Student Educational Loan Fund, Inc.

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Case

Reference no. 9-296-046

Subject category: Finance, Accounting and Control

Authors: Cameron Poetzscher (Harvard Business School); Peter Tufano (Harvard Business School)

Published by: Harvard Business Publishing

Originally published in: 1995

Version: 18 February 1997

Length: 13 pages

Data source: Field research

Topics: Banking; Capital markets; Derivatives; Higher education; Interest rates; Risk management

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Abstract

Rick Melnick oversees the Student Educational Loan Fund (SELF), which provides loans to Harvard Business School students. SELF is changing the terms of student loans from variable-rate with semi-annual payments to fixed-rate loans with equal monthly payments. Melnick must decide how to finance SELF in light of the new loan mix. SELF can use a wide range of interest rate derivative products to modify the terms of its existing financing.; To explore risk management issues considering organizational goals and complications of interest rate mismatch and loan prepayment/default. Introduces basic interest rate derivative products, examines payoffs from these products, and considers derivative-augmented financing strategies.