Federal Student Loans Up 18% After First 3Q of 2009-10; GradPLUS Sees Fastest Growth
Posted on | July 23, 2010 | No Comments
Federal Student Aid has updated their data center with the latest figures on federal loan and grant volumes. SLA analyzes disbursement figures for these loan programs one quarter after their initial release since significant adjustments are often made to the most recently released figures.
Observations:
- Overall, federal loans (Stafford, Parent PLUS and Grad PLUS) grew 18% to $77.8 billion through the first three quarters of 2009-10.
- GradPLUS loans grew 34% to $4.4 billion over this period, while Parent PLUS loans grew 16% to $8.0 billion.
- Stafford loans, the most prevalent federal loan program with 84% of
disbursements, saw 16% and 18% increases in subsidized and unsubsidized
loan programs respectively for the first three quarters. - Applying this 18% growth figure to the 2008-09 disbursements of $85.2 billion (from FSA Data Center site) yields incremental volume of $15.3 billion for the 2009-10 academic year.
Here are the numbers (all dollar amounts in billions):
| Year-over-Year Change |
Direct Lending | FFEL | TOTALS |
| Stafford Subsidized | 58% | 1% | 16% |
| Stafford Unsubsidized | 65% | 3% | 18% |
| TOTAL Stafford | 62% | 2% | 18% |
| Parent PLUS | 56% | -6% | 16% |
| GradPLUS | 106% | 19% | 34% |
| TOTAL LOANS | 63% | 2% | 18% |
| 3Q YTD 2009-10 | Direct Lending | FFEL | TOTALS |
| Stafford Subsidized | $10,809 | $18,928 | $29,737 |
| Stafford Unsubsidized | $12,448 | $23,152 | $35,599 |
| TOTAL Stafford | $23,257 | $42,079 | $65,336 |
| Parent PLUS | $3,862 | $4,153 | $8,015 |
| GradPLUS | $1,191 | $3,228 | $4,418 |
| TOTAL LOANS | $28,310 | $49,460 | $77,770 |
| 3Q YTD 2008-09 | |||
| Stafford Subsidized | $6,838 | $18,715 | $25,553 |
| Stafford Unsubsidized | $7,533 | $22,515 | $30,047 |
| TOTAL Stafford | $14,370 | $41,230 | $55,600 |
| Parent PLUS | $2,473 | $4,417 | $6,890 |
| GradPLUS | $578 | $2,711 | $3,289 |
| TOTAL LOANS | $17,421 | $48,358 | $65,779 |
View full post on Student Lending Analytics Blog
Tags: 200910 > After > Fastest > Federal > First > GradPLUS > Growth > Loans > Sees > Student
What Ails Sallie Mae?
Posted on | July 22, 2010 | No Comments
The stock fell over 10% today to $10.34 after announcing their earnings after the close yesterday and their conference call (thanks to Seeking Alpha) this morning. Here is an abbreviated look at the issues that investors seem focused on:
- Continued declines in their private loan originations. While a seasonally slow quarter (the quarter that sets the tone for the academic year for private loans occurs this quarter ending in September), the Smart Option originations were still below company expectations with a 43% drop.
-
- From conference call: "We originated a disappointing $219 million in private credit loans in the quarter, compared to $387 million in the Q2 of 2009, as loan demand remains low.").
-
- For the last twelve months, Sallie Mae's private loan originations have dropped over 52% to $2.3 billion in private loans compared to $4.9 billion in the 2008-09 academic year period. This $2.3 billion figure was mid-point of SLA estimates in January.
- Company continues to point to external forces (from conference call): "Private loan demand continues to be impacted by increased federal loan limits, more students applying for federal loans, and students switching to lower-cost institutions."
- Company investments in marketing for private loans not paying off yet:
-
- From conference call: "On the DTC side and the consumer deposit side, we’ve had, we did spend a significant amount of dollars investing in that space this year. With private loan demand begin relatively low we certainly did not get the results we would have expected or would have liked to see in the direct to consumer marketing for private loans."
-
- I also wonder what impact the new preferred lender regulations have had since schools seem much less likely to be posting lender lists for their students.
