The benefits of private student loans

1. Private Student Loans —
Find Your Next Generation of Customers

2. This attractive asset class helps financial institutions diversify investment strategies and loan portfolios while
helping students finance their education.
It could be said that Private Student Loans (PSLs) are the on ramp of today’s consumer financing era. After all,
determining how to pay for college is one of the three most important financial decisions a person makes in their
lifetime, along with saving for retirement and buying a home1
.
Spurred by rising college tuition costs over the last 30 years, PSLs now play a growing role in helping
students finance college.
The Trump administration is seen as being more receptive to private student lending. There’s the potential
for big changes, whether it be selling federal loans to private companies, limiting or eliminating federal PLUS loans
or loosening regulations that benefit lenders who offer PSLs and the students and parents that utilize them.
A key distinction is that Private Student Loans are vastly different from Federal Student Loans. The two
education funding options are radically different from each other, though they are complementary.
Lenders that offer PSLs attract new millennial and Gen Z customers while diversifying their product offerings.
Lenders can also acquire existing student loans and convert the servicing of those loans to a third-party loan service
provider.
Capital market investors can invest in PSLs to achieve stable returns over long periods of time. This new
generation of securities are viewed as a reliable investment strategy, particularly when they are insured and
serviced by experts.
A growing number of lenders are partnering with third-party PSL solution providers to automate
and streamline their entry into the PSL market. In most instances this eliminates or significantly reduces the
time and cost of market entry. Providers can help with borrower acquisition, loan origination, loan servicing, and
insurance to minimize overall risk and increase net yield for lenders.
PRIVATE STUDENT LOANS GAIN TRACTION
WITH LENDERS
1
Private student loans advantages over federal student loans2
• Very limited underwriting
• Default rates are about 25%
• Made by U.S. Department of Education
• Limited amount per yer
Federal Student Loans
• Credit based underwriting
• Default rates are about 8%
• Offered by banks and credit unions
• May cover the full amount of college
Private Student Loans

3. Millennials comprise the majority of today’s 20 million
college and university students. Born between the
early 1980s and 2000, more millennials are attending
a post-secondary school than any other generation.
The cost of higher education has ballooned
since the last millennial was born. The average
annual cost of attending a nonprofit four-year public
university — including tuition, fees, room and board
— has increased by around 70% in real terms, from
$11,800 in 2000 to $20,100 in 20163
. At nonprofit
four-year private universities, the cost of attendance
rose from $30,100 to $45,400 over the same time
period, a 50% increase4
.
Undergraduate students can borrow
an aggregate total of $31,000 from the federal
government5
, which often is not enough to cover the
full cost of going to college.
Families are contributing more to finance
the gap after students max out their federal aid. In
2007-08, family contributions to higher education
amounted to $74 billion6
. A decade later, families
contributed $166 billion, more than a twofold
increase7
.
Lenders that offer private student loans can
improve financing options for college students and
their families. PSLs are affordable, and help families
who might otherwise have to fund college with high
interest credit-card debt, expensive personal loans,
savings, early withdrawals from retirement accounts
or second mortgages.
There’s no doubt that capturing younger
customers early on in the banking relationship is a
primary reason for offering PSLs. By 2020, millennials
will make up half of the workforce with total incomes
of $6.2 trillion8
.
“Students` and their families are able to invest
in a brighter future, an investment that we know pays
off with substantially greater earning potential over
non-college graduates,” says Michael VanErdewyk,
CEO and Chairman of ReliaMax, a leading financial
technology company for the PSL industry. “By
offering private student loans, lenders expand their
product offerings and hang on to customers that
might otherwise walk out the door to a competitor.
They can also profitably diversify their assets in a way
that is safer for them than other consumer loans.”
Still, lenders must always weigh new product
offerings against the upside and associated risks.
With PSLs, the outcome is largely positive as college
students have the ability to repay loans.
APPEALING TO MILLENNIALS AND BEYOND
POSITIVE INDICATORS FOR PSLS
The unemployment rate
for individuals 25- to 34
years-old with four-year
college degrees was 2.7%,
compared to 7.6% for high
school graduates10
Over a lifetime, the college
grad will earn about $1
million more than a worker
who didn’t complete a
four-year degree9
67% of student loan
borrowers have debt
balances less than $25,000
and 4% have balances
above $100,00011
PSL borrowers are highly
qualified, with a weighted
average credit score of
746—that’s 47 points
higher than the average
FICO score12
,13
2

