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Insurance Abstract
Methods and systems are provided for the student loan marketplace
that enable third party insurers to participate in the market as
forbearance or default bridges. Particularly, insurance is offered
to student loan recipients, which cover specified circumstances
of non-repayment to the lender. With such insurance coverage, defaults
on loans can be reduced as well as preserving the good credit of
the borrowers.
Insurance Claims
1. A method for insuring a borrower having a student loan to make
student loan payments in the event the borrower is unable to make
student loan payments, the method comprising the steps of: making
student loan insurance available to a borrower with a student loan;
insuring the student loan against student loan payment-affecting
defined occurrences; charging the borrower an insurance fee; and
enabling student loan payments for the borrower in the event of
a defined occurrence.
2. The method as recited in claim 1, wherein the defined occurrences
comprise any one or more of work layoff, unemployment, illness,
relocation, or unpaid leave of absence.
3. The method as recited in claim 1, wherein the insurance fee
is paid on a monthly basis.
4. The method as recited in claim 1, wherein the step of charging
a borrower an insurance fee further comprises charging the insurance
fee based on a one year time period.
5. The method as recited in claim 1, wherein the step of charging
the borrower an insurance fee further comprises a reduction in a
student loan interest rate.
6. The method as recited in claim 1, wherein the step of enabling
student loan payments for the borrower includes payments from an
insurance provider.
7. The method as recited in claim 6, wherein the payments from
the insurance provider are paid to a student loan lender.
8. The method as recited in claim 6, wherein the payments from
the insurance provider is from a third-party insurance provider.
9. The method as recited in claim 1, wherein the step of enabling
student loan payments for the borrower includes payments from a
broker making the student loan payments available.
10. The method as recited in claim 1, wherein the student loan
is government guaranteed.
11. The method as recited in claim 1, wherein an entity facilitating
the step of making student loan insurance available also facilitates
the step of insuring the student loan.
12. The method as recited in claim 1, further comprising the step
of providing student loan insurance from a plurality of insurance
providers.
13. The method as recited in claim 12, further comprising the step
of selecting a preferred student loan insurance from the plurality
of insurance providers.
14. A computerized system for insuring a borrower having a student
loan to make student loan payments in the event the borrower is
unable to make student loan payments, the system comprising: a computer;
a student loan insurance processing program running on the computer,
wherein the processing program facilitates a menu of insurance provider
options to the borrower comprising the steps of: making student
loan insurance available to the borrower with a student loan; facilitating
the insurance of the student loan against student loan payment-affecting
defined occurrences; facilitating the charging of the borrower an
insurance fee; and facilitating the initiation of student loan payments
for the borrower in the event of a defined occurrence.
15. The system as recited in claim 14, wherein the computer is
connected to the Internet.
16. The system as recited in claim 15, wherein the processing program
is resident on a server computer.
17. The system as recited in claim 14, wherein the defined occurrences
comprise any one or more of work layoff, unemployment, illness,
relocation, or unpaid leave of absence.
18. The method as recited in claim 14, wherein the student loan
is government guaranteed.
19. The method as recited in claim 14, further comprising the step
of providing student loan insurance from a plurality of insurance
providers.
20. The method as recited in claim 19, further comprising the step
of selecting a preferred student loan insurance from the plurality
of insurance providers.
Insurance Description
CROSS-REFERENCE TO RELATED APPLICATIONS
[0001] This application claims priority to U.S. Provisional Application
entitled "INSURANCE PROGRAM FOR STUDENT LOANS," filed
Jul. 22, 2004, having Ser. No. 60/589,834, the disclosure of which
is hereby incorporated by reference in its entirety.
FIELD OF THE INVENTION
[0002] The present invention relates generally to systems and methods
for insuring student loans. More particularly, the present invention
relates to instituting mechanisms for reducing defaults on government-backed
or lender-backed student loans using an insurance underwriter.
