Analysis of Federal Loan Borrowers By State And Impact on Non-Profit Servicers

As I was typing up the details yesterday of how servicing volume would be allocated to non-profits in SAFRA, I got to wondering...
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Allocation of volume to non-profit servicers: 

• One eligible non-profit servicer in state:  "Lesser of loans of 100,000 borrowers (which would include loans of borrowers who had used servicer previously) OR the loans of all borrowers attending institutions within the state."  
• Multiple eligible non-profit servicers in state:  "Lesser of the loans of 100,000 borrowers (which would include loans of borrowers who had used servicer previously) attending institutions located within the State; or an equal share of the loans of all borrowers attending institutions located within the State, except the Secretary shall adjust such shares as necessary to ensure that the loans of any single borrower remain with a single servicer.

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...what the distribution of borrowers by state looks like.  First the caveats:

• Information is based on 2007-08 federal loan data by school (number of loans, loan volume in dollars and city/state information) provided by the Department of Education for both FFEL and DL programs.  2008-09 federal loan volumes are expected to be up over 20% so the number of borrowers by state are also likely to have risen too. 
• Data is converted from loans to borrowers using a 1.83 conversion factor (1.83 loans per borrower) based on data provided by studentloanfacts.org.  Remember that in this database subsidized and unsubsidized Stafford loans are counted as two loans so it is not surprising to have such a high conversion factor. 
• It is unclear to me how the Dept. will handle institutions with one OPEID (e.g., University of Phoenix) and yet has campuses throughout the United States.     

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After crunching the numbers, here are some interesting insights based on my estimates using the conversion factor described above:

• 24 states are estimated to have under 100,000 federal loan borrowers so if an eligible non-profit servicer met the requirements of the contract, they would presumably service all of the federal loan volumes in these states
• In total, those 24 states account for an estimated 13% of overall borrowers (and loans) so giving up those states to the non-profit servicers would not seem to have much of an impact on the four servicers who were recently awarded the DL Servicing contract.  
  • This decision to include non-profits will also presumably make implementation easier by avoiding split-servicing situations (assuming that the servicers already have most of the in-state volume)
• The top five states for federal loan borrowers are:
  • Arizona
    • About 70% of the AZ borrowers are from University of Phoenix, which is based there, so actual in-state figures likely to be less
  • California
  • New York
  • Florida
  • Texas

Please contact me at tranzetta@studentlendinganalytics.com if you are interested in additional details regarding this analysis