Student Lending Analytics Blog

Department of Education Announcement Seeks to Ease Concern Regarding Shift to Direct Lending

The new Chief Operating Officer for Federal Student Aid, William Taggart, sent a letter to College Presidents today outlining steps that the Department of Education has taken to ease the transition to Direct Lending.  Recent alternative student loan reform proposals, such as the Student Loan Community Proposal released yesterday, have highlighted the execution/transition risk in shifting to Direct Lending. 

The letter highlights the steps the Department of Education has taken to ease the transition to Direct Lending:

NASFAA CEO On Unpaid Administrative Leave; Allegations Stem From Previous Role as Chancellor of City College of SF (Update)

Here is the announcement from NASFAA that came out this evening:

Washington, DC - July 8, 2009 - The recent developments reported by the San Francisco Chronicle regarding the allegations against NASFAA President & CEO Dr. Philip R. Day, Jr. are unrelated to NASFAA, its members, or Dr. Day's tenure at NASFAA. Dr. Day has voluntarily requested an unpaid administrative leave from the Board of Directors leadership to deal with the situation so that this development will not distract the association from its essential work. The NASFAA Board of Directors leadership -- which consists of David Gruen, current National Chair, and Dr. Barry Simmons, incoming National Chair - has granted his request. Regardless of these recent developments, the Board leadership stresses that NASFAA has the capacity to continue its vital mission to expand access and remove financial barriers to higher education.

Here are the allegations from the San Francisco Chronicle article:  

U.S. Bank To Suspend FFELP Lending In September

As Congress considers student loan reform legislation over the next several weeks, lenders continue to make decisions regarding their federal student loan business.  U.S. Bank, the sixth largest FFELP lender with $2.3 billion in loan volume in 2008, contacted financial aid offices today to notify them that they would be suspending their FFELP operations beginning on September 25, 2009.  In addition, it appears that the school channel sales organization at U.S. Bank has undergone a major restructuring. 

Here are some additional details about the suspension date of September 25, 2009: 

• Loans have to certified, guaranteed and ready to disburse by that date
• All disbursements that pertain to those loans must occur by 09/15/2010

Based on the information that I have, It would appear that by setting a suspension date after most fall disbursements have occurred, U.S. Bank hopes to capture 2009-10 volume while at the same time winding down their federal student loan operations.  The Obama Administration's proposal would move all federal student loans to the Direct Lending origination and servicing platform in 2010.  The question is whether schools will continue to keep U.S. Bank on their federal lender lists knowing about this incipient suspension of operations. In terms of student loan operations, U.S. Bank outsources servicing to ACS for the bulk of their federal loan servicing operations, based on an earlier SLA Blog post.  As for other lenders, the SLA Blog posted earlier examples of smaller lenders who had recently suspended operations.  

I will post the U.S. Bank announcement when it becomes available.

--------------------------------------------------------

Looking for an private lender list you can trust?  Student Lending Analytic's Private Student Loan Ratings provides an independent and analytical approach to rating the largest providers of private student loans.  Find out why the New York Times lauded SLA's new rating service for increasing transparency and helping borrowers understand the fine print. 

----------------------------------------------

Do you want access to timely and informative news like this on the dynamic student loan industry?  Join the thousands of subscribers who stay informed by receiving complimentary daily email updates from the Student Lending Analytics Blog.  Subscribe Today! 

Enter your email address:

Delivered by FeedBurner

Debt-Slapped: A Guide To Managing & Surviving Student Loans and Debt

Thanks to David Levy of Scripps College for making me aware of this website developed by the Washington State Department of Financial Institutions.  The home page has five edgy 1-2 minute videos (full film is also available) with titles such as:

• Now is the New Later
• Project Yourself
• Saving is Money
• How Debt Slaps You
• Vital Info

Think of it as a sort of "Scared Straight for Student Loans." As an example, the home page describes some of the consequences of debt:

YOUR DEBT COULD PREVENT OR DELAY YOU FROM:

Another Day...Another Federal Student Loan Proposal

Referred to as the Student Loan Community Proposal, this proposal had thirty-two signatories including lenders (Sallie Mae, Student Loan Corporation, Nelnet, PNC, SunTrust, Citizens), Guarantors (ECMC, NELA, NY HESC, USA Funds), servicers and secondary markets. 

The group presented a Fact Sheet which made the following nine points about their proposal: 

Last Week in Financial Literacy

Scanning the headlines for news on the financial literacy front:

• U.S. Senator Bernie Sanders of Vermont announced a $130,000 federal grant to improve financial literacy for young people in Vermont.

• Wall Street Journal's Blog The Wallet suggests that parents should use the summer months to teach their children important lessons in financial literacy, which might include planning for a vacation or understanding costs of a summer camp.  

• The state of New Jersey will soon make financial literacy a requirement for high school graduation, according to the Philadelphia Inquirer.  The bill currently on the governor's desk would establish a half-year requirement for economics and financial literacy education.  The program would start with a three year pilot program in selected districts. 