- Company seems to loosening up credit standards somewhat as average FICO scores and cosigner rates have fallen:
-
- 2Q 2010 conference call: "Loans underwritten in the quarter remain of very high quality, with an average FICO score of 735, and 77% of the loans we made had a co-borrower."
- 1Q 2010 conference call: "Loans underwritten in the quarter remained at very high quality with an average FICO score of 740 in 85% of the loans made had a co-borrower.
- 4Q 2010 conference call: "The loans underwritten in the quarter had an average FICO score of 747 and 88% of loans made had a co-borrower."
- Charge-offs for private loans remain stubbornly elevated and the company raised their loan loss provision for the year by $100 million to $1.3 billion reflecting higher than expected defaults (an earlier SLA post from January indicated that this increase in provision was likely).
-
- Here are the loan chargeoff figures for the last six quarters, which show a decline on a year over year basis but clearly not as significant a drop as the company had forecast since they had to raise their provision:
-
- 1Q 2009: $297 million
- 2Q 2009: $362 million
- 3Q 2009: $443 million
- 4Q 2009: $298 million
- 1Q 2010: $284 million
- 2Q 2010: $336 million
- Company has continued the practice of granting immediate forbearance to delinquent borrowers which minimizes delinquency figures and forbearance figure
-
- From 2Q 2010 earnings supplement: "As of June 30, 2010, 1.5 percent of loans in current status were delinquent as of the end of the prior month, but were granted a forbearance that made them current during June 2010.
-
- This brings the total to almost $3.0 billion of delinquent loans that have received this benefit over the past two years
- Continued uncertainty regarding the structure of the company in a post-FFELP world:
-
- From 2Q 2010 conference call today: "I’ve advised shareholders that they’re likely to see some remaking or restructuring of the company in coming months, and I think I’ve said within the next year. That’s been described as a spin-off or sale…Well, we’re closing in on that. The Board and management have made very good progress in its deliberations…you will hear from us before the end of the Q3 about the directions that we’re taking."
-
- Company made recent announcement about moving their headquarters to Delaware.
So, in summary, investors (who hate uncertainty) are left wondering about three items: a) the prospects for the Smart Option Loan (a key to future growth and profitability of Sallie Mae), b) the stubbornly high loan default rates and the company's inability to provide accurate guidance on them and c) finally what the company's structure will be in the post-FFELP world. Stay tuned….
Related articles:
- Bloomberg: Sallie Mae Tumbles as Student-Loan Originations Drop
- Reuters: Sallie Mae Falls on Higher Reserve, No Restructure Plan
View full post on Student Lending Analytics Blog
Is There Really A Private Student Loan Available With A 1.78% Interest Rate?
Posted on | July 7, 2010 | No Comments
With peak lending (and borrowing season) upon us, I thought it would be useful to update my previous post on state alternative loan programs.
Disclaimer: Private student loans should be
considered as a “last resort” only. Students and parents should access
all other available forms of aid, including scholarships, federal
grants (e.g., Pell) and federal loans (with names like Stafford and
PLUS) before considering a private student loan.
———————————–
I thought that headline might get your attention. First the caveats: The DEAL loan
administered by the Bank of North Dakota, a state-run bank, is a
variable-rate loan, so as interest rates increase it will too [DEAL
also has a fixed-rate option which you will see described below].
Second, that 1.78% rate is available only if you are a resident of North
Dakota OR attend an eligible institution in that state. If you attend
an institution or your legal residence is in South Dakota, Minnesota, Montana, Wyoming
or Wisconsin, then the starting interest rate is 2.78%.
Here is a spreadsheet with links to each of the websites for these state loan programs (please feel free to redistribute this list if you think it will be useful for your students):
Download State_Private_Loan_Programs_2010_11
Here are some attributes of these loans that are worth repeating again:
- Many offer a fixed rate structure which eliminates any worries that one might have about rising interest rates.
- With the exception of New York, students who have a legal residence in the state OR are attending an eligible institution in that state can apply for these loans.
- Those that offer variable rate loans typically either have one
variable rate for all loans they approve or a tight band in terms of
the range of starting interest rates they offer. - The variable rates and fixed rates on their loans are significantly
below the average private student loan. - While many of these loans require a cosigner that has become par for the course this year.
