MyRichUncle is a loan product that is marketed to students by MRU Holdings, Inc. (NASDAQ: UNCL). Established in the state of Delaware on March 2, 2000, MyRichUncle entered the student loan market as the originator and private student loan holder. In 2007, the company was listed on the NASDAQ composite and expanded into a Federal Family Education Loan (FFELP) loan program. MyRichUncle was one of the first companies to use credit algorithms, combined with traditional credit ratings, to determine student loan requirements. These patented analytical models and decision tools are positioned as the "human capital investment" approach to ensuring student loans.
In 2007, MyRichUncle ran a New York Times advertising campaign that publicized the practice of a financial aid office that has relationships with student loan companies. New York Attorney General Andrew M. Cuomo launched an investigation into the deceptive marketing practices of the student loan industry not long afterwards, the result of which was the code of ethics of marketing by eight lenders (Campus Door, EduCap, GMAC Bank, Loan Loan Graduate ), Nelnet, NextStudent, Xanthus Financial Services, and MyRichUncle) agree to follow.
Between May 2005 and September 2008, MRU Holdings derived more than $ 550 million in student loans and became one of the largest providers of private student loans, behind top lenders such as Sallie Mae, Citibank, and JPMorgan Chase. On February 9, 2009, MRU Holdings, the parent company of MyRichUncle, filed for Chapter 7 bankruptcy and terminated all of its operations.
Video MyRichUncle
History
The founders of MyRichUncle, Raza Khan and Vishal Garg, met at Stuyvesant High School in New York City and attended New York University together. In June 1999, Khan and Garg incorporated Iempower Inc., which plans to allow investors to buy the economic part of an individual's future income stream for a certain period of time. As they grow their business, they discover that their original concept has significant crossover potential in the education finance market. Students, who have a large recurring need to finance their direct educational expenses, usually have no assets other than the potential future cash flow flows they will receive as a result of their education. However, these educational efforts can be used to predict future income, which in turn, can be used to guarantee student loans. This concept was originally proposed by Nobel Laureate Milton Friedman in his paper, "Income from Independent Professional Practice," as an optimal tool for educational finance. Further work by Nobel Laureates Gary Becker and James Tobin validate the concept and application for educational finance.
In May 2001, the founders launched www.myrichuncle.com, a brand facing Iempower consumers. Through this website, an investor may finance the undergraduate or graduate student fees in exchange for a fixed percentage of the student's future earnings for a certain period of time upon graduation. To decide how to allocate investor financing to students and at what level, Iempower built a proprietary data model that uses historical data since the 1960s to predict future earnings and career prospects of each student based on various academic and credit factors. MyRichUncle received a large amount of positive emphasis and attention for innovative and transformational business models "Banking for the Education of Others: Financial Times, Feb 08, 2002" and during 2001, the founders managed to raise $ 3 million to invest in students through programs such as Robertson Education Empowerment Fund and Education Investment Fund LLC, among others.
Iempower suffered a tragic setback in 2001 when the corporate office, located on the 78th floor of 1 WTC, was destroyed in the September 11, 2001 attacks on the World Trade Center. The company's recovery is then profiled by the Entrepreneurs magazine.
In the following years, MyRichUncle rebuilt and demand for MyRichUncle Investment Investment products grew to a point that significantly exceeds the company's investment capacity. Around that time, the founders began to notice that a large number of Investment Education applicants also had private student loans, which, by then, were the fastest growing consumer finance segment.
MyRichUncle decided to implement an underwriting platform that is highly relevant to the private student loan industry to achieve competitive advantage through advanced analytics and revenue prediction models. In Khan's words, they "want to finance students in various innovative ways." Admission to the private student loan business, traditionally the mainstay of major banks and Sallie Mae, requires companies to increase significant amounts of external capital. In July 2004, Iempower, with an increase in equity capital of $ 4.2 million, entered a public merger overturned with Pacific Technologies, a publicly traded company. After completing the takeover, Iempower Inc. changed its name to "MRU Holdings, Inc."
In February 2005, MRU Holdings obtained a $ 165 million credit facility, upgraded to $ 300 million, for private student loan funding from Nomura Credit and Capital Corporation, a subsidiary of Nomura Holdings, Japan's largest investment bank. In May 2005, MRU Holdings began offering private student loans under the brand name "MyRichUncle." In January 2006, MRU Holdings obtained a $ 175 million credit facility with Merrill Lynch Bank USA and also closed a $ 29 million PIPE (private investment in public equity) offered with Merrill Lynch Private Equity Partners, Battery Ventures, Lehman Brothers, and some senior executives of MBNA. This investment allows MyRichUncle to continue to develop its innovative product line to meet the needs of a growing student population seeking loans. MRU believes that students without sufficient credit history or proper credit signing, but with proven academic and income potential, must be eligible to receive educational financing, and begin reviewing the original human capital investment concept, "Iempower."