BACKGROUND OF THE INVENTION
[0003] Loans for student education in the United States market
place come from either federally guaranteed student loans offered
under the Federal Family Education Loan Program or a private/alternative
loan organization. In the former instance, federal student loans
are guaranteed by the federal government up to 98% of the defaulted
loan balance. Federally authorized guarantors (such as American
Student Assistance, Sallie Mae, EdFund) process defaulted student
loan payments to lenders. The borrower must demonstrate need and/or
have an income sufficiently below a designated threshold to qualify
for a federal Stafford undergraduate or graduate student loan or
have credit-worthiness to qualify for a federal Parent Loan for
Undergraduate Students (PLUS). Federal Stafford student loans have
limits--up to $10,000 per academic year for undergraduate Stafford
Loans and $18,500 per year for almost all graduate programs except
in medicine; PLUS covers the full cost of undergraduate education
less other aid received; however, only approximately one-half of
these borrowers meet the credit criteria to qualify. Thus, the gap
between a federal student loan and the full cost of education is
widening and unmet need is a growing issue. Given these requirements,
numerous students must resort to obtaining loans from private or
alternative loan organizations which are not government or federally
guaranteed. Accordingly, loans procured through such agencies typically
incur a higher interest rate or shorter term for repayment.
[0004] The prevailing interest rates and processing fees, as well
as repayment terms, are set July 1 of each year and are based up
90 Day T-Bill rates at the end of May preceding the July 1 rate
change. As interest rates are climbing, the rates on student loans
rise commensurately. All loans, federal or private, are also dependent
upon the default rate. Default is understood to occur when the borrower
does not make timely payments to the lending agency. Such non-payments
may occur from work lay-off, unemployment, illness, relocation,
unpaid leaves of absence, or other events that precipitate a reduction
of the borrower's income.
[0005] A defaulted loan has major credit implications for the borrower,
since these loans are not dischargeable in bankruptcies. Furthermore,
default rates impact all participants in the federal and private
student loan marketplace. Institutions find it more difficult to
find lenders who are willing to lend to their students and receive
lower ratings in quality rankings (e.g. U.S. News and World Report),
borrowers, as noted, have negative credit issues, lenders face loan
portfolio devaluations, guarantors are compensated based upon lowering
default rates, and the federal government or private lender suffer
losses. There are forbearance and deferment options for federal
student loans and many private student loans; however, interest
on these loans accrues during these time periods, ultimately increasing
loan balances. Once these options are utilized, the borrower is
confronted with defaulting on his or her loan if payments cannot
be made. In essence, conventional student loan mechanisms do not
provide a bridge or vehicle for effectively accommodating periods
of non-payment by the borrower that give rise to defaults on the
loan.
[0006] Accordingly, it is desirable to provide methods and systems
that provide a financially acceptable bridge for all parties involved
in a student loan transaction, which enable the reduction of financial
risks for the lending institution and avoidance of bad credit for
the borrower in the event of a temporary period of nonpayment of
the loan.
SUMMARY OF THE INVENTION
[0007] The foregoing needs are met, to a great extent, by the present
invention, wherein in one aspect some embodiments are provided for
the student loan marketplace that enable third party insurers to
participate in the market as forbearance, deferment or default bridges.
Insurance is offered to student loan recipients, which cover specified
circumstances of non-repayment to the lender.
[0008] In accordance with one embodiment of the present invention,
a method is provided for insuring a borrower having a student loan
to make student loan payments in the event the borrower is unable
to make student loan payments, the method comprising the steps of,
making student loan insurance available to a borrower with a student
loan, insuring the student loan against student loan payment-affecting
defined occurrences, charging the borrower an insurance fee, and
enabling student loan payments for the borrower in the event of
a defined occurrence.
[0009] In accordance with another embodiment of the present invention,
a computerized system is provided for insuring a borrower having
a student loan to make student loan payments in the event the borrower
is unable to make student loan payments, the system comprising,
a computer, a student loan insurance processing program running
on the computer, wherein the processing program facilitates a menu
of insurance provider options to the borrower comprising the steps
of, making student loan insurance available to the borrower with
a student loan, facilitating the insurance of the student loan against
student loan payment-affecting defined occurrences, facilitating
the charging of the borrower an insurance fee, and facilitating
the initiation of student loan payments for the borrower in the
event of a defined occurrence.
