Paying for College Blog

My Rich Uncle Troubles Continue: First Chapter 7, Now Class Action Lawsuit

As if their troubles could not get any worse, My Rich Uncle, which had filed for a Chapter 7 Bankruptcy in February of 2009, now faces a class action lawsuit.  Here are the details of the complaint filed by Izard Nobel LLP:

A Sign of the Times: SimpleTuition Adds Debt Settlement and Savings Account Partners

Given the challenges in the private loan markets and the uncertainty surrounding the future of FFEL, it should not be surprising to see SimpleTuition seeking to diversify the services they offer.  With student loan defaults accelerating and the savings rates in the U.S. jumping in recent months, these partners seem to make sense but I was still surprised to see them on a student loan site. 

• Debt Rescue USA provides the following marketing pitch about their services:

"In just minutes, Debt Rescue USA will match you up with trustworthy & experienced debt settlement professionals who have helped thousands of people in your exact situation. If you have $10,000 in credit card debt or higher, find out how you can actually settle for less than you owe and get debt relief in as little as 12 to 36 months!"

2009 SLA Private Loan Series: What Ingredients Go Into the "Secret Sauce"?

One of the big challenges facing borrowers seeking private student loans is figuring out two things:

• Will my application be approved?
• If it is approved, what interest rate will I pay on the loan?  

For those looking for clarity on lender websites to question #1, here is a sampling of what's out there:

• Sallie Mae Smart Option Loan:  "You must meet current credit and other eligibility criteria."
• Wells Fargo Collegiate Loan:  "Have an established, positive credit history, an acceptable debt-to-income ratio, and a minimum income of $12,000 — or a cosigner who does."
• Chase Select Student Loan:  "Chase Select loans are subject to credit approval..."

SLA Flash Survey Confirms Difficulty of Finding Private Loans For International Students

The basic takeaway from this survey is that private loans for international students without a co-signer are incredibly difficult to find (I wish I had better news to report).  Here is a link to the survey results from the 158 responses:  Download International_Students_Private_Loans_FINAL

Here is a summary of the key findings:

• Only 6% of survey respondents have found private student lenders for international students WITHOUT a U.S. co-signer.  Almost all of these examples have been chronicled on this blog already and involve graduate institutions: 
  
  • Harvard University graduate schools partnered with Chase
  • MIT Sloan School of Management program partnered with MIT Federal Credit Union
  • Wharton MBA program partnered with Digital Federal Credit Union
  • Deutsche Bank will be funding the GMAC proposal which would cover international students at 40 MBA programs worldwide
    

Student Loan Corp. Closes $547 Million FFELP Securitization

In the first major FFELP securitization since August of 2008, Student Loan Corporation (80% owned by Citibank) closed a $547 million transaction on February 13, 2009, based on an 8-K filed by the company today.  SLC issued two classes of notes, A-1 and A-2 at rates of LIBOR + 1.75% and LIBOR + 2.50% (all LIBOR rates quoted are three month rates) respectively, according to the prospectus issued on February 12, 2009.  94.9% of the loans in the trust were disbursed between January 1, 2000 through June 30, 2006.

For comparison's sake, Sallie Mae's last FFELP securitization on August 28, 2008 had two classes of notes A and B(Class A represented 97% of total), which had rates of LIBOR + 1.5% and LIBOR + 2.25%. 

Private Loan Delinquency and Default Trends Key to Securitization Markets Reopening

A frequent question that I am asked is when will the next private loan securitization take place.  It has now been almost a year since First Marblehead completed their last major securitization.  Recent quarterly disclosures (10-Q) by student lenders do not bode well for the opening up of the private loan securitization markets.  Still reeling from the subprime debacle, investors seem hesitant to purchase private loan securities until they see some signs of a stabilization or downward trend in delinquencies and defaults. Recent public statements indicate that the market is not there yet. 

Here is what student lenders are saying about delinquencies in their recent 10-Q filings (I have put key phrases in bold):

SLA Student Loan Index Rises 13% in August to 52.2

So, what is Mr. Market telling us about the outlook for student loan companies?  The SLA Student Loan Index, an equally weighted index of the five publicly held "pure-play" student loan companies rose 13% in August driven by strong stock price gains at First Marblehead and Nelnet.   As a quick reminder, this index was launched in early July 2008 to provide a barometer of investor sentiment about the industry.  The components of this index are Sallie Mae (SLM), Student Loan Corporation (STU), Nelnet (NNI), First Marblehead (FMD) and MRU Holdings (UNCL)

While these five companies vary greatly based on their focus (First Marblehead is focused on securitizations of private loans while Sallie Mae is a vertically integrated provider of FFEL and private loans) and their size (Sallie Mae has a market cap. over $9 billion while MRU is just north of $70 million), this index provides some insights on both the individual prospects of companies and also the overall direction of the industry.

Here is the highlights of how the index has recently performed:

Sallie Mae Reduces Credit Lines; Moodys Mulling Downgrade

In an 8-K filing with the SEC yesterday, Sallie Mae indicated that they are reducing commitments under their private education loan facility and FFEL loan facility by $2.2 billion and $4.1 billion respectively.  The company will receive a $17.1 million rebate from their bankers for these reductions.  The company stated that this move was made "after an analysis of its ongoing liquidity needs and following its acceptance and funding under the Department of Education’s Loan Participation Purchase Program. For the academic year 2008-2009, the Company expects to utilize the Participation Program to fund all eligible Stafford and PLUS loan originations."

Now Back to the Bad News....Credit Markets Deteriorate in August

Bond Buyer reports that three large non-profits will not be re-entering the FFEL program despite the Department of Education liquidity plan.  This is not necessarily new news as it had been earlier reported that Brazos, NorthStar and PHEAA were suspending FFEL operations.  Any hope that they would re-enter the market though seems to have been quashed by the lack of bridge financing available.  Northstar has publicly stated their hopes to begin making disbursements by late August. 

Other interesting insights in the article include data on how the spreads on student loans have widened again to LIBOR + 155-160 in August from LIBOR + 90-95 in July on 7 year floating rate student loans.  The hope that the existence of the Dept. of Education liquidity would calm credit markets does not seem to be coming to fruition.  The state of the credit markets will become even more important as the academic year progresses.  Without significant improvement in the securitization markets, the short-term liquidity plan may become longer term by necessity.