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."
Earlier this week student lenders, financial aid administrators and consumer advocacy groups signed a letter urging Senators to require school certification of private student loans. The rationale cited for their support of this practice included:
"Requiring school certification that confirms students’ attendance and loan eligibility — as is currently
required on all federal student loans — discourages unnecessary
borrowing which could lead to delinquency and default during repayment.
It also gives financial aid administrators an additional opportunity to
counsel students about less expensive forms of financial aid and
ensures that students do not inadvertently disqualify themselves for
less costly aid."
Well, add another reason to that list of benefits of school certification: it reduces fraud. It is hard to envision that this Arizona man could have perpetuated this fraud by applying for hundreds of private student loans and being approved for close to $700,000 if such a school certification requirement was in place. His case certainly hearkens to the "not so good ole days" of direct-to-consumer (DTC) loans (from Arizona Republic):
Interesting story out of Chicago, where a mother is accusing her daughter of making her a cosigner on her loans without her knowledge (from CBS2chicago.com):
"You might call it, the anti- Mother's Day story. It's the tale of tens
of thousands of dollars worth of student loans and the mom who says she
never co-signed for them. According to the mother, Teresa Quatraro, her
only daughter forged her signature to get the loans, then dropped out
of school...The mother displayed documents she says prove her daughter applied for
and got those loans, using her own e-mail address and electronically
forging her mother's name as a co-signer on loan applications without
the mother's knowledge. Now a collection agency is coming after Teresa
Quatraro for $26,000 and is planning to attach her wages."
The draft cohort default rates for the 2008 cohort came out recently and you could almost sense a sigh of relief as the number came in at 7.2% vs. 6.7% for the year earlier. Given the anemic jobs market for recent graduates many expected a far worse outcome. Unfortunately, that number does not come close to approximating the struggles facing student loan borrowers.
Department of Education published their Orange Book for the Perkins Loan program showing that 10.04% of borrowers entering repayment in 2007-08 defaulted by September of 2009. The comparable number for 2006-07 cohort was 8.32%. The average Perkins loan in default was just over $1,950 for the 2007-08, which is up from almost $1,800 from the earlier cohort.
The Perkins CDR is higher than the draft 2008 cohort default figures for the federal student loan program, which were recently announced at 7.2%. It also showed a more dramatic increase in going from 8.32% to 10.04% then the federal student loan CDR wich grew from 6.7% to 7.2%. Given that these loans are going only to the neediest students, it probably shouldn't be a surprise that the default rates have risen faster than for the federal loan programs.
Total outstanding federal student loan market of $636 billion with $487 billion controlled by FFELP lenders (77% of total) as of 9/30/2009 (slide #13)
Sallie Mae is top holder of federal student loans with $154 billion or 37% of total FFELP volume.
Highlighted three aspects of business model going forward (slide #14)
FFELP loan portfolio, guarantor collections and servicing
"Generating substantial income and cash flow"
Private education loan originations and servicing
Sallie Mae servicing - identified industry consolidation as opportunity
While federal student loans have grown at compounded annual rate of 12% from 2002-2008, President's 2011 budget projects a 6% growth rate going forward which seems quite conservative (slide #15).
The Department of Education released their draft cohort default rates yesterday. Here is the electronic announcement. Note that official rates will be posted in September.
Here are the highlights:
Overall, the draft 2008 cohort default rate (CDR) rose to 7.2% from 6.7% for the 2007 cohort. The 2008 cohort default rate represents borrowers who entered repayment from October 1, 2007 to September 30, 2008 and defaulted on a federal loan prior to September 30, 2009. These calculations will shift to a three year CDR starting in 2014. Lest anyone get too excited about a single-digit default rate:
Performance rankings are out for debt collection agencies under contract with the U.S. Department of Education and once again Pioneer Credit Recovery, Inc. and Coast Professionals outperformed peers in their respective categories.
This
time, however, immediate rewards to top performers go beyond bragging
rights. Pioneer, of Arcade, NY, and Anaheim, Calif.-based Coast
Professional each received a greater number of new accounts than their
peers when the education department issued new placements this past
weekend. The allocations are proportionate to the agencies’ overall
performance between October, 2009 and March 31, 2010, the first few
months of the new student loan debt collection contract.
I came across this item in NASFAA News on H.R. 5055 this morning. This bill "College Debt Swap Act of 2010" introduced by Marcia Fudge, an Ohio Democrat, has the following provisions:
Purpose: "The purposes of this Act are to provide additional funds for Pell Grants, and to establish a temporary private education loan debt consolidation program."
