I had gotten more than a few requests recently from market observers wondering about private student loan market share estimates and origination volumes for the major players in the industry (the last SLA estimates date back to this August 2008 post). Note that this analysis excludes state-based programs which will be analyzed at a later date and is not meant to provide an all encompassing view of the industry as the College Board does in their annual Trends in Student Aid (Note: SLA assisted the College Board in that effort by providing publicly available data on certain lenders). This SLA industry analysis is strictly focused on the major national and regional players.
Here is a summary of the analysis:
- Overall, SLA forecasts a 24% contraction in private loan student originations among major lenders for 2009-10, a reduction of $1.7 to $2.6 billion, based on the midpoint of the high/low estimates for each lender. This reduction comes on top of a 50% drop in private loan originations in the 2008-09 period, according to College Board projections.
- This decline is largely being driven by a significant reduction in origination activity at Sallie Mae and Citibank, the #1 and #2 lenders in 2008-09. Each tightened their underwriting standards recently with Citibank's Student Loan Corporation subsidiary having the additional complication of negotiating their credit agreement with Citibank, their parent which will significantly reduce their borrowing limits.
- Other competitors, including Wells Fargo, Chase, Discover and the credit unions appear poised to grow originations for 2009-10. Discover, a relatively new entrant, is estimated by SLA to have the largest dollar growth in private loan originations over this period. Those banks with larger private student loan businesses appear more cautious in their growth plans, as typified by Wells Fargo which recently reported 10% growth in originations. Credit unions, which often offer the lowest interest rates to borrowers, continue to work to increase their brand recognition in the market (see recent Smart Money article here).
This analysis is based on a multitude of sources including earnings conference calls, analysis of quarterly (10-Q) and annual (10-K) company filings with the SEC, review of ECASLA financing data (using rules of thumb regarding ratios between FFEL and private loan volumes) and review of school lender lists. Sallie Mae and Citibank provide the most detail on their private student loan originations through their public disclosures, so the 2008-09 data provided below is what they have reported publicly. All other data provided below represent the best estimates (in millions of dollars) using one or more of the sources described above:
Sallie Mae: Reported a 57% drop in private loan originations in 3Q 2009 (the first quarter of 2009-10) due to "tightened underwriting standards and reduced demand caused by increased federal student loan limits." Estimates based on this trend continuing.
Wells Fargo: Indicated on their 3Q 2009 conference call that private loans had grown 10% "driven by seasonally strong third quarter back to school volume."
Chase: SLA estimated Chase's loan volume for 2007 at $1.1 billion based on securitization filings. Given the lack of a secondary market and a focus on the Chase Select product, I assumed some decline in their appetite for making private loans in 2008-09. Recent pricing improvements to their product suggest that they are seeking market share.
Citibank (Student Loan Corporation): Reported a 47% decline in CitiAssist originations in 3Q 2009 (first quarter of 2009-10) due to a "recent effort to originate higher quality private education loans." Student Loan Corporation recently got a 30-day extension to negotiate their credit agreement with their parent, Citibank which will reduce borrowing limits from $30 billion to $6.5 to $7.0 billion and is "expected to substantially increase funding costs and reduce net income."
Discover; Disclosed quarterly data on their federal loan originations during their recent conference call as well as the ratio between federal and private loans allowing for an estimate of their private loan originations. Note that 2008-09 data includes private loan originations through their quarter ending May 2009 with 2009-10 estimates based on originations after that point.