Student Lending Analytics Blog

DBRS Report Notes 66% Jump in Private Loan Defaults In 3Q

Here is their executive summary of the DBRS 3Q Private Student Loan Report, which tracks the performance of private student loan collateral backing 39 trusts:

The weak job market [SLA note:  See post on weak employment numbers and defaults] and slow economic recovery continue to plague the private student loan ABS market. In the third quarter of 2009, performance of the private student loan collateral backing the 39 trusts that comprise the DBRS Private Student Loan Indices continued to deteriorate at a steady pace. Quarterly defaults spiked to record highs, while cumulative defaults continued to rise towards unexpected levels. Forbearance rates remained historically low [SLA note: Since SLM trusts make up over 50% of the index, their strategy over the last year of reducing forbearances has had a dramatic effect on the overall index] and delinquencies remained elevated.

More on the Bill To Create Private Student Loan Ombudsman Office

As posted on Friday, several senators introduced a bill to create an office of the Private Education Loan Ombudsman, in the Department of Treasury:

Sen. Sherrod Brown (D-OH), joined by U.S. Sens. Michael Bennet (D-CO), Al Franken (D-MN) and Barbara Mikulski (D-MD), today announced new legislation to help streamline assistance to Americans struggling with private student loan issues. The Private Education Loan Ombudsman Act, to be housed in the U.S. Department of Treasury, would help private student loan borrows address complaints or challenges by working colleges and universities and private lenders."

Check back here later in the week for the text of the bill, which was not available as of this evening.  The press release from Senator Brown's office provided these additional details:

• Purpose of the bill:  "This bill would establish a federal private loan ombudsman to improve coordination and assistance for private student loan borrowers just as exists with federal student loans."
• Described earlier formation of ombudsman office for federal student loans:  "The 1998 Amendments to the Higher Education Act established the Student Loan Ombudsman, which serves as a centralized federal clearinghouse to help borrowers navigate disputes and problems with federal loans. The Student Loan Ombudsman has earned the support of borrowers and advocates alike. Currently, however, no such federal resource exists for private student loans borrowers."
• Complaints would be reported to the Department of Education:  "The Private Education Loan Ombudsman would coordinate services with the Department of Education and Federal Student Loan Ombudsman to ensure that all complaints and problems are reported. The federal body would also assist borrowers in mediating and settling disputes with private lenders.

Earlier this year, Senator Brown proposed a debt swap plan to allow borrowers to swap their private loans for federal loans for borrowers who had not exhausted their federal loan limits (see posts here and here).  One wonders if one of the ombudsman's roles would be to help facilitate this debt-swap process, which could be challenging to administer.  Also, should FFELP be eliminated through the legislative process, this could open up the possibility that lenders might aggressively market private loan products since they would no longer have a federal loan product to sell.  I will keep my eyes out for both of these bills in the Senate bill that will be coming out of the Health, Education, Labor and Pension (HELP) committee sometime over the next few months. 

On Unemployment and Private Student Loan Defaults

In case you missed the morning announcement from the US Bureau of Labor Statistics, the unemployment rate has now sits above 10% (10.2% to be precise) and the total number of jobs now lost since December 2007 is over 8 million.  This article from the blog Minyanville captures the loss of white-collar jobs that has occurred during this recession:

"The months since the collapse of Lehman Brothers have been disastrous for professionals, except those in the fields of health care and education. From August to April, there was an overall drop in employment of 4.3%. More significant, however, were the steep declines in highly skilled occupations: 9.3% in computer and math jobs, 10.3% in engineering and architecture occupations, and a whopping 11.5% in arts, design, entertainment, sports, and media occupations."

To get a sense of how bad it has been for recent graduates, here is what one expert had to say:

Parsing Student Loan Corporation's 10-Q For Clues on State of Student Loan Market

Student Loan Corporation filed their 10-Q this morning.  With year-end fast approaching, and their credit agreement with Citibank expiring on December 31, 2009, a key development to watch out for will be their ability to negotiate a new funding agreement.  Here are the highlights:

• Explained their 10% drop in federal student loan originations due to increasing shift toward Direct Lending (see post here) and new regulations about preferred lender lists:

"The Company’s FFEL Program loan originations decreased by 10% for the three months ended September 30, 2009 as compared to the same period in 2008.  This decrease is largely due to schools moving from the FFEL Program to the Department of Education’s Direct Lending Program and adding additional lenders to their preferred lender lists to comply with regulatory requirements and concerns.  The impact of these actions was partially absorbed by the withdrawal of many lenders from the FFEL Program and overall growth in the marketplace."

• Almost 20% (19.3%) of their loans in repayment that were originated after January 2008 are in forbearance (see this post which shows how Sallie Mae has reduced their use of forbearance):
  • Page 38 of 10-Q:  $267 million of average uninsured standard private loans in repayment and forbearance and $51.5 million of loans in forbearance
  • Might partially explain their 47% decrease in private loan originations in the 3Q as they continue the recent effort to originate higher quality private education loans."

