Student lending: Loan pricing optimization

We developed a mathematical optimization routine to assign the risk-weighted margin-maximizing price per account at origination for a leading privately-funded student lender. The optimized pricing routine accounted for the lender’s policies regarding approval decisions, lending and default exposure, loan term eligibility, price elasticity of acceptance, behavioral scorecard-based default rates, and simulated time-to-default estimates. Compared to the business as usual strategy, the optimized routine delivered an incremental 24-month NPV benefit between $5 million and $20 million (representing a 25% to 100% percent improvement) for a pool of roughly 200,000 loan applicants.

 

This entry was posted in Banking, Optimization, Pricing, Scorecarding. Bookmark the permalink.

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