We'll start this week with student loan news and go from there...
Meanwhile, Sallie Mae continues to grow their private loan originations which they reported as of the end of the 3rd quarter were up 21% year-to-date and 29% in the 3Q (a seasonally strong quarter) as compared to last year. Other highlights from the call:
- Growth is being driven by market share gains vs. overall market growth: "appears more like market share gains than market size gains."
- Borrowers have strong credit profiles: "FICO scores in excess of -- an average in excess of 750 (752) and with more than 90% cosigners (94%)."
- Recall that SLM reintroduced their deferred repayment Smart Option loan earlier this year which has clearly driven their loan growth this year: "...with 36% of our borrowers choosing the deferred option, 35% choosing fixed pay and 29% choosing interest-only option in the quarter." They were clearly at a competitive disadvantage last year being the only major lender without a deferred option.
- Indicated no change in their pricing strategy: "I think the prices that are out there among the competitors are pretty even."
- Highlights the strength of their school channel distribution (recall the importance of school lender lists in driving volume to the lenders on that list; apparently that remains the case even in light of regulations which had seemingly dampened enthusiasm for these lists): "...we continue to have very good relationships with the schools that I think people who get in this business realize how important those relationships are, certainly, have been and continue to be. And that's a huge advantage for us. We have the biggest sales force out there, feet on the ground. And I think that's driving a lot of the volume."
- Expanding product offerings to credit cards for parent cosigners and checking accounts for students: "One of the products where we've had really good success on is offering a credit card to the parents, the co-signers of the private student loans we're originating...launched a student checking account with a debit card that has a very attractive program structure with minimal, really no fees and is really designed to complement the refund process that goes on, on college campuses and provide us with a source of deposits to help finance our growing Private Student Loan business."
- So, following the fund flows: Student loan goes to college to cover student costs...student receives refund from college deposited into Sallie Mae checking account...which Sallie Mae then uses to finance future loans to students. That's a good business model!
Continuing on the subject of student loan debt and delinquencies, this Fed Consumer Credit Panel shows delinquencies of 90+days at persistently high levels with the second quarter levels at 11.19%. Four of the past five quarters have been over 11.0%. This compares with mortgage delinquencies which peaked at 8.9% in the first quarter of 2010 and has declined to 6.9% as of the second quarter of 2011. See charts on the Federal Reserve Bank of New York Credit Conditions page at the Household Debt and Credit tab.
Wall Street Journal editors (about 2/3 of the way down the page) discuss possibilities of "student loan bailout":
"The amount of student loans taken out exceeded $100 billion for the first time last year. And total unpaid student loan debt is expected to exceed $1 trillion by the end of 2011. Americans now owe more on student loans than on credit cards, and the default rate is rising. So could taxpayers soon be on the hook?"
"Paul said Sunday on NBC's "Meet the Press" that he'd kill the loan program eventually if he were president...Just think of all this willingness to want to help every student get a college education," said Paul, who graduated from Gettysburg College in Pennsylvania before earning a medical degree at the Duke University School of Medicine. "I went to school when we had none of those. I could work my way through college and medical school because it wasn't so expensive."
"Households underreport the magnitude of their credit card debts by at least one-third, according to a new study from the Federal Reserve Bank of New York. The difference for the average household is more than $2,000."
We aren't the only country with a savings problem. Recent debate in New Zealand over their KiwiSaver retirement plan (Kiwisaver is a voluntary work-based savings initiative in which individuals contribute to a retirement plan in which the government and their employer also contributes):
"Stubbs believes that to adequately meet retirement expectations, KiwiSaver contributions need to be gradually notched up from the current 2% and 3% (effective April 2013) to between 9-12% in line with savings rates across the Tasman. "You have to create a savings habit and we're in favour of a scheme that looks something like that of Australian's,'' said Stubbs."
Interesting stats on retirement plans in the U.S. (from Fortune): about 2/3 of U.S. workers reliant on 401k plans while 1/3 still have defined benefit plans (pension plan) from their employer. Those nearing retirement apparently avoid "running the numbers" to determine how their retirement is shaping up:
"Many workers, especially younger ones, have never run a retirement projection, according to Financial Finesse. A survey by the financial education provider found that 57% of employees age 55 to 64 said they had not run a calculation to estimate whether or not they were on track for retirement."
I'm a big fan of exposing young students to entrepreneurs, as this program in Canada is doing:
"More than 240 students in Grades 5 and 6 are being introduced to the concepts of business organization, management, production and marketing as part of Small Business Month.
"Working with the Prodigy Group enables us to encourage entrepreneurial aspirations among our local youth," said Deborah Wakeham, Island manager for Junior Achievement B.C. "These young business people have so much knowledge and experience to share. [They] are able to inspire students to think about business in our community and business in the future."
"It’s important for kids to develop good financial habits from an early age and that is what Secret Millionaires Club is all about,” Buffett said. “It’s not intended to teach kids how to read a balance sheet, it’s meant to provide a fun way for kids to understand business and develop good habits from an early age,” he said.
A reminder of the importance of parental role models when it comes to money matters (from Canadian survey):
"The CICA Youth Financial Literacy Study 2011, conducted by Harris/Decima, measured the financial literacy of Canadians aged 16-22. Nine-in-10 respondents (93 per cent) believe that parents should be good role models for responsible financial decisions and 83 per cent have approached their parents for advice about money management."
A sign of the times (from Marketwatch): "It's Get Smart About Credit Day, says the American Bankers Association. Bankers are going into schools to teach kids about money."
Commenter to story: "Taught by banks? Is that a joke?"
A financial literacy board game called NestEgg is being tested in New York by their Department of Youth (from Lincoln Tribune):
"It's up to the players to help them build their savings for the future - their "nest egg" - and achieve those goals. A roll of the dice can bring a windfall or disaster."