Michael Dean Wayne Johnson Rapid Insight User Conference Yale University

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1 Michael Dean Wayne Johnson 2013 Rapid Insight User Conference Yale University Reunion Financial Services Corporation Mercer University PhD Program in Educational Leadership

2 Summary Working Model: Interest, Expertise, Economic, Social (IEES) Collaborative Learning Entrepreneurship Private Student Loan Context Opportunity Affordability

3 In early June 2013, Reunion Financial Services Corporation (Reunion), a specialty financing company formed to provide affordable refinancing options for the underserved private student loan marketplace, received its first $100 million seed funding allocation from a regional bank. Another $300 million is anticipated within months. Reunion was started by Wayne Johnson, an experienced financial services executive and PhD candidate, after a collaborative classroom experience at Mercer University spurred his inquiry about college affordability. In late June 2013, Reunion purchased a building for its headquarters and began ramping up its operations. This presentation lays out how classroom collaboration led to a business aimed at loan affordability and how analytics might help in providing refinancing options to borrowers who might have the greatest need. Wayne Johnson serves as CEO and Michael Dean serves as Director of Executive Advisory Board

4 Interest Expertise Instructor- Student Collaborative Learning Economic Social Dean, 2013

5 Interest sphere Topics that draw our attention Inquiry What are we curious about? What problem do we want to solve? Expertise sphere What have we studied? What are our professional experiences? Economic sphere Does a potential sustainable revenue model exist? What is the market size? Does a need exist? Social sphere Do the benefits help people? Do the benefits help the broader society?

6 EDEL 842 Financing Higher Education Course final paper and artifact Titled: High Tuition High Aid: A Financing Strategy of Higher Education Which Manifests as a Plundering of Student Trust

7 Expertise Interest Social Economic Opportunity (actionable and focused) Dean, 2013

8 Interest sphere Financing of higher education Cost of providing educational services Tuition pricing and discounting Fundraising Endowment and investments management Fiscal policies Bond financing Budgeting practices Expertise sphere Higher education management Academic affairs Institutional advancement Business and administrative services Financial services Consumer unsecured lending Bank card co-branding Affinity services Bank card mass marketing Bank card transaction processing Accounting, auditing, and management advisory services

9 Economic sphere Private student loan refinancing Need for financing alternatives $160 billion in debt balances--$80-$100million in target and extended target markets Over 2,000,000 graduates with private student loan debt Business process infrastructure in place to support cost effective operations Basis points on small portion of market provide for adequate IRR Social sphere Benefits to borrowers Creation of refinancing opportunity Lower payments-greater cash flow Extended terms End of term refinancing Alternative credit analysis Benefits to society Borrowers may have sufficient cash for life needs Potential increases in spending on homes, small business start-ups, and family educational expenses May alleviate detractors to career fields that carry high private loan debt balances

10 May 10, 2013, The Chronicle of Higher Education address the need for private student loan refinancing and cites the Student Loan Affordability report by the Consumer Financial Protection Bureau Projectstudentdebt.org (The Project on Student Debt) reported that private student loans are the riskiest way to finance and education and that some borrowers are paying interest rates over 18% The Project on Student Debt (2011) reported that private student loan volume reached $17.1 billion in but dropped to $8.5 billion in and to $6.3 billion in attributed to credit access

11 Analysts expect private student loan volume to rise again in and beyond; By 2030 annual volume of private student loans expected to equal annual volume of federal student loans ( Nearly a decade ago, 4% of undergraduates students carried private student loan debt with that number over 15% since 2008 and many students do not use all of the available federally backed financial aid before pursuing a private student loan (The Project on Student Debt, 2011)

12 The Consumer Finance Protection Bureau and The Federal Reserve Bank of New York reported that the total outstanding student loan debt is between $902 billion and $1 trillion $160 billion of this outstanding student loan debt is from private student loans As of Oct. 2012, the average amount of student loan debt for the class of 2011 was $26,600, a 5% increase from $25,350 in 2010 (The Project on Student Debt)

