Career Colleges and their enrollment rates have grown rapidly over the years and so has the need for creative student financing programs. Most schools face the same problem when it comes to financing students; that is, a good number of students have zero or very little credit or poor credit at the time they are applying for financing for a student loan. Banks, Financing, and other Lending institutions will not lend money to students with these kind of credit histories. So what other options do schools have to get these students financed?
Many schools have government programs that enable sub prime students to get the financing they need. Schools that don't have these government programs usually turn to in-house financing by where they place the student on a retail installment contract or promissory note to pay for the tuition in monthly payments. The school then tries to collect the payment from the student each month. These kinds programs are rarely successful because School Operators and Managers usually do not have any kind of receivables management experience making it hard to create the cash flow needed from the receivables.
Here are some tips for Schools that are using or plan to use an in-house financing program.
1. Make sure you are using the proper financing documents
This is VERY important. It amazes me to see schools with hundreds of thousands of dollars worth of loans on the books written on poor promissory notes or contracts. Make sure you use a solid retail installment contract, as well as a good credit application. The more information on the credit application the better.
2. Meet with an attorney
You need to know the laws in your state regarding lending including usury laws and collection laws. Meet with an attorney who specializes in finance and receivables. They can also advice you on what type of retail installment contract to use.
3. Hire a receivables management company to manage the portfolio.
Receivables management companies can service the portfolio and collect the payments for you for a nominal fee. And they will collect much better then you can. A school trying to collect receivables is like asking your banker to teach you massage therapy or nursing.
4. Strive for higher graduation rates.
Students who graduate are MUCH more likely to repay a student loan than students who don't.
5. Place student payments on EFT or Auto Debit.
This will draft the monthly payment directly out of the students checking account and Will result in much higher collection rates.
6. Make sure payments are affordable.
Try to keep the monthly payment between $100, and $200 per month.
7. Get a Down Payment
Aim for at least 10% of the tuition price. Students who are serious about their education who find a way to come up with the 10%.
Implementing these tips will defiantly increase the productivity or you student receivables portfolio.