Student Loan Company Business Plan, Marketing Plan, How To Guide, and Funding Directory
The Student Loan Company Business Plan and Business Development toolkit features 18 different documents that you can use for capital raising or general business planning purposes. Our product line also features comprehensive information regarding to how to start a Student Loan Company business. All business planning packages come with easy-to-use instructions so that you can reduce the time needed to create a professional business plan and presentation.
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Student loan companies are some of the most profitable enterprises to develop and operate given that they provide a substantial amount of financial support to individuals are seeking a higher education. These businesses are able to securitize a number of individual student loans into one bond that is sold to third-party investors. In some instances, these businesses are able to receive federal government guarantees on the loans that they issue to third-party borrowers. Of course, some aspects of student loans are changing given that a number of individuals that have sought higher education are heavily saddled by the debt they incurred in order to do so. As such, many student loan companies have turned to offering a number of specialty refinancing programs that allow these borrowers to change the terms of their loans so that they are more affordable on a budget. This is especially true among younger borrowers that have recently finished their educations and are now struggling to find employment while their student loan payments accrue.
These businesses are able to generate income from a number of different revenue streams. First, they are able to produce income from the interest that is received on a monthly basis from individual borrowers. On average, student loan interest typically ranges anywhere from 4% to 8% depending on the credit card quality of the borrower and whether or not they had a cosigner for the original loan.
Second, these businesses are able to produce a profit when they package a number of individual loans together and sell them as a bond into the open market. In many cases, organizations like Sallie Mae will acquire these individual loans and bonds so that they can be further sold to third-party investors. Typically, a markup of 2% to 3% is applied to any individual loan based on its face value.
Third, student businesses are able to produce income when they service existing loans that they have originated from borrowers. This is a very important revenue stream for most student loan companies as it provides a highly recurring amount of revenue on a monthly basis. Typically, processing fees for a student loan are usually around 40 to 50 basis points per year. Once systems are automated to manage incoming payments and disbursements this can be a highly lucrative aspect of these types of companies.
The startup cost associated with the new student loan company are generally very high. Unless the organization has a line of credit or related credit instrument that they can used to finance student loans than they are going to need to have a capitalization of anywhere from $5 million to $25 million in order to successfully develop operations. Of course, these funds are used exclusively for issuing student loans which again can be sold very quickly once operations commence.
Given the highly lucrative nature of this business, many investors are willing to put up the needed capital in order to get operations off the ground. Usually, it is expected that about 10% of the total capital cost for starting a new student loan company will come from either the owner or third-party investors while the remaining 90% is usually acquired via a line of credit is used in conjunction with lending operations. Of course, a student loan company business plan is going to be required. This business plan should feature a three-year profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page that features industry-standard figures that are in line with that of similar lending businesses. Currently, as it relates to industry research – the student loan market is a $1.4 trillion market and is expanding each year. Usually, approximately $60 billion to $90 billion of new student loans are issued. The industry employs approximately 250,000 people. The gross margins are generally produced from interest income, servicing income, and sales of closed student loans typically ranges anywhere from 80% to 90% depending on whether or not any bad debt expense is factored into the cost of goods sold.
The business plan should also feature an expensive demographic profile of the individual borrowers and families that will be targeted for the company’s lending services. This includes an examination of median household income, median family income, median household net worth, population density, and other relevant statistics. Special importance should be paid to individuals who are planning on attending a privately operated college or graduate school in order to understand the specific needs of each borrower. Generally, the individuals that are seeking student loans to attend private universities. However, some public universities will also provide a significant amount of opportunity for a student loan company to target this demographic. Given that most student loan companies operate on a nationwide basis, the exact regional demographics do not need to be further discussed unless they are going to be used in a specialized local or regional marketing campaign.
A student loan company marketing plan also needs to be developed and this is going to be one of the more complex aspects of the business planning process. The extremely high competitive nature of the student loan market has forced a number of student loan companies to engage in very expensive and very complex marketing tactics in order to generate interest for these financial products. It can be expected that approximately 10% to 20% of aggregate revenues will be spent on marketing and advertising efforts. Foremost, most student loan companies will frequently maintain an expansive proprietary website that allows individuals to very quickly source a new student loan. This website should have information regarding interest rates, contact information, how to apply for a loan, and other information specific for the types of financial products that are offered. Given the expansive nature of these businesses, most companies will have specialized functionality integrated into their website so that a loan application can be processed electronically. Although this adds to a much higher upfront cost as it relates to establishing a presence online – the return on investment can be substantial as people will very quickly fill out the application and a lending decision can be rendered immediately. Typically, it can be expected that the cost of developing a secure website specific for a student loan company will cost anywhere from $75,000 to $250,000 depending on the functionality that is going to be embedded.
Of special importance as well to online marketing is the use of social media. Given that many people now ask for recommendations via FaceBook, Twitter, Google+, LinkedIn, and related platforms – it is imperative that the student loan company maintain a presence on these online websites. The cost of maintaining an expansive social media presence is significant. This is especially true when highly targeted demographics are being used in conjunction with marketing operations. A social media consultant can be hired to manage his aspect of a student loan companies marketing and advertising operations given that trial and error can be very costly for these types of financial companies. It can be expected that a social media consultant will cost anywhere from $100,000 to $200,000 per year to maintain a social media presence on a full-time basis.
Beyond online marketing channels, many student loan companies will engage in a broad-based print and media campaign including mailers, radio advertisements, and television advertisements among cable networks. As these companies expand, they will often expand their marketing operations to include television advertisements on network television. While this is an expensive form of marketing, given the substantial amounts of revenue generated from each borrower the return on investment can be phenomenal if this is carried out correctly.
Additionally, many student loan companies will try to develop ongoing relationships directly with college counselors, career counselors, universities, and colleges. Some educational institutions have shied away from providing referrals for student loan companies – there are many institutions that will to provide their student base with quality referrals so they can properly receive the funding they need in order to attend college or graduate school. This can be one of the more minimal aspects of a student loan companies marketing plan.
A student loan company SWOT analysis should be produced as well. As relates to strengths, student loan companies are almost always able to remain profitable and cash flow positive in any economic climate given that these are contractually obligated debts that are paid to the business on a monthly basis. The barriers to entry are considered to be extremely high and the gross margins are also considered to be very high as well for lending business. For weaknesses, this is an extremely competitive industry and these companies are going to need to find innovative ways to properly be able to acquire new borrowers in order to continually expand revenue on a year-to-year basis. Also, there are frequent changes in legislation regarding the types of loans and funding that can be provided to a borrower especially on the undergraduate level. For opportunities, these businesses can rapidly expand by increasing the scope and scale of their marketing budgets while concurrently acquiring other companies that operate in a similar capacity. Additionally, the access the capital can be increased by acquiring larger lines of credit in order to finance new student loans. For threats, outside of ongoing competition one of the major threats will be a significant change to regulations and legislation that guides how student loans work. As such, it is imperative that the senior management team retain a qualified attorney and CPA in order to ensure that the business is able to quickly conform and adjust any type of business strategy if new legislation is passed.
Student loan companies will always remain in demand for the foreseeable future. There are numerous revenue streams ensure that these companies are almost always able to remain profitable even during times of economic recession. Any financier that has an understanding of the size of finance can rapidly expand their profits and revenues through the development of a new student loan company or by developing the business as a division of a partner lending organization.