4. AN UNTAPPED ASSET CLASS
PSLs are a growth market
PSLs performance is strong
PSLs can be a safe and easy asset class to enter
There’s a large addressable market of $172 billion in annual higher
education spend that’s not covered by public funding sources.
Currently only $10 billion (or less than 2.5%) of higher education
costs are funded with PSLs. Further opportunity exists in student
loan consolidations and refinancing.14
The percentage of undergraduate PSLs in the third
quarter of 2016 that were more than 90 days
delinquent was 2.1%, the lowest level since the peak
of 7.3% in the second quarter of 200915
. Meanwhile,
the federal loan delinquency rate is over 11%16
and
the default rate is believed to be over 40%. Federal
student loans have left a bad taste in the mouths of
banks and credit unions. PSL third-party solution
providers can insure up to 100% of the principal and
accrued interest of private student loans to bring the
risk of default to effectively zero.
Banks and credit unions can offer loans without having to take
on the complex infrastructure, headcount investment or risk
associated with launching a new product. A third-party provider can
do it all—including administering, originating, servicing and insuring
loans on a lender’s behalf. Financial institutions can also choose to buy
student loan portfolios and convert the servicing of the loans to a PSL
servicing provider.
3
STUDENT LOAN
OUTSTANDING BALANCE17
FEDERAL
$1.36 Trillion
92.5%
PRIVATE
$102 Billion
7.5%

5. THINKING ABOUT OFFERING STUDENT LOANS? A PSL SOLUTIONS PROVIDER CAN
PUT LENDERS’ CONCERNS AT EASE
Bank and Credit Unions, especially smaller ones, must weigh the potential for profit and growth against
the risks of introducing a new loan product. PSL solution providers take care of some or all aspects of the
program and manage the risk, alleviating common worries such as:
An end-to-end third-party loan origination
platform covers all the critical details, from the
online application to underwriting to insurance
and loan documentation, so banks and credit
unions can easily and effortlessly offer fixed and
variable interest rates of 5, 10, 15 and 20 year
private student loans.
PSLs are built around stringent underwriting
criteria and predictive analytics to optimize
performance. Banks and credit unions are
often more comfortable protecting up to
100% of the principal and accrued interest of
PSL loans with insurance.
“We need more staff to do loan
originations.”
“We worry about loan misuse.”
“We were in student loans
before and lost money.”
PSLs are certified by and directly disbursed
to schools and limited to the maximum
amounts specified by the program, which is
the school-certified cost of attendance less
other financial aid.
Third-party providers can service and support
a loan program on a lenders’ behalf with both
a high-tech and human touch. This 100%
managed solution helps lenders realize an
attractive net yield.
“The infrastructure needed to
service loans is too complex.”
“Regulators frown on private
student loans.”
The Congress working with the Trump
administration may seek a greater role for the
private student loan sector18
. PSL solutions
providers are highly regulated and licensed
institutions, giving them the expertise needed to
support lenders meet their related regulatory
compliance obligations.
FALSE BELIEFS
4
CLARIFYING

6. HOW THE PSL ASSET CLASS CAN HELP BANKS, CREDIT UNIONS, AND ALTERNATIVE LENDERS MEET
THEIR NEEDS.
Lenders can participate in PSLs in many ways. There’s even an opportunity for institutional investors. The end result
is growth, as well as diversification of product offerings for banks and credit unions and investor loan portfolios.
FIND BORROWERS
With a branded private student lending product
from a PSL solutions provider, credit unions, banks
and alternative lenders can offer competitive in-
school and consolidation/refinance PSLs as well as
deliver a compelling online experience for student
borrowers. They help banks successfully market
their loan program and connect them to borrower
acquisition marketers to find new customers.
BECOME A LENDER
Banks and credit unions that offer or originate PSLs
gain a new product offering and increased wallet
share without assuming much of the risk associated
with launching a new product or building the lending
infrastructure necessary to support a new product
line. The third-party PSL provider and servicer helps
lenders optimize their investment and protects up to
100% of the loan default with insurance. Reputational
gains are another plus for banks and credit unions
that offer PSLs. The banks and credit unions fulfill
a need that their customers or members, including
millennials and GenZ, expect them to provide, which
contributes to loyalty and retention.
ACQUIRE LOANS AS AN INVESTMENT
PSLs are a growing asset class, as demonstrated by
the many financial institutions that are working with
third-party providers to buy private student loan
portfolios with the goal of making the PSL asset class
a top performing investment.
SELL PSLs
Banks and credit unions can sell PSLs with the help
of a third-party PSL service provider to institutional
investors looking to participate in the PSL space.
Institutional investors, such as life insurance compa-
nies, family offices, private equity funds and others
interest is strong, and the PSL asset class is an
excellent investment. What banks get from selling
their PSLs is liquidity. By selling these loans at a pre-
mium, based on the principal plus some discounted
interest return, banks and credit unions earn more
money that they can use to continue lending.
BECOME A PSL INVESTOR
In addition to or instead of offering PSLs, banks and
credit unions can invest in securitized PSLs them-
selves. In this period of prolonged low interest rates
and low returns expectations, there’s also better
loan data and new ways of thinking about investing,
particularly marketplace investing, as the fintech
industry matures. Investors can appreciate knowing
that superior data and comprehensive underwrit-
ing goes beyond FICO scores to focus in on college
graduates’ future earnings potential.
MULTIPLE WAYS TO
PARTICIPATE IN PSLS
5

