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Journal of College Student Retention and Recruiting for both On-Campus and Online Universities
Patrick Kandianis
Forecasting the Credit Storm
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PEOPLE WITH IMPACT INTERVIEW - Patrick Kandianis, Simpletuition.com
Patrick Kandianis is Co-Founder, EVP & Chief Sales Officer of SimpleTution.com, a premier online resource designed to help students and families find their way to the ideal student loan or financing option for educational expenses and help them take action. As a result of his post, he possesses a unique perspective on the tumultuous student lending industry and the future for student borrowers, and shares those insights with EDUInsight.com in the following interview.
Q: How has the student lending industry changed since Attorney General Cuomo launched his investigation just over a year ago?
Patrick Kandianis: It really boils down to a transparency issue. The legislative and legal wrangling over the past 14 months has definitely brought more transparency to the business and more awareness to the consumer. Additionally, it has demonstrated ideal relationship structure and accountability to the community of lenders, colleges, financial aid student loan offices. Students should be made aware of arrangements, practices and past relationships in order to make informed decisions as it involves student lending, and this emerging transparency levels the playing field. I personally believe that the turbulence and changes in student lending that have come forth are good—to a point. I do not think the premise that everyone was doing something wrong is accurate, and I really don’t believe that masses and masses of lenders were conducting business in an underhanded manner in an attempt to deceive students. There definitely are exceptions to this generality, but I think the industry, as a whole, has done its best job to take students, inform them to make better choices, and move them through the borrowing process. That said, any step toward transparency and better understanding of student borrowing is a good thing. That’s why we created SimpleTuition.com three years ago, long before it was fashionable to offer comparisons or an interactivity to better explain student loans. At first, we encountered resistance—the idea of the consumer being well-informed was not regarded with a high level of concern. The changes that have emerged from Cuomo’s investigation, both at the state and federal level, will likely help provide more insight into borrowing and choosing applicable options. While these changes have been beneficial, they are only on the level of operational change.
Q: How has the consumer credit market’s subprime mortgage crisis affected student lending?
Patrick Kandianis: The thing that has really made student lending difficult over the last year has been the change in economics. This change is twofold, the first being an underlying change in student lending, which turned the ability of lenders within the program to operate with certain profitability upside down and made it harder to make money within the program. As a result, over a couple of dozen folks have restricted operations and the types of programs they can offer, or left the business entirely. Most, if not all, lenders have reduced the potential borrow benefits or incentives on their programs, either eliminating them completely or severely curtailed them. On an average level, the cost of borrowing for students has increased over time, there are limited incentives for repayment and there is less competition. The innovators, who were trying to be creative with pricing or packaging, were likely the first to be put under stress in this new turbulent climate that is reducing choice and homogenizing the programs to a level that could cost borrowers more than it would have two years ago. When you then consider the credit crunch issue, the industry problems get even worse. A number of entities relied upon the securitization markets to finance student loan offerings—bonds essentially—and and the offerings would refill their capability to create new student loan portfolios. Student loans have traditionally been low on the totem pole of importance compared to mortgages, credit cards and auto loans, and as nearly every other market has constricted, so has the appetite for student loan securitization paper. There is no market for those loans and therefore lenders like Sallie Mae and other smaller banks who relied upon securitization that did a lot of volume are currently unable to unload that volume on the market. They will potentially need to restrict the amount of borrowing they can facilitate. On the federal side, this is fairly significant, impacting the large bulk of entities who would potentially sell their paper to a securitization shop and those scenarios. At this point, however, that is not an open playing field anymore.
Q: How does the private lending piece factor into this puzzle?