- Earlier SLA research found FICO cutoffs in the 660-700 range for those that disclosed this in their credit criteria.
- One thing to watch carefully is the repayment terms as several do
require payments while a student is in school. While this keeps
financing costs low over the life of the loan, it can be a difficult
proposition in this economic environment.
Here are the fixed rate loans available (sorted alphabetically):
| State of Residence OR State of College Attended |
Loan Name | Current Rate | Fees |
| Alaska | Supplemental Ed. Loan | 7.20% | 5% |
| Connecticut | CT FELP | 6.80% | 3% |
| Iowa | Partnership Advance | 7.75% – 7.90% | 0-4% |
| Massachusetts | MEFA | 6.89% – 8.19% | 4% |
| Minnesota | DEAL Loan | 6.57% – 7.57% | 0-2% |
| Montana | DEAL Loan | 6.57% – 7.57% | 0-2% |
| New Jersey |
NJCLASS | 7.62% – 7.92% | 2% |
| New York | NY HELPs | 7.55% – 8.75% | 4-8% |
| North Dakota |
DEAL Loan | 6.57% | None |
| Rhode Island |
RI Family Ed. Loan | 7.25% – 8.49% | 4% |
| South Carolina |
Palmetto Assistance Loan | 7.15% – 9.15% | 1-3% |
| South Dakota |
DEAL Loan | 6.57% – 7.57% | 0-2% |
| Texas | College Access Loan | 6% | 3-5% |
| Wisconsin | DEAL Loan | 6.57% – 7.57% | 0-2% |
| Wyoming | DEAL Loan | 6.57% – 7.57% | 0-2% |
Here are the variable-rate loans available (sorted alphabetically):
| State of Residence OR State of College Attended |
Name of Loan | Current Rate | Fees |
| Iowa | Iowa Alliance | 9.00% | 10% |
| Maine | Maine Loan | 8.43% | 4% |
| Minnesota | SELF Loan | 3.80% | 0% |
| Minnesota | DEAL Loan | 1.78% – 2.78% | 0-2% |
| Montana | DEAL Loan | 1.78% – 2.78% | 0-2% |
| North Carolina |
Extra Education Loan | Suspended | |
| North Dakota |
DEAL Loan | 1.78% | None |
| South Dakota |
DEAL Loan | 1.78% – 2.78% | 0-2% |
| Wisconsin | DEAL Loan | 1.78% – 2.78% | 0-2% |
| Wyoming | DEAL Loan | 1.78% – 2.78% | 0-2% |
Please reference the earlier post for relevant details about the loan programs.
View full post on Student Lending Analytics Blog
Tags: 1.78% > Available > Interest > Loan > Private > Rate > Really > Student > There
Sallie Mae To Move HQ To Delaware; FFELP Comes To An End
Posted on | July 5, 2010 | No Comments
From Business Wire:
announced that it will relocate its corporate headquarters to near
Newark, Del., by March 31, 2011. The relocation to Delaware is
consistent with other strategic initiatives the company is taking to
align its cost structure with its continuing businesses following the
passage of the Health Care and Education Reconciliation Act.
“This decision reflects our need to adapt to the massive changes in our
business. We have enjoyed nearly 40 years in the D.C. area; however, the
objective is to combine the senior management team in a single location.
Delaware officials helped make these changes as efficient as possible,”
said Albert L. Lord, CEO."
Reuters provided details on the incentives the company would receive for the move:
"Sallie Mae will receive a Delaware state grant equal to 3 The state also offered the company an additional taxpayer
percent, or up to $3 million, if it spends $100 million in
capital investments to its new headquarters.
subsidy depending on how many jobs the move creates, according
to an announcement from the Delaware Economic Development
Office."
Meanwhile Dow Jones went further in noting that other non-HQ jobs would also be moving to Delaware:
"SLM Corp. (SLM) will consolidate its operations from a number of
states and move "significant resources" to Delaware, according to a
person familiar with the matter.
Another person familiar with
the matter said the student lender, commonly known as Sallie Mae, would
bring 1,500 jobs to the state.