MRU uses its innovative research on future revenue potential to create a new lending product called "PrePrima." Prepaid loans are borne on the basis of students' academic qualifications rather than traditional credit criteria, which many students do not have enough history. In May 2006, MRU introduced PrePrime products to the market after raising investment funds through a consortium of European investors. MRU announced this product as the first of its kind stating that "putting 'students' back into the student loan equation." On April 27, 2007, MRU expanded its ability to obtain Pre-Primary Loans by obtaining a $ 100 million credit facility from Germany's fifth-largest bank DZ Bank.
In June 2006, MyRichUncle introduced a federal loan program as a complement to private student loan products. Aiming to align with the incumbent triggers, MyRichUncle took this opportunity to attract new borrowers by offering discounts on Stafford and PLUS loans, setting fixed rates at 5.8% and 6.75% respectively. This level is significantly lower than the Federal Government's maximum interest rate of 6.8% for Stafford's loans and 8.5% for PLUS loans (from 1 July 2006 onwards).
In October 2006, MRU Holdings was listed on NASDAQ with the UNCL symbol. The company has a market capitalization of over $ 200 million.
In 2007, MRU Holdings entered into several acquisitions and partnership agreements to enhance its product offerings. MRU Holdings buys Embark Corp. on February 12, 2007, from The Princeton Review. Embark provides online admissions application and registration management services to colleges and universities, and a number of institutions, foundations, and scholarships and other fellowship programs. In March 2007, one month after the purchase of Embark, MRU Holdings announced a partnership with STA Travel to provide travel loans for students studying abroad. In April 2007, MRU Holdings announced an exclusive marketing partnership with The Princeton Review. In June 2007, MRU Holdings closed its first securitization transaction (2007-A), issued $ 200 million in principal amounts of asset-backed securities through Merrill Lynch & amp; Co.. Of the $ 200 million of bonds issued, $ 165 million of AAA rated bonds, with $ 21.5 million tranche rated A, and $ 13 million tranche rated BB by Standard & amp; Poor and Moody. This issue has a number of innovative features, including the first issue of securities with BB ratings in private student loan securitization transactions, and the first time a new publisher transaction can receive premium results. MRU's 2007-A trust significantly outperformed similar beliefs of Sallie Mae and FMD's private loan offerings and began to establish MRU as the leading insurer of qualified private credit student credit assets.
To continue to meet the demand for student loans, MRU Holdings continues to seek additional funding. In November 2007, MRU Holdings obtained an additional credit facility of $ 200 million from DZ Bank.
In July 2008, MRU Holdings closed its second securitization, issuing $ 140 million in principal amounts of asset-based securities through Merrill Lynch, Goldman Sachs & Co. and B & Bs T Capital Markets. Securitization is the only student loan securitization settlement completed in nine months and completed when transactions from larger publishers such as Sallie Mae and First Marblehead are rumored to be on the market but can not be completed.
Between May 2005 and September 2008, MRU Holdings derived more than $ 550 million in student loans. However, despite its success, the company was forced to stop further lending on September 8, 2008 due to the financial crisis and an increasingly limited supply of capital to make new loans from lender MRU, some of the largest investment banks in the world. As a result of the worsening crisis, on February 9, 2009, MRU Holdings, Inc., parent company of MyRichUncle, filed for Chapter 7 bankruptcy and suspended all of its operations.
Maps MyRichUncle
student credit scandal 2007
As a lender, MyRichUncle takes on an activist role in the student loan industry, critical of the relationship between many of the financial aid offices and current lenders. In 2006, MyRichUncle drew attention to publish a New York Times advertisement that questioned the practice of financial aid from taking bribes from lenders instead of places on their "preferred lender" list. This "payola" or "pay to play" system, which is then confirmed by the press, sees lenders paying the financial aid office for leading students to take out loans from them. The MyRichUncle campaign demonstrates that fraudulent practices in the part of the financial aid office and lender generate higher interest rates for students and a lack of transparency for students into the choice of available educational financing.
In January 2007, New York Attorney General Andrew Cuomo began an investigation to uncover the relationship between the school and the lender. The MyRichUncle campaign is often cited as a catalyst in initiating an attorney general's investigation of student lending practices. On March 15, 2007, the New York Attorney General released a summary of preliminary findings of the investigation:
"There is an evil alliance between banks and institutions of higher education that may often not be in the best interests of students," said Andrew Cuomo in a news release. "The financial arrangements between these lenders and schools are filled with potential conflicts of interest, in some cases they can even break the law."
The following month, on April 4, 2007, the New York Attorney General released another statement: "We are seeing more and more suspicious practices and relationships between university officials and loan companies are revealed.... This creates more questions about the integrity of the student loan industry and the process by which colleges direct students to lending. "
When the scandal broke out, MyRichUncle took the opportunity to distinguish himself from other lenders and began marketing himself as a "conflict-free" alternative. MyRichUncle was attacked in the media by established industry players. However, between March and May 2007, a number of related stories made it to suppress, justifying MyRichUncle's allegations about systemic errors in the student loan industry.
