Guide to Developing an RFP Process and Evaluating Proposals (May 2010) Alternative Education Loans. Introduction. Review of Materials

Transcription

1 Guide t Develping an RFP Prcess and Evaluating Prpsals (May 2010) Alternative Educatin Lans Intrductin In the early 1990s, pstsecndary institutins began t publish Preferred Lender Lists (PLL) fr the benefit f students and their families. These lists reflected an effrt by clleges and universities t prvide their students with helpful guidance as t which educatin lenders, amng the many active in the marketplace, prvided gd cmbinatins f cmpetitively priced lans, respnsive custmer service, and innvatin/leadership in the efficient delivery f dllars and services. Thse principles remain the guiding frces behind the use f Preferred Lender Lists tday. Review f Materials These materials have been develped by the Cllege Bard t serve as a flexible blueprint t help clleges and universities plan and execute a successful RFP prcess. By fllwing the prtcls utlined in this Guide and by sensitively adapting these materials t lcal circumstances, institutins will be able t frmulate a list f preferred credit prviders that ffers a cmbinatin f prducts and services that meet the needs f students and help institutins in serving them. Included in this set f materials are the fllwing: A summary f the Preferred Lender Selectin Prcess A mdel RFP template fr Alternative lans, rganized as fllws: Summary Institutinal Descriptin and Objectives Prpsal Frmat, Guidelines, and Requested Infrmatin Appendix A: Cmpliance Matrix and Crss Reference Appendix B: Financial Terms Summary Chart A Preferred Lender Screcard A Glssary: Understanding terms, prcesses, and lending practices that influence brrwer eligibility and lender selectin Cmpnents f an Infrmatin Prgram t Help Students and Parents Brrw Wisely

2 There are fur basic parts t an infrmatin prgram, which build n each ther. They will be described in this Guide, alng with guidance n implementing each step fr the benefit f students and parents: Lender Selectin RFP Fstering cmpetitin Lender Evaluatin Transparency and bjectivity Frmal Preferred Lender List Cmmunicating ptins t brrwers Infrmatin Resurces and Online Calculatrs Help brrwers cmpare csts and ther terms The Underlying Principles f an RFP Prcess Preferred lender RFP and selectin prcesses represent gd practices fr clleges and universities t fllw because they create a series f mutually supprtive benefits fr bth students (prspective brrwers) and fr institutins (whse rle it is t supprt their students in achieving their learning bjectives): Benefits t students. Preferred lender arrangements: Can generate significant cst savings fr students as lenders cmpete t be n the list; Help educate students abut lender prgrams, prducts and services in a cnsistent way, using cnsistent terms, which reduces cnfusin and helps students and families make infrmed decisins; Insulate families against pitches by direct marketers r predatry lenders Benefits t institutins. Preferred lender arrangements: Prvide a mechanism fr schls t use t identify, tailr t lcal needs, and evaluate thse factrs and criteria mst imprtant t the needs f the institutin s students and parents. Engage lenders in a cmpetitin fr business, which invites verall imprvements in price, prduct features and custmer supprt and service

3 Intrduce bjectivity and transparency int the prcess, and prvide prf f hw preferred lender decisins were made It is imprtant t bear in mind the benefits f a preferred lender prgram t institutins are relevant here nly t the extent that they help the institutin t better serve the needs f its students as a whle. Any institutinal benefits that are nt als fr the benefit f students cllectively are nt relevant r apprpriate and shuld nt be cnsidered. The selectin prcess utlined in this Guide is predicated n an bjective, systematic and equitable analysis f infrmatin submitted by prspective vendrs. Dne well, the RFP and lender selectin prcesses create a living dcumentary trail that helps institutins and brrwers manage the credit financing prcess by carefully chsing lender partners. Intrductin Lender Selectin RFP Prcess Fstering cmpetitin As Stephen Cvey said, begin with the end in mind. The planning phase f the RFP prcess is by all accunts the mst imprtant. The RFP dcument, evaluatin, and utcme will nly be as gd and as useful as the develpment and executin f the plan. Identify Gals The first step in the prcess is t identify gals. All activities in the RFP prcess shuld lead t the accmplishment f the gals, which are linked t identifying student and institutinal needs. Depending n the resurces available, sme institutins chse t frmalize this part f the prcess by administering surveys t student grups and staff grups invlved with the educatin lan prcess. In ther cases, fcus grups have been used t slicit mre subjective infrmatin. Hwever, the needsidentificatin utcmes are typically the same. Institutins (and lenders) which have had in depth experience with issuing and respnding t RFPs reprt that the fllwing student and institutinal needs are the mst cmmn and universal. The gals f the RFP prcess are t meet these students and institutinal needs. They can be summarized as fllws: Help students btain the lwest cst lan pssible Ensure that students have access t cnsistent and reliable surces f capital Obtain student access t respnsive in schl and in repayment custmer service Organize financial educatin materials and infrmatin fr students