Patrick Kandianis: This is essentially the third stage of the industry chaos, and it hasn’t really even happened yet as the bulk of the private borrowing occurs during the back-to-school season in late summer and early fall. The banks are raising their minimum FICO scores fairly significantly—from fair/good credit levels to what I consider to be good/very good levels—and on top of that, they are also raising prices. Since there is no market for private loans in the securitization world, entities like Sallie Mae, First Marblehead or other specialty shops that practiced securitization must now re-price those loans higher so that, in the event they are unable to move any of their paper, the margins will be better. Some of the bigger banks have an opportunity here because they were likely not in the securitization business. These banks can use their own balance sheets, issuing student loans in their own course of business and keeping them on their books without the pressure of selling those loans to the market. Again, however, there is an evident constriction. The market the fundamentals are great, with the college bound population growing, costs continuing to rise, and the ability or desire to borrow, but the problem is that the processes that were once there and considered a layup are no longer as available as they once were. If you have a moderate FICO and borrowed last year at College X, there s a good chance you won’t get approved this year. This is largely dependant on the co-signer or the parent borrower on private student loans. A student might have gone two years at a university knowing they could get a reasonably priced alternative loan, but this year, they will find that funding is not there. I think this will result in a pretty significant crisis in August as two things are coming. First of all, a lot of lenders have left the business on the federal side, so if you borrowed from Lender X last year and they’re no longer around, you have to reapply. That might sound like no big deal, but consider that there might be a million borrowers reapplying all at once and this creates a processing issue that will likely delay in receipt of funds. Secondly, the real issue of importance is going to come on the gap financing or alternative loan financing, which is the way most folks were paying for college. Those folks may not have an option this year. My soundbite of the year is that, despite rates dropping on existing loans, this will likely be one of the most expensive years ever for college because people will need to rely on other resources to pay tuition—credit cards, credit lines, etc. Folks don’t save well for college and there has traditionally been an availability of funds to help those that failed to save. This year, that option won’t be there. Home equity—which has been a traditional fall back plan where people can borrow against their house—is tapped out given the subprime mortgage crisis, no longer making this a feasible option. The typical good/fairly good credit homeowner sending a student or two to college will be under tremendous pressure for the 2008-09 school year.
Q: How can the average school or average student prepare for the turbulent times ahead, and how can SimpleTuition.com help?
Patrick Kandianis: We offer a marketplace featuring options that people may not have been previously aware of and a breadth of lenders that prospective borrowers might not see on Google or in a financial aid office. We offer an online space in which they can learn about student lending. Given the FICO variances that will undoubtedly occur, we hope to have more options that will pertain to various credit classes across the board. We will be looking to do more credit screening—not running of credit but evaluation of it—going into the summer that will help to decipher what options are most feasible based on the borrower’s credit strength. For those with limited/poor credit, we hope to highlight available options after maxing out on federal loans programs. This is an important year to file for federal FAFSA and obtain as much federal aid as possible. If students didn’t do this before because it was a pain in the neck, it is incredibly important now as it might be the only student loan money available to students. I can’t say it enough—file FAFSA get in the game this year—it could be a lifeline. From SimpleTuition.com’s perspective, we offer views and comparisons of these offerings and products and provide a helpful platform in which people can dig into the plethora of student lending information. We market to and work with schools to customize versions of their individual lending lists. Schools are beginning to link to SimpleTuiton.com as a resource because of the wealth of data, information and participating lenders. Whether you’re ready to shop and buy a loan or just want to research the opportunities available, we are a premier web-based resource to see what’s out there. Additionally, I think that folks with crunched credit should really think about whether or not they can afford to attend their first choice, and consider coming down a notch in terms of expectations. Perhaps this is the year people to consider part-time or community college options, and spending a year or two at community college and finishing at a four-year institution once the lending industry rebounds. Come August—the reality of borrowing for college is going to be a real shocker for most people.
Patrick Kandianis, Co-Founder, EVP & Chief Sales Officer
Patrick has worked in different sectors serving the higher education market for the past 21 years, including education finance, systems/software and travel. Most recently, as VP of Business Development for First Marblehead Corp, Patrick led the company’s sales efforts in the Midwest and Western regions and helped formulate product strategy and development before and after the company’s IPO. Previously, Patrick had a role as Director of Business Development for Jenzabar, a startup which became a leading systems provider for colleges and universities. Earlier on, Pat was one of the original principals of Student Travel Services and Suncoast Vacations, leading student tour companies where, as VP of Sales and Operations, he led business development, marketing and advertising efforts nationwide. Pat holds a BA from Cornell.
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