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MARKETING
Swirling
Legislative Changes and Preferred Lending
Partnerships: What’s Behind the Curtain?
This quarter’s legislative advancements and
executive office budget proposals to reduce
interest rates and increase minimum lending
amounts on subsidized student loans have left
higher education officers questioning the true
value to their students.
 While
controversial in its funding source, gradually
increasing the maximum award amount on the Pell
Grant will offer some help to stem the alarming
reduction in its coverage of college tuition
costs, which has plunged from 60% coverage in
1986 to nearly half that amount in ’06
(Figure 1). Historically, picking up the slack
in this weakening federal assistance has been
the private lenders, who have experienced a
staggering 1042% increase in loan volume over
the past 10 years.1. Yet the
Institute for Higher Education Policy reported
in their December report that students are not
just taking on private debt to supplement
their federal grants and loans. Instead, the
Institute reports that as many as 47% of
independent, private, undergraduate borrowers
had not even received the maximum Stafford
loan available to them.2.
But why would a student turn to a higher-priced
debt alternative when a less expensive one is
available to them? The answer: sophisticated,
targeted marketing; ease of application (no
FAFSA to complete); and a lack of objective
information on lenders’ private loan offerings.
 Lenders are entering into marketing agreements
and joint ventures with business partners in the
payment plan and student data systems industries
that afford them fresh opportunities to market
their lending products directly to new
prospective borrowers. For example, through its
acquisition of AMS and Upromise, Sallie Mae now
has access to some 400,000 AMS payment plan
customers and 7.5 million Upromise members to
whom it sells its private credit.
How do the lenders leverage these relationships?
When a student applies online for Sallie Mae’s
re-branded payment plan, TuitionPay, the student
is reminded on the first, school selection
screen, “Don’t see your school on the list? All
is not lost! We can provide an alternative
source of education funds through our loan
products.” Similarly, when a student finishes
calculating the monthly payment plan amount
during online enrollment, a pop-up window asks,
“Monthly payment amount not affordable? Click
here for loan options.” This highly targeted,
transaction-prompted marketing message appeals
to the core need of the prospective borrower.
And the online application process is quick and
easy, especially relative to the laborious FAFSA
requirements for a Federal loan.
 The
source of new borrowers comes via Sallie Mae’s
2006 acquisition of Upromise, the 529 savings
plan reward program. Sallie Mae now has access
to this 7.5 million member base of young parents
who are actively planning for their children’s
college education. Sallie Mae will soon fold
these Upromise members into its database as it
allows them to allocate all or a portion of
their rebates to pay down an existing Sallie Mae
loan. And families and friends of members will
also be invited to link their account to Sallie
Mae to help pay down members’ loans. By
establishing these direct, electronic links to
millions of new prospects, Sallie Mae will be
able to quickly mine tens of thousands of new,
high profit loan customers (Figure 2).
Other companies are
merging payment plans, online billing modules
and lending products into their offerings at a
dizzying pace, enabling them a deep set of
financial hooks into the customer. NelNet, which
reported $23.8 billion in net student loan
assets in 2006, acquired InfiNet, the systems
provider and then the well-known FACTS payment
plan company during 2005-2006. Similar to Sallie
Mae, the payment plan has become the loss leader
to the more lucrative lending products, which
are marketed to consumers as an alternative
payment option through online payment and
billing modules fully integrated into a
university’s website. Sophisticated, targeted
marketing and lead generation occurs, leveraging
the customer relationships of one company for
the benefit of the other.
The bottom line:
Look behind the curtain. Know what products your
payment plan, lending partners, and online
systems providers are marketing to your students
through their live customer service
representatives, their student-directed
marketing material, and the online billing and
payment modules they host. When you offload your
payment plan and lending transactions to an
outside vendor, it is easy to let these students
fall off your radar. Understand the selling
power of a well-timed pop-up message that offers
a private loan at the precise moment that the
monthly payment amount does not look affordable
to a student. Find out from your provider just
how easy it is to apply online for that private
loan with a few clicks of the mouse. No FAFSA,
no CSS Profiles, no long wait. As the client,
you have the power to direct – and change – the
messaging that your students are receiving from
these providers.
-
The Institute for Higher Education Policy,
December 2006, “The Future of Private Loans:
Who is Borrowing and Why?"
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ibid
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