4 Prvide students with default preventin assistance Imprve peratinal efficiency in the financial aid ffice in ways that serve students better Establish a cmmittee; define its rle; appint a crdinatr The first step in the plan is t establish a cmmittee/team that includes stakehlders mst impacted by Preferred Lender List (PLL) decisins and thse that can ffer psitive, unbiased input int the prcess. Ideally, the prcess wuld be chartered by an executive level spnsr whse primary rle is t ensure institutinal cmmitment and resurces, and ccasinally t make decisins where wrking grups are unable t achieve cnsensus. It is recmmended that representatives frm the bursar r student accunts ffice, finance, student services and, ften, student representatives be included n the cmmittee. Althugh it is up t the institutin t decide whether t have student representatin n the cmmittee, it is imprtant that student and family needs be strngly represented in the cmmittee s deliberatins. Ultimately, the student is the brrwer in a significant and material financial transactin and shuld be viewed as the final decisin maker. (S)he is entitled t the best infrmatin available t make the mst infrmed and thughtful decisin abut whm t use as a lender. The cllege r university is nt making the buying decisin. The student r parent is accuntable fr the utcme, and that chice culd impact their financial lives fr upwards f 10 t 25 years. There are fur specific rles f the cmmittee: T cllabrate in defining student needs and assciated institutinal needs specific t the circumstances f the institutin. It is mst imprtant in this phase is t identify clear and cncrete needs f the student and institutin s that, alng the way, lenders prcesses and prgram attributes can be matched up with the cre needs identified. T cllabrate in defining pririties, timetables, and methds t be used in evaluating and scring prpsals T review the RFP fr accuracy and cmpleteness befre release T participate in evaluating prpsals One team member shuld be appinted as RFP Crdinatr. The crdinatr will be the pint persn fr cntact with preferred lender candidates, serve as cnvener and mderatr f the cmmittee, and be the repsitry fr all the prpsals, data, accmpanying materials and anything else that lenders submit as required by the RFP. Establish a timetable Institutins reprt that an RFP prcess can take as few as six weeks and as lng as nine mnths. The amunt f time spent is largely determined by the resurces available at the institutin t wrk n the

5 RFP and whether cmplex plicy issues are being addressed fr the first time. When ne r mre staff members are assigned full time t the activity, the time frame will be shrt. When staff members are juggling their RFP respnsibility alng with a multitude f ther respnsibilities, the time frame will be lnger. A typical, average time frame is described belw: 1. Establish an internal cmmittee, appint an RFP crdinatr, cnvene cmmittee and launch prcess: 1 3 weeks 2. Issue frmal RFP: 1 week 3. Read and evaluate prpsals: mnths 4. Make initial selectin: 1 week 5. Cnduct due diligence: 2 weeks 6. Make final selectins: 1 week 7. Publish Preferred Lender List: 1 week 8. Manage Preferred Lender List: Onging Ttal average time = mnths Identify criteria used t evaluate lender prpsals Using input frm cmmittee/team deliberatins and backgrund research, delineate criteria upn which lenders will be evaluated. Cmmn categries include: cst t the student/parent, service relatinship with student/parent, lan prcess effectiveness, and lender backgrund. Cst t the student/parent: benefits/pricing by lan type, fees, autmatic vs. earned benefits, frnt end benefits, back end benefits, and APR Service relatinship with student/parent: life f lan servicing, web based services, methds f brrwer cntact, call center availability, use f brrwer data and privacy safeguards Lan prcess effectiveness: lan delivery and revisin ptins, prcess and plicies fr refunds/returns and denials, cmpatibility r integratin with institutin s financial aid prcessing system(s), effectiveness f custmer service reps Lender backgrund: length f time in the industry, financial stability, value added services, access t and stability f capital, prgram partners, default preventin and financial educatin cmmitment/materials Weight the criteria

