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Paul Combe
President and CEO
American Student Assistance
August 2008
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Tell us about your background.
I'm a graduate of Framingham State College with a Bachelors and Masters in education in 1976. I worked for several years as a financial aid director at Framingham State College, Middlesex Community College and Boston College. I was also executive director of the Massachusetts Education Finance Authority, and then president of Knight College Resource Group, now owned by Key Bank. I've been at ASA for ten years. My daughter is a journalism graduate of Columbia University, and my son graduated from Berklee College of Music. |
Describe American Student Assistance and its operations.
ASA is a private, nonprofit guarantor in the Federal Family Education Loan Program. Our mission is to help students and parents successfully manage and repay their education debt. Our revenues in 2005-06 totaled $122 million. We helped 800,000 students from all fifty states remain in good standing that year. |
How have you changed your operations?
We operate under a new portfolio management business model that pays us to maintain loans in good standing. Whereas traditional guarantors react to delinquency and default, our mission is now preventing delinquency and default. After investing millions of dollars, fully a third of our employees are engaged in default management. Our very low default rate reduces costs and liabilities for lenders and the taxpayer. It also saves many borrowers the high price tag associate with default. |
Isn't default prevention closely related to financial literacy?
Yes. We partner with local efforts, such as TRIO programs and higher education information centers, and provide financial literacy education to students and families to help them become better consumers. Financial aid relies heavily on loans, so there should be measures and programs included to help borrowers manage their education debt successfully starting early and while they're in school. A guarantor can make a big difference there. That's our job. |
What are you doing after the student leaves school?
Debt management is a contact sport. We communicate well and often. In large measure that's because many of our employees formerly worked on a campus. We believe in treating borrowers with respect, no matter where they are in the repayment process. |
Do you think employers can become widely involved in student loan repayment?
Employers benefit from higher education. So employers should help borrowers pay. We do so ourselves for any ASA employee who has a student loan. With a little help from the right sources, I think employers will adopt the concept widely. |
Part 2
Is it likely you will be issuing student loans for 2008-09 as a lender of last resort in Massachusetts and DC?
No. It's unlikely in 2008-09. Recent Congressional legislation will inject enough liquidity to make lender of last resort unnecessary this year.
How does your Stafford and PLUS loan volume this year compare to the same period last year?
We've seen some decline in origination volume this year. Some of it is due to processing delays at schools due to confusion in the marketplace. Also, we are not subsidizing the default fee, and we are losing some volume to price competition.
What caused ASA to resume collecting the 1 percent default fee from borrowers?
The Budget Reconciliation Act of 2005 mandated that all guarantors place 1 percent of the principal of each loan originated in the federal reserve fund held by guarantors. Someone has to pay it, a borrower, lender, school or guarantor. Prior to that we could choose to waive those fees. Now, it will cost us operating money to do so. After careful consideration we decided the funds would be better used by investing in managing our portfolio of existing borrowers and helping them better manage their debts. In addition, paying 1 percent exceeds a guarantor's overall revenue for the life of the loan. Investing in our existing portfolio makes more sense than buying new loan volume that will never have value for us.
Should a guarantor be involved in setting the price a borrower pays?
No. A guarantor should be a neutral third party.
What have Stafford and PLUS loan borrowers lost in the past 18 months?
They've lost borrower benefits like interest rate reductions, paid origination and default fees. They've lost some peace of mind in securing a lender. They've lost the security that they'll be able to arrange one manageable payment after graduation. There is real potential for confusion over the next three-to-five years.
What should campus staff in Massachusetts and DC expect at the tuition window this month and next?
They can expect Stafford and PLUS loans to be delivered. There may be delays and missed tuition payment deadlines as a result of last-minute lender changes.
What principles of customer service make you successful with delinquent and defaulted borrowers?
Respect for the borrower, regardless of loan status. Combine that with a 'mutual gains' approach in working with each borrower. We've adopted an inside-out approach to customer service that realizes we must serve each other well internally and then extend that service to customers and other persons outside the organization.