"Moody’s outlook for the ratings of both sectors of guaranteed student loans originated under the Federal Family Education Loan Program (FFELP) and private (non-guaranteed) student loans is stable. Even though credit performance trends for the private student loan sector are expected to continue to be negative in 2010, the ratings are expected to be stable. The ratings today reflect higher expected default rates for the 2007 through 2010 repayment vintages relative to previous repayment vintages due to the recessionary environment, particularly the high unemployment rate, slowing salary growth and high consumer debt burdens. For the FFELP sector, significant legislative uncertainties continue to exist; however, we do not expect this uncertainty to have a major credit impact on the vast majority of existing outstanding Moody’s-rated FFELP student loan transactions."
As posted earlier, the Chronicle of Higher Education reported that schools constituting 96% of federal loan volume were currently in the DL program actively taking steps to prepare for their transition to Direct Lending. That was followed up a day later by an email from the Department of Education to college presidents and financial aid administrators.
Here is the detail behind that 96% figure based on information from the Department of Education:
With round 3 of negotiated rulemaking on Program Integrity expected to wrap up by mid-day tomorrow (Friday), I thought I would summarize what had happened so far this week. Recall that the two most controversial issues coming in related to the issue of "gainful employment" and incentive compensation:
This is a question that I am often asked at conferences by concerned financial aid administrators who have seen the significant drop in private (non-federal) student loans and wonder if there is another shoe to drop should lenders such as Sallie Mae and Citibank no longer make federal student loans.
Discover Financial reiterated their commitment to their private loan product in their 10-K today:
currently offer both federal and private student loans. In September
2009, the U.S. House of Representatives passed the Student Aid and
Fiscal Responsibility Act (“SAFRA”), which is currently under
consideration in the U.S. Senate. If
passed in its current form, SAFRA would require all federal student
loans to be made directly by the federal government starting July 2010,
rather than by private institutions through the Federal Family
Education Loan Program. Because SAFRA allows
financial institutions to continue offering private student loans, we
do not expect SAFRA to have an impact on our ability to continue
offering private student loans, even if we discontinue offering student
loans under federal programs."
Here is the email that greeted college presidents and financial aid administrators this morning from Bill Taggart, Chief Operating Officer at the Department of Education. This follows up on data released by the Department yesterday and reported by the Chronicle of Education (see end of post) that 96% of colleges that administer federal loan programs are in the DL program currently or are have made preparations to do so (Dow Jones article also reported here).
"We at Sallie Mae feel that we could fund federal loans without an
ECASLA program in today’s marketplace but the size of that requirement
would be really a function of how schools moved in and out of DL and
how many other lenders participated in that program."
That may be true in the future but does not appear to be the case today, as Sallie Mae has sold $9.4 billion worth of federal student loans to the Department as of December 29, 2009, out of the $11.5 billion in loans that they originated over this period.
Here are the contents of the email that went out this morning (which in basketball parlance I would refer to as the "full court press"):
This survey had 842 participants representing $306 billion in investments meaning this 18.7% decline represented a reduction of $70 billion in assets. Assuming a 4.4% annual endowment payout (the average for the survey respondents) translates into universities having $3.1 billion less to spend from their endowment over this period.
"I urge the Senate to follow the House and pass a bill that will
revitalize our community colleges, which are a career pathway to the
children of so many working families. To make college more affordable,
this bill will finally end the unwarranted taxpayer-subsidies that go
to banks for student loans. Instead, let’s take that money and give
families a $10,000 tax credit for four years of college and increase
Pell Grants. And let’s tell another one million students that when they
graduate, they will be required to pay only ten percent of their income
on student loans, and all of their debt will be forgiven after twenty
years – and forgiven after ten years if they choose a career in public
service. Because in the United States of America, no one should go
broke because they chose to go to college. And it’s time for colleges
and universities to get serious about cutting their own costs – because
they too have a responsibility to help solve this problem."
On the subject of tax cuts: "We cut taxes for 8 million Americans paying for college."