6 After identifying the criteria upn which lenders will be evaluated, the next step is t weight the relative imprtance f the fur principal criteria and then rate the assciated sub criteria. These weightings will be imprtant later n. Sample Weighting Cst f student/parent 50% Service relatinship with student/parent 20% Lan prcessing effectiveness 15% Lender backgrund 15% Ttal 100% Nte: the ttal weighting must equal 100% It will be a challenging task fr the cmmittee t weigh the many different attributes that it deems imprtant and has decided t evaluate. Sme lenders will excel in sme areas and nt thers. What is mst imprtant is t evaluate where lenders excel in the specific areas that are imprtant t the student and t the schl. Excelling in areas unimprtant r marginally imprtant even thugh the lender may scre high is nt relevant. The purpse f the weighting prcess is t help the prcess keep its eye n the right balance f criteria. Using the Preferred Lender Screcard, the next step is t weight the sub criteria fr each primary evaluatin factr. Tw examples frm the screcard are shwn belw: Cst t the student/parent = 50% Pririty weight APR t brrwers 30% Frnt end benefits 15% Back end benefits 5% Ttal 50%

7 Service relatinship with student/parent = 20% Pririty weight Operatin hurs, features, live help 2% Life f lan servicing 10% Cntract fr servicing r in huse 2% Web based brrwer services 2% Quantitative custmer service measure 2% Use f brrwer data and privacy safeguards 2% Ttal 20% These values, plus the values fr the ther principal criteria, can be used later t calculate a lenders verall scre. The weighing multiplied by a perfrmance rating will equal the lender s final scre. Althugh the sub criteria are weighted here, this is ptinal. The preferred lender screcard assigns a percentage fr the categry, but nt fr the subcategry. It is a gd exercise, hwever, fr the cmmittee t discuss sub criteria weighting t help guide the cmmittee s review f the prpsals. Develp the RFP dcuments and vet with cmmittee The lender RFP/survey template (See Request fr Prpsal frm Alternative Lan Prviders) is rganized int five sectins. Each sectin asks fr infrmatin frm the lender that can then be used t evaluate the lender s ability t meet the identified needs f the student and the institutin. Institutins can pick and chse (adding and deleting) infrmatin requests frm the sample RFPs accrding t lcal needs and interests. Appendix 1 describes the RFP template in detail, the relevance f the infrmatin requested, and hw institutins can chse t think abut lender respnses. Befre finalizing the RFP dcument t be vetted by the cmmittee and shared with lenders, it is advised that all the infrmatin items be reviewed t make sure that: Infrmatin is requested nly fr lender prducts and services that meet the needs f the student and the needs f the institutin in better serving its students. There shuld be n extraneus items. Questins are s specific that lenders will reply with very specific respnses Open ended infrmatin items are minimized because respnses are hard t cmpare

