Where We Invest

• Education Credit Strategies
  • ASFG
• Healthcare Credit Strategies
  • CarePayment
  • Capio
• Private Credit Strategies
  • ETC
  • Ivey
  • Syncronex
• Beyond

American Student Financial Group, Inc.

American Student Financial Group, Inc. (“ASFG”) has been in the private student loan business since 2003 and has active relationships with more than 20 school systems nationwide. Since its founding, ASFG has helped schools maximize enrollment by providing them with service solutions that allow them to focus on education rather than the administrative responsibilities associated with managing an institutional portfolio. In turn, ASFG helps schools maximize their cash flow and increase top line revenue.  

ASFG highlights the profit potential of leveraging a revolutionary on-demand solution within an inefficient market.

For Profit Education Market

College enrollment in the U.S. experienced a 14% growth rate from 2004-2009. In 2009, the most recent year of Department of Education data, cumulative enrollment reached just shy of 27 million students. Within this data lies a story of tremendous growth within the for-profit subsector. During the same 2004-2009 period, for-profit education grew nearly 90%. In fact in 2009, 3.2 million students, or approximately 12% of all students were enrolled within a for-profit school. Much of the growth within the for-profit sector comes from postsecondary education seekers. According to the Census Bureau, residents between the ages of 20-69 represent 194 million of potential postsecondary education customers. Historically the pursuit of the 18-24 year old segment of the population, undergraduate studies, graduate studies and continuing education for professionals has been steadily increasing over the past decade. While traditionally for-profit institutions have focused on the under-penetrated working adult segment, more younger students are entering the enrollment ranks, fueled by the rising tuition rates and lower acceptance rates of the more traditional state and private universities.

Recently however, these for-profit educational institutions have come under the eye of lawmakers and regulators. There are two regulations in particular that heavily influence for profit institutions in this regard: the 90/10 rule, and restrictions on internal lending to students. The 90/10 rule, enacted in 1998, requires for-profit colleges to generate at least 10 percent of their revenue from sources other than the federal government. Third party private loans have traditionally offered a way for schools to comply with the 10 percent of revenue in the non-federal category, and for students to receive “gap” financing. However, since the recent credit crisis began, several schools have stepped in with their own loan programs due to difficulty gaining “gap” financing for students. Recent legislation has thwarted these efforts, requiring education companies to significantly minimize internal lending practices and thereby increasing the need for external financing. Congressional relief associated with internal lending is set to expire in July 2012, which effectively requires education companies to have 3rd party loan issuing partners. These two regulatory actions pose a significant business risk to for-profit institutions.

ASFG solves both regulatory problems and allows individual schools to continue focusing on penetrating new markets, increasing enrollment, and driving profit. It does this by offering an innovative solution that helps students pay the “gap” portion of their tuition (the 10%), and allows the school to comply with both regulatory issues. ASFG provides a comprehensive origination/compliance/funding/servicing solution to the schools, with a competency around technology and web integration.

ASFG’s Challenge

In the summer of 2010, ASFG was looking for a financing partnership that would allow them to expand operations into much larger publically traded companies within the for-profit education market. They needed a partner that would provide working capital, funding capital, and strategic insight to foster future growth. More importantly, however, they needed a partner that saw the pending regulatory environment and the demand it would create for a turnkey solution, which provided origination and funding, as well as servicing and compliance solutions to for-profit schools and universities nationwide.

The End Product

Aequitas looked to its history with CarePayment® and the experience gained within healthcare, and applied that to education. Aequitas developed Aequitas Education Services, which helps to solve regulatory problems and allows individual schools to continue focusing on penetrating new markets, increasing enrollment, and driving profit. It does this by offering an innovative solution that helps students pay the “gap” portion of their tuition, and supports the school complying with regulatory issues. ASFG provides a comprehensive origination/compliance/funding/servicing solution to the schools, with a competency around technology and web integration.

ASFG and Aequitas have been able to leverage each of their respective strengths. Aequitas was able to build off the know-how of its proprietary CarePayment® model, by structuring an innovative business model, and providing the capital to see it through. This insight, combined with working capital, allowed ASFG to not only grow quickly, but provided scalability to sustain and leverage the growth. A testament to the relationship is the recent client addition of Corinthian Colleges, a large publically traded for-profit institution with nationwide campuses.

Aequitas continues to provide strategic insight and capital as ASFG continuously grows. Together they work with some of America’s largest, progressive, quality-focused for-profit universities to assist students in meeting their tuition cost, while alleviating the regulatory requirements from the schools. They continue to expand into new markets, new schools, and new student types. ASFG’s stellar reputation in the for-profit education market has created and continues to create valuable investment opportunities for Aequitas in the form of networking, partnerships, and joint ventures.