13 Lack of refinancing options and loan restructuring Limited borrower concessions Complexity for institutions that wish to offer alternative repayment options Commenters included in the Consumer Financial Protection Bureau s Analysis of Public Input suggested that social impact of student debt includes Household formation and home ownership Entrepreneurship and small business formation Retirement security Health care Teaching profession Rural areas

14 November 2012 formation of Reunion Financial Services Corporation (Reunion) Overview Specialty consumer finance company with the aim of offering refinancing options to the underserved private student loan market Reunion will target specific borrowers offering a simple process to substantially lower their monthly private student loan payment By first targeting a quality credit segment of the private student loan market to create a primary portfolio and then evolve to include borrowers who have positive student loan payment history but perhaps lower traditional credit profiles as an extended market Origination strategy Reunion s team has significant experience in employing origination strategy and customer acquisition Market segmentation, data-mining, and direct marketing Credit union and agent bank programs SEO and SEM strategies Affinity programs

15 Market opportunity Target $80 billion of a $1 trillion market Prior high interest rate environment led to opportunities to significantly lower payments 25-50% reductions in monthly payments

16 Total Market $1 Trillion Private Market $160 Billion Default rate 13% Default rate 5.4% Primary Target Market $80 billion Default rate less than 1% Extended Target Market $100 billion Low default rates, good student loan payment performance, perhaps lower traditional credit profiles

17 Competition overview Limited number of large bank lenders (<5) Description One or multiple student loans may be consolidated Existing private student loan consolidations qualify Federal student loans are not eligible for consolidation within program Debt to income ratio requirements and credit standards must be met $5,000 to $250, day process Consideration Variable or fixed rate Rates determined by school and degree No origination fees ACH and bank relationship benefits (25-50 basis points) Several repayment option terms

18 Competition overview Peer to peer lenders (2) Description From $10,000 to $200,000 in private student loan debt Customized rates but marketed at 5.99% rate which includes ACH Consideration Marketed as social platform students to alumni ACH benefits (25 basis points) To date total funding availability of less than $200 million Non-scalable

19 Value proposition Proprietary and complex strategies to leverage refinance offerings Pre-qualified invitation to apply Highly efficient process Single lower monthly payment Lower interest rate Longer amortization period

20 Marketing strategy Pre-screening and direct marketing Credit union and agent bank programs SEO and SEM Affinity programs Predictive modeling of alternative credit profiles

21 Marketing strategy Pre-screening and direct marketing campaign Initial approach-primary target market List selection Credit prescreen Collateral development Direct marketing execution Alternative approach for affordabilityextended target market List selection RI Analytics modeling Credit prescreen RI Analytics modeling Collateral development Direct marketing execution

22 Qualified schools and professions Minimum 30 months post graduation Able to benefit from reduced monthly payment Employed for 24 months Alternative affordability component Reanalyzed credit profile with student loan emphasis FICO Score Requirement met Verified current employment

23 Customer acquisition strategies Direct mail campaigns Credit union and agent bank points of presence Cable television and media in select markets Call center outreach programs Affinity programs with colleges and universities Other affinity-based relationship marketing SEO/SEM proprietary algorithms

24 Primary market high to premium credit Extended market payment performance profile Primary portfolio: borrowers who can benefit from refinancing affordability enhanced Borrowers may have sufficient income Use of standard FICO scores Extended financing term Borrowers may not have sufficient income resources but student loan payment predictable Use of alternative credit analytics RI Analytics modeling Extended financing term Extended portfolio: borrowers who have the greatest need for affordable refinancing options (payment reduction) Lower monthly payment Lower monthly payment

25 Representative cycle How classroom collaboration can lead to opportunities for social and economic good Higher education Social and economic good Classroom collaboration Actionable Opportunity Entrepreneurial View