8 Metrics used t respnd t the infrmatin requests, such as default rate and apprval rate, are cnsistent and clearly understd. (A glssary is prvided at the end f this Guide, with cmmn definitins f terms assciated with educatin lending.) Once the draft dcument is cmpleted, it shuld be reviewed by the RFP cmmittee fr cmpleteness, thrughness and chesiveness. After incrprating any suggestins r changes frm the cmmittee, the dcument wuld be ready fr distributin t PLL candidates. Issuing the RFP The next step in the RFP prcess is a fairly simple ne. First, identify a grup f lenders t whm the RFP will be distributed. Institutins shuld cast a wide net, but nt t wide. Ten lenders wuld be t small a number, and fifty wuld be t large. Experienced financial aid administratrs recmmend that a reasnable size fr the PLL candidate pl is arund 20 t 25. It shuld be develped by including: Lenders with which the institutin currently has a psitive relatinship Lenders recmmended by clleagues Lenders that students have histrically chsen independently, which may nt currently be ne f the institutins preferred lenders Lenders that appear, based n high level infrmatin, t ffer a cmpelling value prpsitin fr students After cmpleting the RFP dcument itself and identifying the lenders t be in the PLL candidate pl, the next step is t cmpse a cver letter (see the Cllege Bard example) that clearly describes: The institutin s current vlumes, partners, and prcessing systems The evaluatin criteria which will be used t select preferred lenders Expectatins fr submissin f the RFP (hard cpy and electrnic) and the timetable assciated with the prcess The due diligence prcess the institutin plans t engage in befre final lender selectin The final step after distributing the RFP package t lenders is t prvide prpsal guidance t them. The Cllege Bard suggests that lenders be granted ne, cmmn scheduled cnference call with the RFP Crdinatr prir t the prpsal submissin date. This allws the institutin t btain a preliminary assessment f lender interest, prvide a cmmn respnse t any questins, and finetune any areas f the RFP that may nt be clear. Any new infrmatin r clarificatins shuld be dcumented and distributed t all PLL lender candidates.

9 Managing the prcess Sme simple guidance will help the prcess flw: Establish a prcedure and calendar fr evaluating the prpsals individually and as a cmmittee Funnel all cntacts with PLL candidates thrugh the crdinatr Carefully lg in respnses frm lender candidates as they are received Distribute prpsals t cmmittee members as they are received fr their first review and evaluatin Anticipate that mst respnses will be received n r near the deadline Lender Evaluatin Prcess Transparency and Objectivity This is the heart f the entire RFP prcess and, like the planning phase, will nly prduce the desired results if sufficient effrt, time and energy are invested in the evaluatin prcess. It shuld be fair, bjective, transparent and thrugh. During this phase, the RFP cmmittee s rle is crucial. The prpsals received will hpefully and typically cntain a cnsiderable level f detail and precisin. Sufficient cmmittee time shuld be allcated fr internal discussin and scring f the lenders characteristics and prgram fferings (rganized in the RFP under the five categries f: lender backgrund, lan prgram requirements, custmer service requirement, prgram affiliatins and ther) befre assigning a perfrmance ranking n the Preferred Lender Screcard. It is imprtant at this phase in the prcess fr the cmmittee t reiterate, recnfirm and reemphasize fr itself the statement f student and institutinal needs articulated early in the RFP prcess. Fr mst institutins, they will cluster arund the fllwing: Prviding students with the lwest cst lan pssible Ensuring that students have access t cnsistent and reliable surces f capital Obtaining access fr students t respnsive in schl and in repayment custmer service Organizing financial educatin materials and infrmatin fr students