Sallie Mae is expected to announce the move after the closing bell. Affected staff are to be notified this afternoon."
As posted earlier, Sallie Mae executives in March had noted in WSJ article that they would be consolidating operations to 5-7 locations:
"Spokeswoman Martha Holler said in an email that the company estimates
at this point it will have to cut 2,500 of its 8,600 current employees
and expects to operate about five to seven locations, down from the 25
it runs now."
Given the configuration of their operations, I had expected Newark, DE to be one of the beneficiaries of this consolidation. There were about 700 employees at SLM's Reston HQ based on earlier press reports. I certainly will not be the first to note the irony of this announcement juxtaposed against this press release from the Department of Education:
U.S. DEPARTMENT OF EDUCATION MARKS HISTORIC DAY IN HIGHER EDUCATION
July 1 Changes to Financial Aid Programs Increase Access to Higher Education for Millions of Americans
Federal student aid will increase and become more
accessible for millions of college students and their families under
provisions of the recently passed Health Care and Education
Reconciliation Act of 2010, which take effect today. The biggest and
most important change is the elimination of the bank-based, Federal
Family Education Loan (FFEL) Program. President Obama made the
transition from FFEL to the Direct Loan Program the biggest priority of
his higher education agenda. Students will also see larger Pell Grants
and new help repaying their college loans.
Beginning today, all new federal student loans will be made
through the Direct Loan Program. Under this program, students borrow
directly from the Department of Education instead of banks. This change
will save the federal government $68 billion over the next 11 years,
according to the Congressional Budget Office.
"Today is a historic day for Americans who are pursuing a
college education. We are one step closer to achieving the President's
goal of having the highest proportion of college graduates in the world
by 2020," U.S. Secretary of Education Arne Duncan said. "These changes
will expand educational opportunities for millions of students and
families and will make it easier for them to pay for college."
The House Education and Labor Committee noted the following changes that take effect today:
"For the upcoming academic year, the Pell Grant scholarship will increase to $5,550 and, beginning in 2013 the maximum scholarship will increase with the cost of inflation by linking the scholarship to the Consumer Price Index. Approximately 8 million U.S. students rely on the Pell Grant scholarship each year to help pay for college.
For student borrowers, interest rates on the subsidized federal student loans will decrease from 5.6 percent to 4.5 percent. This is a benefit passed as part of the College Cost Reduction and Access Act."
View full post on Student Lending Analytics Blog
Rates They Are A Changing…
Posted on | July 3, 2010 | No Comments
With peak lending season upon us, six lenders have recently changed the margins on their private student loans with the overall trend being down (four of the six reduced margins). Here is a table (sorted alphabetically) showing both the current rates and the previous rates:
| Current | Previous | ||||||
| Max. | Max. | ||||||
| Lender name | Low | High | Fees | Low | High | Fees | |
| Chase | 4.14% | 9.79% | 0% | 3.76% | 8.76% | 0% | |
| Citibank | 3.63% | 11.38% | 3% | 4.13% | 11.88% | 3% | |
| Citizens | 3.35% | 11.60% | 0% | 3.35% | 13.35% | 0% | |
| Sallie Mae | 2.88% | 11.25% | 0% | 2.88% | 10.25% | 0% | |
| SunTrust | 4.13% | 11.63% | 0% | 4.13% | 11.88% | 0% | |
| Wells Fargo | 3.50% | 9.99% | 0% | 4.25% | 11.24% | 0% |
——————————-
Observations:
- Wells Fargo and Citizens had the most dramatic declines with Wells Fargo reducing their lowest rate by 0.75% and their maximum rate by 1.25% and Citizens dropping their maximum rate by 1.75%. Given the small percentage of borrowers able to get the "as low as" interest rate, reductions in the maximum rates are more significant for borrowers.
- Sallie Mae's increase in their maximum rate (to 11.25%) corresponded with a new payment option of a fixed $25 payment while the student is in school. It would seem likely that most borrowers will select this payment option over the interest-only payment that Sallie Mae also offers. Those selecting the interest-only payment option will have an initial interest rate range of 2.88% to 10.25%.