• North Carolina Senator Kay Hagan is pushing a financial literacy bill in the Senate.  According to Forbes, "The bill would create grants for states that agree to include financial literacy material into curriculum for students from sixth grade to 12th grade."
  • According to News 14 Carolina:  "The bill will be referred to the Health, Education, Labor, and Pensions Committee on which Hagan sits.  Currently, only three states require a minimum of one semester of financial literacy. North Carolina and 17 other states require the topic be taught within another subject."

SLA Student Loan Index Up 83% Since Late February

The SLA Student Loan Index, an equally weighted index of the four publicly held "pure-play" student loan companies has risen 83% since late February, when I last ran the calculations on the index.   Note that even with that strong performance over the last four months, two of the company stocks (STU and NNI) are below water for the year-to-date while Sallie Mae is up a more modest 15.4%.  The three year returns remain abysmal, with the best performer, NNI, only losing 66%.  The index bottomed in early March over investor fears about the budget blueprint put forward by the Obama Administration in late February to eliminate the FFEL program by shifting all federal loan volume into the Direct Loan program.   

So, what has happened since early March to improve market sentiment about the sector:

The SLA Student Loan Index, an equally weighted index of the four publicly held "pure-play" student loan companies has risen 83% since late February, when I last ran the calculations on the index.   Note that even with that strong performance over the last four months, two of the company stocks (STU and NNI) are below water for the year-to-date while Sallie Mae is up a more modest 15.4%.  The three year returns remain abysmal, with the best performer, NNI, only losing 66%.  The index bottomed in early March over investor fears about the budget blueprint put forward by the Obama Administration in late February to eliminate the FFEL program by shifting all federal loan volume into the Direct Loan program.   

So, what has happened since early March to improve market sentiment about the sector:

The SLA Student Loan Index, an equally weighted index of the four publicly held "pure-play" student loan companies has risen 83% since late February, when I last ran the calculations on the index.   Note that even with that strong performance over the last four months, two of the company stocks (STU and NNI) are below water for the year-to-date while Sallie Mae is up a more modest 15.4%.  The three year returns remain abysmal, with the best performer, NNI, only losing 66%.  The index bottomed in early March over investor fears about the budget blueprint put forward by the Obama Administration in late February to eliminate the FFEL program by shifting all federal loan volume into the Direct Loan program.   

So, what has happened since early March to improve market sentiment about the sector:

Why Buy Textbooks When You Can Rent Them?

This story in the New York Times (We Rent Movies, So Why Not Textbooks?) describes a business that is trying to solve the "high cost of textbooks problem" by applying the Netflix rental model to the market.  The company, Chegg.com, rents textbooks to students and has experienced dramatic growth.  According to the article, the company exceeded their 2008 sales of $10 million in just the first month of 2009.  The company's growth caught the eye of venture capitalists who poured $25 million into the company in late 2008.  As for the savings that comes from using this service, here is one anecdote from a college student who calculated that he could have saved almost 50% had he used the service:

"Alan Bradford, a senior at Arizona State University, read about Chegg in a campus newspaper in 2008 and calculated that his bill for books that semester would have been $334 with Chegg, far less than the $657 he paid. Since then, he has ordered about a dozen textbooks from Chegg."

As with any good idea, this one will likely attract competitors; Bookrenter.com came up in the article as a Silicon Valley competitor.  This sounds like a good site to recommend to your students looking to stretch their budget dollars further in these difficult times. 

What Does the Agenda For NASFAA's Upcoming Annual Conference Tell Us About The Forces Shaping Financial Aid

Given all the changes that we have seen in the last twelve months in the regulatory, legislative, economic and capital markets spheres, I thought it would be interesting to analyze how the agenda for the 2009 NASFAA Annual Conference (starting July 12th in San Antonio) differs from the 2008 Conference Agenda. 

Here are the number of sessions indicated for each of the tracks (or topic areas) for the respective conferences along with the change: 

Tracks 2009 2008 Change Department of Education 32 32 0 Reauthorization/Legislative 11 0 11 Research 10 12 -2 Loans 10 9 1 Technology 10 6 4 Prof. Development 9 7 2 Management 8 13 -5 Customer Service 8 3 5 Regulatory 7 10 -3 Grad/Prof. Issues 6 9 -3 Student Access & Diversity 6 6 0 Financial Literacy 4 4 0 Enrollment Mgmt. 3 3 0 Philosophical 2 3 -1 Other Resources 2 3 -1 Taxes 1 3 -2 Generational 1 2 -1 Ethics 0 4 -4 TOTAL 130 129 1

A few observations:

H.R. 1777: Not All Changes Are Technical

Thanks to Scott Cohen of Compliance Week for sending along this advisory from the law firm of McGuireWoods LLP about a change to the inducement section in H.R. 1777 (For a broader description of the legislation, NASFAA News provided a summary today):

Student Lending: New Law Expands the Inducement Prohibition