10 Prviding students with default preventin assistance Imprving peratinal efficiency in the financial aid ffice in ways that directly serve students better Having weighed the criteria upn which the lenders will be evaluated during the planning phase, what fllws is the careful prcess f reviewing every prpsal t determine the lenders perfrmance n the set f criteria. One f the requirements fr the lender candidates is t cmplete the Cmpliance Matrix and Crss Reference frm at the end f the RFP dcument. This frm summarizes the lenders respnses, crss referenced t the requirements set ut in the RFP. It is a cnvenient way t see hw the lenders prgram fferings match up with the needs f the students and institutin. Befre reading the prpsals, it is recmmended that the Cmpliance Matrix be reviewed t make sure the lender is generally cmpliant enugh t be cnsidered respnsive and t be further evaluated. Assuming that the PLL candidate pl is arund 20 lenders, the first step is t reduce the number t a mre manageable size (8 t 10) fr purpses f detailed fllw up and due diligence analysis. Using the infrmatin gathered frm the lender s RFP, grade each criterin with a scre f 5 t 1, where 5 represents the highest scre (mst satisfactry) level f lender perfrmance. Fllwing that, fr each criterin listed, multiply the pririty weighting by the perfrmance rating t btain the ttal pririty perfrmance scre fr the lenders. The ttal pririty perfrmance scre can then be used t rank rder the lenders. Ntes n Scring There are tw types f criteria n which lenders will be evaluated: hard criteria and sft criteria. The mst imprtant example f a hard, r empirical, criterin is cst, which is measured by items such as APR, cst per $1000 r brrwer benefits. When attempting t scre cst criteria, it is recmmended that evaluatrs establish their wn financial scale, using the least expensive lan as a baseline, and then assign pints t cmpeting lenders lans frm that pint. Where there are significant differences in cst, the pints assigned will vary significantly. Where there are nly narrw differences in cst, the pints assigned wuld nt vary that much. In additin t cst, custmer service and institutinal prcessing effectiveness criteria are als hard criteria that can be quantified, and fr which perfrmance scales can be created and prpsals can be evaluated t cmpare ne lender t anther. Examples include measuring and assigning pints t applicatin prcessing timetables, custmer service availability, and apprval rates. As is true fr the cst criteria, where significant perfrmance differences exist between lenders, the pint spread will be wide; where perfrmance n these measures is nt significant, the pint spreads will be narrw.

11 The best example f a sft criterin is lender backgrund. Here measures, such as lender reputatin and prgram partners, will be subjective and may prve less imprtant because the scring will seem mre arbitrary. That said, the imprtance f hard criteria versus sft criteria may als be reflective f the ecnmic marketplace. In general, hard criteria, especially cst, will tend t drive the evaluatin and scring prcess, since securing the lwest cst lan fr students is the mst imprtant gal f the RFP prcess. Hwever, when prgram margins and the ecnmic climate in general create an envirnment in which lenders cannt cmpete effectively n price, ther criteria, such as custmer service, prcessing efficiency and lender backgrund, may becme mre imprtant than in times when lenders are cmpeting primarily n cst. When rank rdering the lenders, it is imprtant t lk at hw the final scres fall and whether r nt they represent significant differences between lenders. In deciding at which scring level t make a preliminary cut, the cmmittee will want t examine hw the scres cluster numerically; the cmmittee shuld nt establish the first level cut at a pint at which nly a small scre difference might have changed the utcme. There are tw ways t reslve this situatin, hwever: Lk at where the scres fall and cnsider lengthening r shrtening the lender list. If there are natural cut ff pints, custmize the list accrdingly. There is n requirement that the first cut reduce the number f lenders t 9 r 10, shuld 7 r 8 lenders, r alternatively 11 r 12 lenders, make sense after the calculatins have been finished. Review the pririty weightings t make sure that they match up with the RFP s gals and meet student needs. A secnd review can ften find sme areas that can be tweaked and ultimately cause finer distinctins t be made in the pririty perfrmance scre It is recmmended that institutins use a Spreadsheet Calculatr t summarize lender data and pricing. Such a Spreadsheet Calculatr has been develped by the Cllege Bard, and is available in cnjunctin with the mdel RFP. Besides ffering a helpful frmat fr displaying and cmparing data, it permits calculatins that yield an apples t apples cmparisn f lans based n cst. This is imprtant since pricing fr alternative lans vary s widely based n credit scres. The fllwing is an example f hw a Preferred Lender Screcard might ultimately be cmpleted fr ne lender. Remember that the Pririty Weight will be cnstant acrss all the lender screcards, while the Perfrmance rating will vary accrding t what the individual lenders have prpsed and disclsed. 1. Cst t student/parent Preferred Lender Screcard A X B = C a. APR t brrwer 4

