Student Lending Analytics Blog

Department of Education Receives Authority to Expand Origination Agreement With Accenture

I had not been back to the federal government's procurement site recently (which is why I missed it), so I would categorize this as old news, but still somewhat interesting nonetheless.  On March 12th a posting titled "Common Origination and Disbursement (COD), Justification for Other than Full and Open Competition" appeared. 

Here is the crux of the justification:

CBO Report On Federal Student Loan Program Yields Useful Insights

Rushing to get this post out before the 1am deadline (look for updates on the blog tomorrow).  Skimming recent CBO report "Costs and Policy Options For Federal Student Loan Programs."  Useful reading for anyone seeking a better understanding of how the programs operate and the cost implications using two different methodologies (FCRA and "fair value").  The FFEL vs. Direct debate is somewhat old news given recent events but the impact of using "fair value" estimates calls into question whether CBO scoring methodologies should be reformed. 

Here is an excerpt from the report summary (which you will see does provide another CBO estimate showing that the move to Direct Lending will increase the deficit by $52 billion on a fair-value basis):

Reactions To President Obama's Signing Student Loan Reform Into Law

Here are reactions from across the media spectrum:

• President Obama had this to say at the signing ceremony at Northern Virginia Community College (from New York Times, here is transcript of the comments):

"Mr. Obama portrayed the overhaul of the student loan program as a triumph over an "army of lobbyists," singling out Sallie Mae, the nation’s largest student lender, which he said spent $3 million on lobbying to stop the changes. "For almost two decades, we’ve been trying to fix a sweetheart deal in federal law that essentially gave billions of dollars to banks,"he said. The money, he said, “was spent padding student lenders’ pockets."

What Are Financial Aid Officers Saying About The Move To Direct Lending?

• If you waited until the last minute...this isn't good news (from the Spartanburg Herald Journal):  "With about five federal agencies expected to handle the flood of communication that will come with the "mass exodus" of schools leaving their private lenders, Sullivan [Allison Sullivan, director of financial aid at the University of South Carolina Upstate] said she was told by the Department of Education that financial aid offices like hers will be provided a list of 800 numbers, and that "it could be 10 days before anyone gets back to us."  But by starting the process early, Sullivan said "we'll be prepared for it."

• Someone likes the increase in Pell Grants (from Newark Star-Ledger):  "I’m very much in favor of the bill," said Jean McDonald-Rash, financial aid director at Rutgers University in New Brunswick. "Moving money into grant aid, which doesn’t have to be paid back, is a positive for students."

Federal Student Loan Program Going 100% Direct; Sallie Mae Share Price Hits 52-Week High

I bet this headline might surprise some people.  On Thursday after the market close, the House passed the reconciliation bill, moving the federal student loan program to 100% direct lending, thereby eliminating private banks from the origination of these loans.  On Friday, Sallie Mae's share price climbed over $13.00 (a 52-week high) in the morning before settling at $12.58 at the close. 

Why would the share price rise in light of the revenue loss that Sallie Mae will experience with the elimination of the FFELP program?  Here are a few explanations:

Wells Fargo/Wachovia Not Committing to FFELP For 2010-11; Calling For Extension of ECASLA

With the Federal Family Education Loan Program (FFELP) hanging in the balance as the Senate considers passage of a student loan reform bill, the second largest FFELP lender, Wells Fargo/Wachovia ($10.7 billion originated in FY09) emailed this note to financial aid administrators earlier today:

"Regardless of the current economic conditions, the aspirations of American families remain the same. Our customers continue to seek financing to purchase homes, plan for retirement and request funding to pay for college tuition.

Because of the continued uncertainty surrounding student loan reform legislation, we are unable at this time to commit to participation in FFELP for the upcoming academic year. However, Wells Fargo and Wachovia will continue to accept federal student loan applications that qualify for sale under the existing PUT program parameters:

• A loan period that includes or begins on or after July 1, 2009.
• A first disbursement made between May 1, 2009 and July 1, 2010.
• Full disbursement no later than September 30, 2010.

Two Days After...Impact of Student Loan Reform Bill

I posted this yesterday about how participants in the federal loan program would be impacted by the elimination of the Federal Family Education Loan Program (FFELP). 