———————————-
Check out SLA's Private Loan Options page for a neutral and comprehensive list of private loans that can be a useful resource for your students (for a list of schools using SLA Private Loan Options, see this earlier post). Why keep track of these lender changes, when SLA can do the job for you?
View full post on Student Lending Analytics Blog
Looking For A Private Student Loan Resource For Your Students?: SLA Updates And Improves Private Loan Options Site
Posted on | July 1, 2010 | No Comments
For those looking for a neutral, timely and comprehensive private loan lender list, SLA created Private Loan Options with the following features:
- Lists sixteen major lenders, including credit unions, regional and national lenders
- Details interest rate ranges and fees for each loan product
- Provides timely updates when changes occur to lender margins or interest rate indices (LIBOR or Prime Rate)
- Identifies and provides links to 16 states with alternative loan programs providing your students with fixed-rate alternatives
- Generates dynamic list of lenders each time page is refreshed
- Provides borrowers with standard application and solicitation disclosures to help them compare private loans
- Lists borrower benefits, cosigner release terms and whether lenders require payments while student is in school
- Provides upfront statement encouraging borrowers to seek federal loans first
- Describes common loan terms with a borrower glossary
Here is just a sampling of the colleges currently linking to SLA's Private Loan Options site:
- Central Michigan University
- Fairfield University
- Fashion Institute of Technology
- Quinnipiac University
- Rochester Institute of Technology
- Scripps College
- Stanford University
- Syracuse University
- University of Colorado
- University of Michigan
- University of New Haven
- University of Washington
- Vermont Technical College
Note that SLA does not receive any compensation from any lenders for placement on this list nor does SLA receive any fees for loan volume generated by any lenders.
For those interested in providing their students with a link to a neutral, comprehensive listing of private education lenders with all the features listed above, just add the following link to your financial aid website (there is no cost!): http://studentlendinganalytics.com/alternative_loan_options.html
View full post on Student Lending Analytics Blog
Tags: Improves > Loan > Looking > Options > Private > Resource > Site. > Student > Students > Updates
The $5.4 Billion Private Student Loan Problem
Posted on | June 8, 2010 | No Comments
As policymakers and legislators consider treatment of private student loans in bankruptcy as well as what role the consumer protection agency should play, First Marblehead's recent 10-Q provides more evidence of subprime student loans made in the 2004-07 period. Sallie Mae executives recently noted in an investor meeting that of the $6 billion in non-traditional private student loans (euphemism for subprime loans), they projected 40% would default. The company is quick to note that these loans only make up about 11% of their private credit portfolio.
Now, for the first time, First Marblehead is providing more detailed portfolio analytics for the loans they securitized for the likes of Bank of America, Chase and Charter One…and it's not pretty. They split their student loan trusts into three segments (see page 17 of their 10-Q) based on their expected performance and almost 50% (47.5%) of the loans in their trusts fall in the worst performing segment (segment 3). In this segment, they expect a gross default rate of nearly 50% (48.3%). So, to summarize, almost 50% of their loans in their student loan trusts would probably be classified as subprime in nature (high risk for default) with nearly 50% of the loans in this segment expected to default. With an outstanding principal balance of $12.2 billion as of March 30, 2010 (page 42), that would amount to about $6 billion in high-risk loans and $3 billion in defaults.
Scanning the static pool information that FMD released in late April raises one question: How do loans with an average FICO score in the 710 to 720 range and a cosigner rate of 78%-84% default at such an alarming rate? Clearly average FICO scores can be misleading; what would be more useful would be the distribution of FICO scores to see how many loans were made to borrowers with lower FICO scores. But still, I thought that loans with cosigners experienced much lower default rates and most of these trusts had over 80% cosigners. Obviously the economy plays a role in rising defaults, but the ratings agencies have honed in on the higher percentage of loans that were direct-to-consumer (not school certified) and to students at vocational or for-profit institutions.
Mother Jones recently highlighted some issues with private student loans but didn't lay out the magnitude of the issue:
Like subprime mortgages, many have uncapped, variable interest rates
that are sky-high for low-income borrowers, according to the nonprofit
Project on Student Debt (pdf).