12 b. Frnt end benefits 3 c. Back end benefits 3 Categry rating 50% Service relatinship with student/parent a. Operatinal hurs, features, live help 3 b. Life f lan servicing 4 c. Cntract fr servicing r service in huse 2 d. Web based brrwer services 2 e. Quantitative custmer service measurement 4 f. Use f brrwer data and privacy safeguards 5 Categry rating 20% Lan prcessing effectiveness a. Rutine prcessing 3 b. Exceptin prcessing 2 c. Seamless integratin with institutinal systems 4 d. Effectiveness and respnsiveness f custmer service reps 3 Categry rating 10% Lender backgrund a. Access t and stability f capital 4 b. Length f time in the prgram and reputatin 3 c. Prgram partners (guarantrs, riginatrs, etc.) 3 d. Value added services (educatin and cunseling materials) 1 e. Experience with rganizatin and lender reps 3 Categry rating 15%

13 Grand Ttal 100% 12.3 A = Represents the Pririty Weighting fr each criterin B = Represents the Perfrmance Rating fr each criterin C = Represents the Pririty Perfrmance Scre and is the prduct f A times B At this stage, the cmmittee might ffer lenders an pprtunity fr a frmal presentatin f their prpsals and Q&A with the cmmittee. If pssible, particularly fr new lenders under cnsideratin, the cmmittee shuld carefully cnsider cnducting a site visit at the institutin s expense t the lender s prcessing facility, t kick the tires and t becme acquainted with sme f the peratinal staff that is respnsible fr the multiple functins invlved in riginating, disbursing and servicing educatin lans. After the due diligence phase, the lenders perfrmance scres shuld be re evaluated based n infrmatin learned during this step. Fllwing that, the cmmittee might typically select the 4 5 highest scring lenders (never less than 3) t be n the Preferred Lender List. If the scres are t clse t permit clear differentiatin amng the lenders t be chsen, the cmmittee might want t recnsider the weightings, t reexamine (in a methdical way) the assigned lender perfrmance scres, r t expand the size f the list. Once the cmmittee feels cmfrtable with the final selectins, the institutin shuld ntify the waitinglist lenders that they did nt make the PLL and thank them fr their participatin. Frmal Preferred Lender List Cmmunicating ptins t brrwers The final step in the RFP prcess is publishing the preferred lender list, bth in hard cpy and electrnically. Types f lans Lender cntact infrmatin: lender s address, telephne number, website, partner infrmatin Applicatin instructins: hw t apply (thrugh the institutin r thrugh the lender), hw disbursements will be made (thrugh the institutin r thrugh the lender) Special benefits r brrwer incentives: frnt end benefits, back end benefits, savings available thrugh qualifying fr the benefits, hw t recver benefits if they are lst Sample repayment charts: lan repayment ptins (standard, incme cntingent, extended, etc.) and accmpanying estimated mnthly payment per $1000 brrwed

14 Other: infrmatin n privacy plicies and use f brrwer data, academic prgress requirements, entrance and exit cunseling requirements and link(s) t electrnic cunseling ptins, chice t pay interest while in schl and capitalizatin plicies There shuld als be text n the PLL itself that reminds students they have the right t chse any lender they want, whether the lender is n the schl s preferred lender list r nt. PLLs shuld be reviewed and updated annually. Infrmatin Resurces and OnLine Calculatrs Help brrwers cmpare csts and ther terms The Cllege Bard has recently cmpleted develpment f tw n line calculatrs which will be useful tls t help students and parents determine the relative cst f brrwing ptins. The first calculatr is a public tl fr use by families t cmpare lan terms and csts. It is an interactive calculatr that can be used t determine which types f lan prducts frm a variety f lenders are the right fit fr students and parents, based n inputting lan terms, interest rates, fees, and ther relevant infrmatin. The public calculatr can be fund in the Pay fr Cllege sectin f cllegebard.cm The secnd calculatr is an institutin specific tl fr use by students and parents, which can be used t determine which types f lan prducts being ffered by a particular institutin are the right fit fr the family s circumstances. This calculatr can be accessed thrugh the institutin s website. Attachment B t the RFP fr Alternative Lans is a useful tl t assist the institutin with the input fr the institutinal calculatr. Care shuld be taken t ensure that the summary data presented in Attachment B crrectly reflects the prpsal terms as submitted by the lender. Bth calculatrs include helpful text and guidance n entering data.