U.S. Bank has lowered the interest rate ranges on their private student loans effective as of November 1, 2010. The new range of interest rates offered by U.S. Bank now stands at 3.45% to 10.95%, compared to their previous range of 4.20% to 12.20%. As a result of this change, SLA has upgraded the rating on the U.S. Bank product to 3 1/2 stars. U.S. Bank's last pricing change occured in April when they lowered their minimum rate from 5.20% to 4.20% while leaving their maximum rate unchanged.
Knee-deep into my annual analysis of school lender lists and the prevalence of lenders on those lists, I thought I would come up for air and highlight some interesting observations:
Western Michigan University used results from a student survey to rate their alternative lenders. The five survey questions focused on application process, value, customer service, would student recommend to friend and overall satisfaction. Almost 20% of their student borrowers responded to the survey. With a top possible score of 20, the scores for the seven lenders varied from 12.97 to 15.85.
Please contact me at tranzetta@studentlendinganalytics.com if you are interested in implementing a similar survey tool at your school (at no cost!)
First to provide some context, here are the six top sources of student aid in 2009-10 representing over 90% of student aid (includes graduate and undergraduate aid sources which in total amounted to $199.2 billion for 2009-10):
Federal loans ($96.8 billion) or 49% of total aid
Institutional grants ($33.4 billion) or 17% of total aid
Pell grants ($28.2 billion) or 14% of total aid
Federal grants other than Pell ($13.1 billion) or 7% of total aid
Private and employer grants ($10.6 billion) or 5% of total aid
Company completed their strategic review which included evaluating whether or not to sell the FFELP portfolio (while retaining the servicing rights)...and the company chose to (drumroll, please)....keep the FFELP portfolio: "So maybe there's another way of just saying that you are not going to see any dramatic balance sheet actions from the company at least anytime soon." It seems that as long as they serviced the assets, they would need to keep them on their balance sheet.
Wondering how profitable it is to service FFELP loans? Answer: Very profitable, as in 90% cash flow margins. "Our securitized FFELP portfolio generated $444 million in excess cash to the company in the third quarter and to put that into some perspective, our FFELP servicing costs in the quarter were $52 million."
The Project on Student Debt released their Student Debt and Class of 2009 Report today. Here are some of their key findings (go to report for footnotes):
2009 graduates saw 6% increase in overall student debt...: "We estimate that college seniors who graduated in 2009 carried an average of $24,000 in student loan debt, up six percent from the previous year.1 The six percent increase in average debt at the national level is similar to the average annual increase over the past four years, despite the recent economic downturn. It is likely that the Class of 2009 took out the bulk of their student loans before the recession began. Additionally, many colleges made concerted efforts to increase or maintain need-based grant aid when the economy faltered, so that students could afford to stay in school.2
In findings that mirrored the results of an SLA flash survey last December, only 1 in 7 survey respondents created a private loan lender list for 2010-11 through a formal selection process. The most popular strategy: listing all lenders that students have used in the last 3-5 years, which certainly will not make life easy for new entrants into the marketplace. Almost 1 in 3 of the survey respondents are not providing a list to students. Here are various lender list strategies with the frequency they were selected by survey respondents:
Lender List Strategy
School is listing all private student loan lenders used by students in the last 3-5 years (that are still making loans)
34.1%
School is NOT providing a list of private loan lenders
30.6%
School created private loan lender list through a formal selection process
15.4%
School IS providing a list of private loan lenders by linking to a third party website
Here are some snippets from recent conference calls/earnings releases/supplementals regarding 3Q private student loan originations. This quarter tends to be the most important from a seasonal perspective and provides a good sense of how academic year originations will unfold. Reviewing past history indicates that 35-40% of a lender's originations come in this quarter. Here are reports from the leading private student lenders:
Wells Fargo noted in their 3Q earnings supplemental released today (see page 8) that "private student lending (up 29% from 3Q09)" and also that they have had great success at growing loans in the Wachovia footprint (see slide #16), "Private student lending originations up 50% YTD in Wachovia footprint." Wells Fargo doesn't publish annual private loan data but SLA now estimates that they are rapidly approaching Sallie Mae in terms of new private loan originations.
Here is some of the feedback provided by the financial aid community on the new regulations requiring students to complete a self-certification form prior to receiving a private student loan. The original intent of the form was to inform students about federal loan options before they took out a private loan and to limit overborrowing by having the student complete information on their total cost of attendance and estimated financial assistance. The form carries this warning should the student seek to borrow more than the difference between their COA and est. financial assistance: "WARNING: If you borrow more than the amount on line C, you risk reducing your eligibility for free or lower-cost federal, state, or school financial aid."
The suggestions from the financial aid community about self-certification fit into a few buckets:
What are some additional details on the private loan portfolio that Discover is purchasing from Citibank?
Terms of the deal: "We plan to acquire The Student Loan Corporation for $600 million or $30 per share, subject to a post closing adjustment pay between Citi and Discover. Immediately prior to the closing of Discover’s transaction, SLC will sell $28 billion of assets to Sallie Mae and $9 billion of assets to Citibank. We will then acquire $4.2 billion of private student loans and related assets at an 8.5% discount, along with assuming $3.4 billion of SLC’s existing asset-backed securitization debt funding against these private loans. We expect to receive approximately $150 million from Citibank under the purchase price adjustment agreement. The ABS funding has had attractive rates and maturities represented by the trust identified in our 8-K. So funding is largely in place."
CEO Al Lord talked down SLM's private student loan forecast to $2.25 billion for 2010, which is 36% below the company's forecast just six months ago. From March 2010 Citi Investor Conference of this year: "Our volume goal is $3.5 billion for 2010; that is not in the bag. Goal would be to get that number to $5.0 by 2012-13."
If Sallie Mae hits their forecast, their last two quarters of 2010 would be 7% below 2009 levels despite significant marketing spend on their Smart Option loan and a reduced $25 per month payment option they introduced in June of this year. Sallie Mae is the only major lender that requires borrowers to make payments while they are still enrolled in school. Let's see if there are any additional product modifications upcoming to try and address this ongoing slide.
Company forecast likely loan growth for 2011 of 10-11%. Sallie Mae's private loan originations have dropped by more than 24% in each of the last nine quarters. Their projected private loan volumes for 2010 of $2.25 billion are 71.5% below their peak levels of $7.9 billion in 2007.
Company's research indicated that tuitions rose 4% (after two relatively flat years) on a base of $300 billion or $12 billion incremental costs for students for 2010-11.
Going forward, "company will invest modestly and intelligently to resuscitate its private credit business..."