But there's one key difference that sets them apart from shady
mortgages: Unlike other debts, it's nearly impossible to discharge
student loans in bankruptcy. And although precise data on private
student loan defaults is elusive…"
Hopefully this post made the numbers a little less elusive. $5.4 billion is probably not a bad starting point in quantifying the magnitude of private loans made to high-risk borrowers (or to borrowers at high-risk institutions which is the way lenders are starting to think about it). At $10-$15K of private loans per borrower, that amounts to 360,000 to 540,000 borrowers who will likely default on these loans.
View full post on Student Lending Analytics Blog
Dept. of Education Asking Non-Profits For Info Regarding Servicing Capabilities
Posted on | June 7, 2010 | No Comments
I came across this listing in the Federal Business Opportunities Website which was originally posted on April 29th and updated on May 6th. It requests information from non-profits interested in servicing federal student loans as part of the set-aside in the Student Aid and Fiscal Responsibility Act. Here is a link to the document.
Here are the details of their notice which lists eligibility criteria to qualify for this servicing opportunity as well as the timing of a solicitation that will likely follow later in 2010:
“The term ‘eligible not-for-profit servicer’ means an entity—
(A) that is not owned or controlled in whole or in part by—
(ii) a nonprofit entity having its principal place of business in another State; and
(II) was performing, or had entered into a contract with a third party servicer (as such term is defined in section 481(c)) who was performing, student loan servicing functions for loans made under part B of this title;
(II) was performing, or had entered into a contract with a third party servicer (as such term is defined in section 481(c)) who was performing, student loan servicing functions for loans made under part B of this title; or
(II) as of July 1, 2009, was performing, or had entered into a contract with a third party servicer (as such term is defined in section 481(c)) who was performing, student loan servicing functions for loans made under part B of this title.
(A) means an entity contracted to perform services for an eligible not-for-profit servicer that—
(ii) is not owned or controlled, in whole or in part, by—
(II) an entity having its principal place of business in another State; and
The Department of Education (ED), Office of Federal Student Aid (FSA), contemplates issuing a solicitation later in 2010 to establish loan servicing contracts with eligible and qualified not-for-profit loan servicers. At this point, the Government expects that any solicitation issued will remain open continuously through March 1, 2014, with quarterly proposal submission due dates identified. Any solicitation issued will include criteria and qualification requirements.
View full post on Student Lending Analytics Blog
Tags: Asking > Capabilities > Dept > Education > Info > NonProfits > Regarding > Servicing
For-Profit Education Stocks Soar In Late Trade; Inside Higher Ed. Article Provides A Clue
Posted on | June 5, 2010 | No Comments
From Yahoo Finance:
| Symbol | Last Trade | Change | Volume | Intraday | Related Info | ||
|---|---|---|---|---|---|---|---|
| APOL | 3:48PM EDT | 58.10 |  5.32 |
10.08% |
6,289,027 | ||
| DV | 3:48PM EDT | 61.97 | 2.81 |
4.75% |
1,717,115 | ||
| ESI | 3:48PM EDT | 110.16 | 7.65 |
7.46% |
1,718,473 | ||
| COCO | 3:48PM EDT | 15.85 | 1.74 |
12.33% |
4,306,734 | ||
From Inside Higher Ed:
WASHINGTON — Robert Shireman, the deputy under secretary of education
who led the Obama administration's efforts to overhaul the student loan
programs and has spearheaded its increased scrutiny of for-profit
higher education, will announce tomorrow that he is leaving his job
July 1, though he is expected to remain involved in an advisory role.
View full post on Student Lending Analytics Blog
Tags: Article > Clue > Education > ForProfit > Higher > Inside > Late > Provides > Soar > Stocks > Trade
SLA Blog To Return in September
Posted on | June 3, 2010 | No Comments
Given my backlog of projects, research interests and website updates which I never seem to get around to, I thought it made sense to hit the pause button on the blog for the summer. Look for the blog to return in early September. I will be continuing to monitor the private student loan market and update the SLA Private Loan Option site as well as the SLA Ratings site (look for an update later this week).
View full post on Student Lending Analytics Blog
