Sea of Change 2012 NCHER Knowledge Symposium

15. First Associates Servicing Navigating the Sea of Change 2012 NCHER Knowledge Symposium

16. Rehabilitation Results Prior to BPA Strategy Implementation • Sporadic Payments • Inconsistent Cash Flow • Lower Overall Loan Value Navigating the Sea of Change 2012 NCHER Knowledge Symposium

17. Successful Rehabilitation Program Results • Payment Continuity • Increased Overall Cash flow • Higher Loan Values Navigating the Sea of Change 2012 NCHER Knowledge Symposium

18. Overall Solution and Results • Result: Loan owners have a portfolio of paying borrowers with strong cash flows and long term value. • Boston Portfolio and First Associates teamed for a highly successful outcome: • Excellent monthly cash flow • Long term value for sale • High borrower satisfaction levels • Cost effective • Now expanding the program Navigating the Sea of Change 2012 NCHER Knowledge Symposium

19. Co- Signers- Loan Rehabilitation Number of Loans ACH Settlements Other Rehabilitated Loans Navigating the Sea of Change 2012 NCHER Knowledge Symposium

20. Activities for “Rehabbed” Loans • Analyze portfolio to determine fields captured at origination or servicing • Skip Trace using credit bureau data • Review cohort defaults, % of co’s, cell #’s, school info, emails • Develop campaign strategy • Social media contacts • Send out “Welcome Letter” package to co-borrowers • Text message campaigns to co-borrowers and borrowers • Voice alerts to co-borrowers and borrowers • Explanation of outstanding default • Set up recurring ACH • Be Nice! Navigating the Sea of Change 2012 NCHER Knowledge Symposium

21. Technologies to Reduce Student Loan Defaults Navigating the Sea of Change 2012 NCHER Knowledge Symposium

22. Reducing Defaults and Increasing Recoveriesfor Student LoansEnhanced Portfolio Performance Program (“EP3”) Developed and Managed byBoston Portfolio Advisors

23. Program has Two Main Components Program Management Gain Model Leverage data from various sources Score borrowers, prioritize and calculate NPV Forecast probability and amount of repayment Match accounts to agencies that perform best in a particular segment Focus on the right accounts with the right tactics in collection cycle • Allocate placements among multiple agencies to create a competitive champion/ challenger program • Manage all placements, close and returns, status updates • Analyze agency performance and direct new placements to top performers • Provide agencies with specific settlement levels and operating tactics at the borrower level

24. Gain Model Linkages Gain Model

25. Data Flows Servicers Collection Agencies School Data Collection From multiple sources ________________________ Gain Model analysis and scoring Creates Segmentation and Prioritization of borrowers for targeted contact strategy based on predictive analytics ________________________ Program Management Servicing and collection tactics driven at borrower level based on Priority Score ________________________ Results monitored, scoring model updated Account level tactics revised for optimal results and actionable information provided to all parties GAIN MODEL Borrower Info Historical Performance/ Tactics Loan Info Feedback Loop PROGRAM MANAGEMENT Servicers School Collection Agencies

26. Servicing Phase Impact Segmenting and Prioritizing borrowers from origination through all repayment phases leads to lower cumulative defaults (sample results illustrated below)

27. Default Phase Collection Tactics Increase Recoveries Segmenting and Prioritizing borrowers for more effective collection strategies leads to higher recoveries in Collections (actual results below)

28. Reallocate Effort based on Scoring and Prioritization • Traditional Industry Approach (Gray bars) used credit bureau recovery score to target borrowers • Gain ModelApproach uses enhanced Segmentation and Prioritization to rank order each borrower based on probability of payment (Green is highest, Red is lowest) • Improvement using Gain Model Approach can range upwards of 30%-50% higher

29. Sample Collection Results Comparison

30. Sample Collection Results Comparison

31. Improved Results: Analytics Using Additional Attributes Gain Model Results: Number of Future Payers Cumulative Gain Advanced Analytics Model with additional attributes identifies 82% of all future payers vs. 57% for the existing attributes (y-axis) when selecting top 20% of borrowers identified by model (x-axis) Previous Results: Using Limited Segmentation Attributes

32. Segmentation and Prioritization Improves Profitability High Response Segment: Comparison of results with and without Segmentation and Prioritization

33. Segmentation and Prioritization Improves Profitability Low Response Segment: Comparison of results with and without Segmentation and Prioritization

34. Sample Gain Model Effort and Performance Results Collection Agency effort and performance is tracked by BPA Priority Score to ensure Gain Model tactics are consistent with BPA recommendations (color coded results at bottom)

35. Champion/ Challenger Performance Heat Map

36. Improvement In Servicing and Collection Phases Improvements are Realized in Both Phases of Loan Lifecycle Pre-Default Servicing Phase • Segmentation and Prioritization of loans focuses on accounts with higher probabilities of payment • Special call and letter campaigns targeted at specific borrowers • Selective forbearance or modification options implemented Post-Default Collection Phase • Segmentation and Prioritization of loans focuses on accounts with higher probabilities of payment • Specialized tactics are implemented within each segment to ensure greatest performance • Improved call strategies to increase contact rates and payments • Settlement offers customized to each borrower based on probability of payment, contact rates, close rates, and various student attributes

37. Gain Model information can be harnessed for other purposes Information Uses • Private Loan • Collections Management • Maximize value of cash receivables • Loss mitigation tactics • Optimize settlement offers • Identification of optimal loans for sale • Student Success Monitoring • Tactical solutions to improve persistence rates • Student payment behavior • Performance by Segment • Probability of graduation • Admissions • Probability of graduation • Probability of payment • Co-borrower alternatives • Finance • Cash flow and funding requirement projections • NPV valuations by loan and student • Federal Loan • Cohort Management • Minimize losses • Forecast default rates for potential action steps