[0010] There has thus been outlined, rather broadly, certain embodiments
of the invention in order that the detailed description thereof
herein may be better understood, and in order that the present contribution
to the art may be better appreciated. There are, of course, additional
embodiments of the invention that will be described below and which
will form the subject matter of the claims appended hereto.
[0011] In this respect, before explaining at least one embodiment
of the invention in detail, it is to be understood that the invention
is not limited in its application to the details of construction
and to the arrangements of the components set forth in the following
description or illustrated in the drawings. The invention is capable
of embodiments in addition to those described and of being practiced
and carried out in various ways. Also, it is to be understood that
the phraseology and terminology employed herein, as well as the
abstract, are for the purpose of description and should not be regarded
as limiting.
[0012] As such, those skilled in the art will appreciate that the
conception upon which this disclosure is based may readily be utilized
as a basis for the designing of other structures, methods and systems
for carrying out the several purposes of the present invention.
It is important, therefore, that the claims be regarded as including
such equivalent constructions insofar as they do not depart from
the spirit and scope of the present invention.
BRIEF DESCRIPTION OF THE DRAWINGS
[0013] FIG. 1 is a block diagram illustrating the relationship
between parties in an exemplary embodiment according to this invention.
[0014] FIG. 2 is a block diagram illustration another exemplary
embodiment according to this invention.
[0015] FIG. 3 is a block diagram illustrating another exemplary
embodiment.
[0016] FIG. 4 is a block diagram illustrating another exemplary
embodiment.
[0017] FIG. 5. is a block diagram illustrating another exemplary
embodiment.
[0018] FIG. 6. is a block diagram illustrating another exemplary
embodiment.
[0019] FIG. 7. is an illustration of a web-based implementation
according to the invention.
DETAILED DESCRIPTION
[0020] The invention will now be described with reference to the
drawing figures, in which like reference numerals refer to like
parts throughout. An embodiment in accordance with the present invention
provides qualified student loan borrowers to keep loan payments
and interest current in the event of a potential default by the
borrower.
[0021] FIG. 1 is a block diagram illustrating an exemplary relationship
10 between parties in a government guaranteed student loan. The
exemplary relationship 10 contains a student 4, lending agency 6,
government 8, broker 12 and insurance provider 14. Student 4, depending
on the arrangements made with the lending agency 6, may be an institution,
for example, a university or school that is the recipient of the
loan. Lending agency 6, upon proper approval of a loan to the student/institution
4 provides funds for the student 4. In return for the lump sum forwarded
by the lending agency 6, the student 4 reciprocates with premiums
or payments at designated intervals according to the terms of the
lending contract devised between the lending agency 6 and the student
4. In order to mitigate defaults by the student 4, and to reduce
the risks (and attendant interest charged to the student 4), the
government 8 (e.g., U.S.) provides default insurance up to 98% of
the qualifying borrowed monies dispersed to the student 4.
[0022] The above arrangements of the student 4, the lending agency
6, and the government 8 constitute a conventional approach to government
insured loans to students 4. Once the student 4 receives approval
of a loan, and upon the completion of his schooling, the student
4 is required to make a regularly interval payments to lending agency
6 or a proxy thereof. In the event that the student 4 is unable
to provide repayment at the regularly scheduled intervals, the student
4 must exhaust all deferment and forbearance options before resorting
to a claim of default on the loan. By defaulting on the loan, the
student 4 jeopardizes his future credit and also effects the portfolio
value of the lending agency 6.
