The Student Lending Industry
Student lending presents unique challenges for loan calculation and compliance software. The loans, themselves, are often procured in high volume before the beginning of education periods. Also, the loans are often a complex fusion of two periods - a grace period during which the student receives the advances to pay for education followed by a repayment period, in which the student begins repaying the loan.
Any calculation engine that wants to confidently tackle the student lending industry must offer a wide variety of functionality. APR’s (as defined in Appendix J to Regulation Z) are difficult to calculate and verify (the APRWin application provided by the Office of the Comptroller of the Currency, for example, does not calculate APR’s with multiple disbursements). Let’s take a careful look at the calculation requirements.
Student loans often begin with a grace period, during which tuition-paying advances are made. The grace period is noted for:
- its own method of interest accrual distinct from repayment;
- interest only payments according to the outstanding principal;
- multiple disbursements;
- a minimum interest-only payment;
- a wide variety of fees, including prepaid fees on each disbursement;
- and a grace end date (or a day later, marking the commencement of the repayment period), where interest is capitalized.
The repayment period begins by accumulating all the outstanding indebtedness of the student into the principal balance. The sum of the advances and unpaid interest become the principal balance of the repayment period, beginning on (or a day after) the grace end date. The repayment period can be characterized by:
- its own interest accrual method distinct from the grace period;
- a different interest rate from the grace period;
- and, a minimum payment which, if in effect, will supercede the calculated loan. payment, often resulting in a shortened loan term.
Student Lending Solution - The Sherman Calculation Engine
With all the unique complexities illustrated above, wouldn’t it be wonderful having a calculation solution that:
- relieved you of the burdens of calculations, allowing you to focus on your core strengths;
- solved all your calculation problems with a simple, easy-to-use interface;
- is an industry-established, robust calculation engine;
- was provided by a stable, well-established company in business for over three decades serving the loan calculation needs of the financial community;
- has the capability to prove that their APR’s are correct, including producing a full discounted cash flow equation for any loan to transparently prove its correctness, even to the point of making the APR numbers “live” in a spreadsheet for examination;
- provides full amortization schedules, truth-in-lending data and detailed disclosures for a complete and accurate profile of every loan;
- and is simple software, requiring no database connectivity that has no outside-your-app connectivity, eliminating firewall security concerns?
That calculation engine solution is the Sherman Calculation Engine with XML Interface (or SCEX) by J. L. Sherman and Assocates. The SCEX is a simple, extremely flexible and customizable calculation engine covering every aspect of the student lending marketplace - one function call, one set of outputs, and your student loan, no matter how complex, is computed. Please contact us today, and move the burden of calculating your loans into the hands of experts.
We will use our Loan Builder module to illustrate two different types of student loan repayment schedules.
Sample #1 illustrates a single advance student loan where 18 interest only payments are made during the grace period, with the interest accrued on an actual/actual day basis. Following the grace period, the repayment period accrues interest on a true 360 day basis over 180 months.
Sample #2 illustrates a multiple advance student loan where interest is capitalized at the end of the grace period, with the interest accrued on an actual/actual day basis. Following the grace period, the repayment period accrues interest on a true 360 day basis over 180 months.