7. 6
Financial institutions can attract and keep both younger and older customers.
Having lived through the financial crisis, Millennials witnessed the havoc to their parents’ finances and
understand how to make their money work harder. This generation appreciates the benefits and risk
associated with college debt. Younger customers expect an easy online borrowing experience with a
trusted lender that makes them feel confident in their decision.
Offering PSLs helps lenders garner more wallet share across generations. Older consumers are moving
money out of banks and credit unions. These are funds lenders could reasonably expect to hold onto by
offering PSLs that appeal to older customers or members, who may be planning to help fund their children’s
higher educations with potentially pricier consumer loans or by drawing on their retirement funds.
Financial institutions that offer PSLs enjoy stable, reliable returns with minimal risk.
PSL assets can deliver immediate cash flow and ROA/ROE. Also, the strict underwriting standards in place
makes these assets less risky when the loans are insured. Lenders can profit from previously deployed funds
and in return have more money to invest in students and customers.
PSLs diversify loan portfolios for banks, credit unions, alternative lenders and institutional investors.
While PSLs have been around for decades, the notion of diversifying a lender’s portfolio by helping students
earn a college degree is a win-win for students and those who fund college costs—directly or indirectly.
The popularity of PSLs is growing: Loan originations in academic year 2016-17 rose 5.47% compared with
academic year 2015-1619
.
Indeed, PSLs are steadily moving from an unappreciated to a growth asset class, and financial institutions have
increased flexibility to choose how they want to position themselves in and participate in this growing market.
There is no need to take on the infrastructure, technology or added headcount associated with launching a
new product. A third-party provider can do it all quickly and cost efficiently on a lender’s behalf.
1
2
3
TOP 3 BENEFITS OF PSLS
Private student loans offer a triple win for students, their families, lenders and investors. Students are able
to see and shape a brighter future and help pay for their education in a more cost effective, less burdensome
way. Students, banks, credit unions and lenders can participate in a sound and stable asset class. All
stakeholders, including institutional investors, benefit from a proven track records of attractive returns—
financial and otherwise. Additionally, a better educated United States of America is critical to successfully
compete in ever evolving global challenges and opportunities.
CONCLUSION

8. Founded in 2005, ReliaMax has redefined the Private Student Loan industry by enabling
profitable private student lending for over 500 banks, credit unions, alternative lenders
and investors. Through its complete Private Student Loan solution, which includes
borrower acquisition, loan originating, loan servicing, insurance by ReliaMax Surety
Company* and portfolio liquidity, ReliaMax enables lenders to safely and easily help
student borrowers realize their education goals.
Our history is one of financial stability and discipline. We insure loans only for students
attending not-for-profit, public and private colleges and universities that meet
our established underwriting criteria. Pricing is based on strict adherence to high
underwriting standards, a superior approach to default prevention and claim payment.
Our data-driven strategy enables us to offer lenders a secure, low-risk investment
opportunity that delivers high returns.
*Not available in California.
ABOUT RELIAMAX
REFERENCES
1
Marketwatch, July 28, 2016, “Your 10 Most important financial decisions” by Jonathan Clements
2
The MeasureOne Private Student Loan Report, Q3 2016
3
College Board, Trends in College Pricing 2017
4
Ibid
5
Aggregate total of direct subsidized and unsubsidized loans for dependent undergraduate students, Federal Student Aid website
6
Sallie Mae Corporation Investor Presentation, Q1 2017
7
Ibid
8
Deloitte Center for Financial Services, The Future of Wealth in the United States, 2015
9
Georgetown University Center on Education and the Workforce, 2015
10
U.S. Bureau of Labor Statistics-Current Population Survey as of December 2016
11
Trends in Student Aid, The College Board, U.S. Department of Education 2015
12
FICO, 2016, http://www.fico.com/en/blogs/risk-compliance/us-credit-quality-rising-the-beat-goes-on/
13
Sallie Mae Corporation Investor Presentation, Q1 2017
14
Ibid
15
The MeasureOne Private Student Loan Report, Q3 2016
16
Department of Education FY 2013 3-year official national cohort default rates
17
The MeasureOne Private Student Loan Report, Q3 2016
18
The Wall Street Journal, Dec. 16, 2016, “As Obama Steps Aside, Banks See New Opportunity in Student-Lending Business” by AnnaMaria Andriotis
19
The MeasureOne Private Student Loan Report, Q3 2016
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