Self Case - Student Educational Loan Fund, Inc.

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Case 2: Analysis of Alternatives

Student Educational Loan Fund, Inc.

Institution:University Gadjah Mada
Program:Master of Management

Course:Risk Management
Tutor:Mrs. Erni Ekawati, PhD.

Title:Case 2: Analysis of Options
Subtitle:Student Educational Loan Fund, Inc.

Date:November 17, 2008

Authors:Martin Koopman
Doddy Handaryadi
Anindito Prabowo
Gumirlang Wicaksono


This report describes the situation which Rick Melnick faces in the fall of 1995, when assuming the responsibilities as Associate Director of Financial Management at Harvard Business School (HBS) (Ekawati, 2008). Rick had to oversee the Student Educational Loan fund (SELF), analyze a change of plans and incorporate these changes into the strategy of SELF. This report will describe the analysis of the solutions to his problems.

In chapter 3 we will provide a brief overview of SELFs activities and strategy and give a schematic overview of how SELF is incorporated in HBS. Chapter 4 deals with the problems which arise when SELF is proposed a change of plans regarding their main business activities.

We have made different scenarios by using the different alternatives and calculated the resulting interest rates which SELF would have to pay, when the LIBOR is high or low. In Appendix B we have included the input information and resulting interest rates, which we have calculated in Excel. Following this, we have included graphs of several scenarios, which are explained in chapter 6: Analysis and chapter 7: Discussion. In Appendix C we have included the graphs for the different situations and comparison graphs for chapter 7 in Appendix D.

We finish the report with providing a recommendation of the most suitable solution to the problems which SELF faces.

Martin, Dhito, Doddy, Gilang

Table of Contents


2.Table of Contents3

3.Case Overview4

3.1.SELF Strategy4
3.2.SELF Plans4









10.1.Appendix A: Overview of loans for HBS students15
10.2.Appendix B: Calculations16
10.3.Appendix C: Graphs for Analysis17
10.4.Appendix D: Graphs for Discussion19
10.5.Appendix G: Graphs for Alternatives20

Case Overview

Schematic overview of the case:

The sponsor give the donation to HBS to help the student by providing the loan in low interest rate. But the amount of donation is limited so it can’t cover all the student need, the SELF try help by buying HBS loan and get the funding needed from the bank. The student didn’t make direct payment to SELF instead paying to HBS via Holyoke center and Holyoke center paid to SELF. From the bank, SELF got variable interest rate. SELF provide the student with semi-annual variable interest rate with semi annual-payment. This create a huge risk of default and the student didn’t like current loan policy that SELF offer.

1 SELF Strategy

SELF is a non-profit organization. This organization is trying to help the students to funds their study. SELF provide loan for the student at low interest rate and charge the interest rate base on the SELF cost of capital. This was calculated as the weighted average of SELF’s cost of debt and its cost of equity which had been arbitrarily set at 10 percent for of past several years. Since SELF does not have the objective to create profits, the strategy should be risk adverse organization.

2 SELF Plans

There was some dissatisfaction on the part of of student with the term of loans. Because the payment semi –anually is larger rather than monthly and did not coincide with the regular pattern of cash inflows from the salaries.The increasing size of the payments over time particularly the large baloon payment at the end. Was difficult to financial institution to understand...
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