- In March 2007, it was revealed that certain lenders operate call centers that provide financial advice to students where company employees, in some cases, identify themselves as university advisers. Nelnet is found to operate a call center that supports ten different universities (including Texas Tech and Wayne State University). Sallie Mae is identified as an operations call center that supports about twenty different institutions including Pace University, Mercy College, and Seton Hall University.
- On April 11, 2007, Sallie Mae agreed to pay $ 2 million into a fund to educate college-bound students as part of the settlement with the New York Attorney General. The lender also agrees to no longer pay travel and fees for university officials, provide unpaid staff assistance to the financial aid office, or operate a call center that provides financial advice to students where company employees identify themselves as university advisers.
- In April 2007, New York Attorney General Andrew Cuomo announced that his office would sue Drexel University. According to Cuomo's investigation, Drexel received more than $ 124,000 of revenue-sharing agreements with Education Finance Partners (EFP) and has earned an additional $ 126,000 through March 2007. Since 2005, Drexel has sent more than $ 16 million in loans to EFP as part of the desired lender. list.
- More than 60 colleges have "profit sharing" agreements with Education Finance Partners. JP Morgan Chase was found to have spent $ 74,000 on student loan officers "wine and meal" from more than 200 colleges on Manhattan cruises in 2005. In addition, the bank proved to have hired five university loan officers while they still held positions at their respective colleges.
- At the University of Texas Financial Services Finance Offices, lenders are found to have been giving gifts such as steak dinners and ice cream carts in hopes of getting a place on the list of preferred lenders of the University. In one article, it was revealed that the financial aid office was thought to have used "'treats' as a unit of measurement in a preferred list of options analysis."
- Columbia University sacked his Director of Financial Aid (David Charlow) after discovering he has a financial interest in the student loan provider, "Student Loan Xpress," which he promotes to parents and university alumni. Mr. Charlow has received 7,500 stock options from the lender. In 2005, it was found that he earned a total of over $ 100,000 of all sales. Student Loan Xpress was included in a list of preferred Columbia lenders in 2005. A Columbia spokeswoman declared that Mr Charlow had "abused trust positions and violated university policy on conflicts of interest."
- The Senate report was released, detailing many unethical and deceptive practices that occurred between the financial and university help office. One example in this report explains how Nelnet, a Nebraska-based lender, created a complex system of points to reward college officials who advise it. Contributing ideas for products yields 25 credits. Completing online surveys won 25 more credits. Credits can be redeemed for donations to alma mater or selected college/university. Each is good for $ 1.
Results of the investigation
As a result of the corrupt practices expressed in the student loan industry, over $ 3 million is returned to students and an additional $ 13.7 million is allocated to the National Education Fund [A4]. The fund was established by New York Attorney General to help educate students about navigating the lending industry. New York Attorney General Andrew Cuomo also created the Student Loan Code of Ethics. This eventually became the law of the State of New York as the Accountability for Student Loans, Transparency and Enforcement (SLATE) Act of 2007. The SLATE Act contains guidelines and restrictions on revenue, rewards and travel sharing, advisory board compensation, lists of preferred lenders, sales disclosures return loans, and call center operations. At the federal level, the Student Sunshine Student Loans Act was passed in May 2007 which included provisions prohibiting rewards, benefits, and income-sharing agreements between lenders and schools. In addition, agencies need to disclose all relationships with lenders and ensure that students have access to all lenders of their choice, including those not on the "Preferred Lender List."
Recognition
- MyRichUncle is listed as number 16 among Fast Company 's s 2006 "Fast 50."
- Raza Khan and Vishal Garg, co-founders, are featured as BusinessWeek "The Best Young Tech Entrepreneur."
- MyRichUncle is featured in Forging Tuition: New Student Loan Sector , edited by Frederick M. Hess and college textbooks Marketing: True People, Real Choice (5th Edition) by Michael R. Solomon, Greg Marshall, and Elnora Stuart, published by Pearson Prentice Hall.
Bankruptcy
On February 9, 2009, MRU filed Chapter 7 bankruptcy liquidation and suspended all operations. The Company received notice of accelerated payments from LP Longview Marquis Master Fund for breach of loan agreement. The agreement requested MRU to reduce their receivables by $ 5 million on January 28, 2009.
References
External links
- MyRichUncle official site
- Student Lender Borrow Borrower With Low Rate, Wall Street Journal , June 15, 2006.
- Student lenders make use of loan scandals, Reuters, May 23, 2007.
- Raza Khan and Vishal Garg Photos of the New York Times Agency.
Source of the article : Wikipedia
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