Over 40% Of Corinthian College Institutions Could Have 2008 Cohort Default Rates Over 25%

Here is the disclosure in their recent 10-Q:

"Given the data the Company has received thus far, we expect ten to twelve of our “institutions” to exceed the 25% limitation for the 2008 Cohort, but we do not expect any of these institutions to exceed the threshold for three consecutive years. The preliminary data also show another five of our “institutions” could exceed this limitation, although the Company will not know the outcome for these institutions until draft rates are published in February 2010."

MEFA Has Private Loan Capacity

With all the news about the contracting private loan market, it was interesting to see in this announcement that the Massachusetts Educational Financing Authority had $262 million available to lend as of September 30th [$375.3 million less $113 million outstanding loan balance]:

"At closing, the trust was 100% prefunded, structured with an acquisition account that contained $375.3 million to be used to acquire private student loans until Sept. 1, 2009. On Aug. 31, 2009, with written consent of Assured, the acquisition period was extended to Oct. 1, 2009. On Oct. 1, with written consent of Assured, the acquisition period for the bonds was extended to Dec. 15, 2009, subject to MEFA meeting certain conditions, and further extended to Jan. 22, 2010, subject to MEFA meeting certain additional conditions. As of the Sept. 30, 2009 reporting period, the outstanding loan balance was approximately $113 million, indicating that the majority of the funds in the acquisition account have not yet been utilized to acquire loans."

Servicing on Student Loan Xpress Loans Not Expected To Be Impacted by CIT Bankruptcy Filing

In case you get questions from recent Student Loan Xpress borrowers...

Here is the announcement from Fitch today:

"Fitch spoke with XLS regarding the potential implications of the CIT bankruptcy filing to XLS' operations and its capacity as servicer of the above mentioned transactions. XLS stated that it is 'business as usual' and that they continue to fill open positions as turnover occurs. Fitch believes that if XLS becomes part of the bankruptcy proceedings, a bankruptcy judge would consider the servicing operations necessary to protect trust assets and the total value of the estate. Therefore, the servicing operations would be maintained and expenses, including payroll, would continue to be funded. Additionally, the servicing platform itself is an asset and could be acquired by a third-party in a bankruptcy proceeding."

Fitch's 3Q Student Loan Report Card Chronicles Key Events Of Last Three Months

It was a busy quarter, which I was reminded of while reading this summary to the Fitch report (and SLA Blog was there for you chronicling the key events of the last three months as indicated by the number of links listed below): 

Student Loan Industry Review
The student loan industry continued to endure stress in the third quarter of 2009. On
Sept. 17, 2009, the House of Representatives passed the Student Aid and Fiscal Responsibility
Act (SAFRA), which would terminate the Federal Family Education Loan Program (FFELP) by
July 1, 2010. The Senate is expected to introduce its own version of the bill later this year.
More schools switched to the Federal District Loan program in the quarter, which could be in
anticipation of the FFELP termination if SAFRA is enacted. As a result, FFELP disbursements
dropped by 17% from the same quarter last year, according to data provided by the Department
of Education (ED). Fitch Ratings expects the FFELP market to continue to shrink as more
schools make the switch.

Citi CEO Pandit Talks Student Loans...

Here is interview with Citi CEO Vikram Pandit and the Editorial Board of the Argus Leader on Sunday.  Two takeaways: 1)  Since Citi's Student Loan Corporation will need to continue servicing existing federal loans there won't be major changes with their Sioux Falls servicing operations and 2) Pandit didn't seem to have received the talking points about the Student Loan Community proposal as he seemed resigned to the fact that loan originations were going away.  Also, Pandit neglected to mention that the Citi was left on the outside of the big enchilada, the DL servicing contract, which will be split among Sallie Mae, AES/PHEAA, Great Lakes and Nelnet.  As a result, their servicing business will be in run-off mode, should FFELP be eliminated. 

Here is the interview questions and answers:

Selecting a Career College: Top 10 Questions To Ask

I was thinking more about the need for greater transparency in the college selection process this morning.  Rather than rely on external forces to force this issue upon schools, there is always the power of the consumer to make things happen.  If consumers demand more information than institutions eventually have to accede to these demands or lag behind their competition.  So, with that spirit in mind, I have developed a Top 10 list of questions that consumers should ask prior to selecting a career college.  This list was developed having spent hours scanning complaint boards to see what items came up most frequently.  If a school is not comfortable answering many of these questions, claims not to have the information available, or won't provide answers in writing you may want to look elsewhere.  Remember that you are making a significant investment of both dollars and time so do the legwork to make the best choice.  Good luck!

Top 10 Questions To Ask Before Choosing a Career College