[0023] As it is apparent from the above description, the conventional
paradigm (illustrated in FIG. 1 by the entities enclosed in the
dashed line 2) does not accommodate or allow alternative repayment
options in the event that the student 4 has experienced a work layoff,
unemployment, illness, relocation or unpaid leaves of absence which
prevent the timely and regular repayment of the loaned monies. An
exemplary approach to mitigating the above circumstances is to have
a broker 12 contract with a major insurance provide 14 or multiple
insurance providers 14 to offer a unique program for the student
4 to insure his student loans against occurrences such as work layoff,
unemployment, illness, relocation, or unpaid leaves of absence,
etc. Such an insurance program will enable a student 4 to have loan
payments made by the insurer for a fixed period of time. This insurance
will enable insured students 4 to avoid deferment or forbearance
during these temporary loan non-payment periods. By providing this
second tier insurance program to students 4, colleges and universities
can keep down their default rate by encouraging their students 4
to have insurance protection. This, in turn, lowers default statistics
for the institution, which helps their ranking and access to federal
and or private funds. Lending agencies 6 whose loans are additionally
protected by the insurance provider 14 are by benefited by having
lower default rates, and therefore, higher profitability.
[0024] The exemplary insurance program provided by the broker 12,
which is guaranteed by the insurance provider 14, enables borrowers
such as the student 4 from avoiding the use of their final options
before going into default. The exemplary insurance program in many
instances is similar to an indenture. The insurance provider 14
underwrites the broker 12 actual claims which are reflected in the
premiums paid by the broker 12 to the insurance provider 14. For
example, if there is an actual claim of $500,000.00, then the annual
premium will be some fraction of this amount plus some administrative
costs for handling the claims. These premiums are paid from the
broker 12 to the insurance provider 14. The student 4 can be offered
the insurance option when his loan funds or can take out the policy
at any time while he has the loan. The student 4 can cancel the
insurance option at the end of any period, for example, 12 months.
[0025] To take out the insurance policy as part of the loan with
the student 4, the lending agency 6 can offer an added borrower
benefit. For example, a repayment interest repayment rate reduction
would be available for the student 4 who purchases insurance with
the loan. In order to recoup the premiums paid from the broker 12
the insurance provider 14, the broker 12 charges the student 4 a
monthly insurance fee based on the loan balance and loan term, for
example. Other loan conditions or borrowing conditions may also
affect the monthly insurance fee paid by the student 4 to the broker
12. The monthly insurance fee can be added to the student 4 servicing
invoice (e.g., billed along with the student loan payment by services),
or paid outside the service for a non-participating service. The
lending agency 6 portfolio will be enhanced with the insurance policy
in the bond market, so that the lending agency 6 portfolio value
will significantly increase. Other secondary markets are available
where the lending agency or insurance holding insurance providers
14 can sell their policies.
[0026] FIG. 2 is a block diagram illustrating another exemplary
relationship 30. The exemplary embodiment shown in FIG. 2 differs
from the exemplary embodiment shown in FIG. 1, principally in that
multiple insurance providers 14, 16, 18 are used. The use of multiple
insurance providers 14, 16, 18 enables a distribution of the risk
to the providers and also increases the insurance pool and choices
offered by the broker 12 to the student 4. The broker 12 can operate
as an initiator of the insurance transaction between the insurance
providers 14, 16, 18 to the student 4. As an initiator, the broker
12 facilitates the initial transaction arrangement between the insurance
providers 14, 16, 18 and the student 4. Based on its initiation
role, the broker 12, similar to a mortgage broker, operates as a
middle man providing a suite of options, insurance plans to the
student 4. In turn, the student 4 can pick and choose individually
among the insurance providers 14, 16, 18 or may pick an aggregate
insurance plan from the pool of plans offered by the broker 12.
As an initiator, the broker 12 does not necessarily engage himself
in subsequent transactions or relationships between the student
4 selected plan of the insurance providers 14, 16, 18. Subsequent
activity between the selected plan members and the student 4 is
indicated by the dashed line 15.
[0027] FIG. 3 is a block diagram illustrating another exemplary
embodiment wherein the broker 12 operates as part of the lending
agency 6 or as an adjunct to the services provided by the lending
agency 6 to the student 4. The relationship depicted in FIG. 3 is
one where the original loan or monies lent to the student 4 is provided
with the third party insurance. That is, rather than offering the
student 4 the option of having insurance "after" he has
received an initial loan from the lending agency 6, the exemplary
embodiment shown in FIG. 3 provides the insurance as being an option
available to the student 4 upon his initial request for monies from
the lending agency 6. In this example, the lending agency 6 may
of its own preferably offer insurance similar to or competing with
the insurance offered by the insurance providers 14. With the broker
12 operating as a partner to the lending agency 6, in the conception
of the loan to the student 4, the insurance can be offered.
