Student Education Loan Fund, Inc (Abridge)
Student Education Loan Fund, Inc (Abridge)
Introduction Background of case Study
Rick Melnick is an Associate Director of Financial Management at Harvard Business School (HBS). He had decision to make regarding the new funding policy under the management of Student Educational Loan Fund (SELF). SELF was established in 1961 to fund loans to HBS. Traditionally, HBS student loans required the borrower to pay semi-annually with variable interest rate policy. Under the new plan, the students would receive monthly paid plus fixed-rate interest. With this new plan the management believed that it will reduce the rate of delinquency among the students.
Basically in 1996, the tuition fee for two-year MBA program at HBS was $42,000. The cost is estimated to achieve up to $45,372 when it is comply with health insurance and living expenses. This high expense forces most of the student to obtain some form of student loan. There are many types of loan that students can choose from. Some of the loan is offered by U.S Federal Government under Stafford and Perkins loans. Students also have a choice to borrow from the bank. But because of these loans are only eligible for U.S residence, many foreign students at HBS School obtained loan under the school itself. (See table 1 for alternatives student loans)
Funding SELF
When SELF established in 1961 it was actually set up to accommodate the rapid expansion of the loan by students. To operate, SELF bought the loans outstanding under the HBS loan program and received the right of future cash flow from the student’s prepayment. The prepayments are then used by SELF to purchase the HBS loan.
To fund the loan’s purchasing, SELF borrowed from its two banks identically, 7.5million each. Interest on the loans was charged at the prime-rate and paid monthly. The credit lines have a term of 1 year and thus had to be renewed annually. Figure 1 show structure of payment to the bank and received prepayment from the students.
Introduction Background of case Study
Rick Melnick is an Associate Director of Financial Management at Harvard Business School (HBS). He had decision to make regarding the new funding policy under the management of Student Educational Loan Fund (SELF). SELF was established in 1961 to fund loans to HBS. Traditionally, HBS student loans required the borrower to pay semi-annually with variable interest rate policy. Under the new plan, the students would receive monthly paid plus fixed-rate interest. With this new plan the management believed that it will reduce the rate of delinquency among the students.
Basically in 1996, the tuition fee for two-year MBA program at HBS was $42,000. The cost is estimated to achieve up to $45,372 when it is comply with health insurance and living expenses. This high expense forces most of the student to obtain some form of student loan. There are many types of loan that students can choose from. Some of the loan is offered by U.S Federal Government under Stafford and Perkins loans. Students also have a choice to borrow from the bank. But because of these loans are only eligible for U.S residence, many foreign students at HBS School obtained loan under the school itself. (See table 1 for alternatives student loans)
Funding SELF
When SELF established in 1961 it was actually set up to accommodate the rapid expansion of the loan by students. To operate, SELF bought the loans outstanding under the HBS loan program and received the right of future cash flow from the student’s prepayment. The prepayments are then used by SELF to purchase the HBS loan.
To fund the loan’s purchasing, SELF borrowed from its two banks identically, 7.5million each. Interest on the loans was charged at the prime-rate and paid monthly. The credit lines have a term of 1 year and thus had to be renewed annually. Figure 1 show structure of payment to the bank and received prepayment from the students.