[0028] FIG. 4 is a block diagram 70 illustrating an exemplary relationship
without a government guarantor. The block diagram 70 is similar
to the exemplary embodiment illustrated in FIG. 1. The lending agency
6 can operate as a private lender or as a broker 12 for other private
lending institutions, for example, banks, investors, etc. The operation
of the broker 12 and the insurance provider 14, as discussed in
FIG. 1, are similarly provided to the student 4.
[0029] FIG. 5 is a block diagram illustrating another exemplary
relationship 90. In FIG. 5, the broker 12 operates as an initiator
of insurance options to the lending agency 6. That is, the broker
12 can contact or facilitate the involvement of insurance providers
14 with the lending agency 6 either directly through the broker
12 or as a third party through dashed pathway A. Alternatively,
the broker 12 can arrange the negotiations or product offered by
the lending agency 6 to the student 4 in such a manner that the
insurance provider 14 directly contacts or receives premiums from
the student 4. This latter flow of contact and monies is illustrated
in FIG. 5 by the dashed pathway B. Accordingly, according to the
exemplary embodiment shown in FIG. 5, the insurance provider 14
can either have a direct or indirect mechanism for engaging with
the student 4.
[0030] FIG. 6 is a block diagram illustrating another exemplary
relationship 110. FIG. 6 details an arrangement between the parties
that is similar to the exemplary embodiment shown in FIG. 2, in
that multiple providers 6, 14, 26 and 28 are capable of providing
services via the broker 12 to the student 4. However, in this exemplary
embodiment 110, the broker 12 operates as a middle man providing
either individual or packaged loans to the student 4. In one example,
the broker 14 can arranged for lender A 6 and insurance provider
A 14 to provide a combined loan and a default insurance package
for the student 4. Alternatively, the broker 14 can provide a different
pallet of lender/insurance programs to the student 4, using other
combinations of lender N 26 and insurance provider N 28, for example.
Thus as "middle man," the broker 14 can operate as a third
party competitor to other options available to a student 4.
[0031] FIG. 7 is an illustration of a web-assessable system 130
utilizing the various exemplary methods described herein. The web-assessable
system 130 contains a computer 125 running a web-assessable program
127, for use by a student 4. The web-assessable program 127 can
be configured to operate in a matter similar to conventional web-based
programs, which require the querying and input of information from
a student 4. Having understood the various exemplary embodiments
described herein, one of ordinary skill in the art can devise web-accessible
programs that implement the processes and systems described to facilitate
the convenient processing of student requests with brokers or insurers.
Therefore, details regarding the programming and setup of such systems
are not provided herein.
[0032] By implementation of the various exemplary embodiments describe
herein, student/borrower 4 can be availed of a variety of options
herethereto currently unavailable. That is, due to the reduced risk
of default through the intervention of an insurance provider, lending
agencies or the like can lend to a wider audience, resulting in
a larger body of students/borrowers able to take out loans, and
also potentially qualify to take out larger loans. Additionally,
with the reduced risk of default, more lending institutions may
enter the student/borrower loan market, resulting in increased competition
and better products for the student 4.
[0033] It should be appreciated that the various aspects of the
invention described in the context of the various figures, herein,
may be combined to create hybrid systems and methods for providing
insurance coverage for borrowers. That is, certain components and
relationships and parties may be switched or reconfigured to provide
alternative options and features for the various parties. Accordingly,
modifications to the embodiments described herein may be made without
departing from the spirit and scope of this invention.
[0034] The many features and advantages of the invention are apparent
from the detailed specification, and thus, it is intended by the
appended claims to cover all such features and advantages of the
invention which fall within the true spirit and scope of the invention.
Further, since numerous modifications and variations will readily
occur to those skilled in the art, it is not desired to limit the
invention to the exact construction and operation illustrated and
described, and accordingly, all suitable modifications and equivalents
may be resorted to, falling within the scope of the invention.
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