More news out recently about the potential impacts of the reconciliation bill currently in the Senate (some Washington watchers are expecting a Senate vote on Saturday) as well as statements by representatives from the House who voted for the reconciliation bill: 

• Missouri Higher Education Loan Authority (Mohela) could see job increases of 400-600 people if it can land a piece of the servicing contract for Direct Loans (from St. Louis Post-Dispatch): 

The Day After...Changes Coming After The Student Loan Reform Bill

The bill hasn't passed the Senate yet...but here is what companies who participate in the federal student loan program are saying:

• Sallie Mae provided these details to Washington Business Journal:

"Sallie Mae (NYSE: SLM) estimated that ending FFELP would force it to cut 2,500 jobs and operate in as few as five to seven locations, compared to its current 25 locations.  Sallie Mae currently has 8,600 employees."

• Given that Newark, Delaware is their most recent new office location, I would surmise that many of their smaller locations will be consolidated into their new credit and collection center there.  In November of 2008, Sallie Mae estimated that they would have 1,100 jobs there by the end of 2011.  

• Kentucky Higher Education Student Loan Corp. (from The Courier-Journal):  

"I don’t see any circumstances where we would completely shut," said James Ackinson, executive vice president of the Kentucky Higher Education Assistance Authority, the loan corporation's sister agency that acts as the guarantor for its loans. There is, however, a potential for layoffs, he said.

In recent years, the agencies have decreased their employees from 535 to 340, the result of the economic downturn, and the loss of a service contract.

"We’ll have to see what comes out of the federal regulations," Ackinson said.

He said the agency will continue to administer state scholarship programs, most notably the Kentucky Educational Excellence Scholarship, or KEES. It also expects it will be able to service at least 100,000 direct federal loans, which is half of the current level, and continue its outreach efforts, which are largely funded through federal grants."

• KHESLC is the tenth largest servicer of federal student loans, based on data from this SLA Blog post. 

• Meanwhile in Vermont, VSAC's president Don Vickers had this to say about the impact of the bill (Vermont Public Radio): 

"Today we raise the capital we originate, the loans and we service the loans. With the passage of the legislation the loans will all be made by the federal government. But it provides for organizations like VSAC to service the loans that will be made by the federal government in Vermont."

(Kinzel) VSAC employs roughly 350 people. Vickers says he hopes to avoid any job layoffs when these changes are implemented:

(Vickers) "However the level of service that's required is much different under the contract with the Department of Education. It's less people intensive and more technology intensive."

• Among state agencies and non-profits, VSAC originated the highest percentage of in-state loans

• South Carolina Student Loan Corp.'s CEO had this to say about the impact of the reform (from The State): 

"Now, with the U.S. Senate poised to pass the health care changes and the student loan legislation in one package, the S.C. Student Loan Corp. and private lenders across the country are bracing for a gigantic hit in a prime area of their business.

"It's tremendous," Chuck Sanders, president of the S.C. Student Loan Corp., said of the potential impact of the student loan changes.  Sanders said the corporation's 200 employees, already down about 40 from a couple of years ago, will shrink further, though he said he did not know by how many.  "Obviously, we're going to have a lower staff," he said.

In North Dakota, Senator Kent Conrad noted that the Bank of North Dakota would see little impact from the new bill (from The Forum of Fargo-Moorhead):

"Sen. Kent Conrad, D-N.D., said Monday he talked to Bank of North Dakota officials about how the legislation would affect the bank’s profits.

“As they have indicated, they have a very big book of business that will continue because other provisions in the bill provide them to continue servicing,” Conrad said. “It apparently won’t have much impact on the profit side of the bank.”

Conrad asked to have a provision exempting the Bank of North Dakota removed from the bill to protect the bank’s reputation from being damaged “in an overly heated partisan environment.”

• In South Dakota, Senator John Thune has voiced his opposition to the bill (from Trading Markets): 

"South Dakota has the highest proportion of students graduating from college with debt of any state in the nation," said Thune. "Rather than using this money to reduce the cost of borrowing for South Dakota students, they are using $9 billion to pay for new government spending."

The health care reconciliation bill is expected to end the popular Federal Family Education Loan program, which would put 35,000 private student lending jobs at risk nationwide, including an estimated 1,200 in South Dakota."

• Citibank's CEO, Vikram Pandit, had this to say in November of last year about their student loan servicing business (Citi owns 80% of Student Loan Corporation and has over 900 servicing jobs in the Sioux Falls area): 

"The student loans are essentially going to be provided by the government going forward. That's where we are. So the student loan business has two parts to it. One was providing the loans and the other was processing the loans and the payments. Now the good news for South Dakota is that it is the latter part that's here, which is the processing part of that. Whether or not the government makes the loan, somebody needs to process them, and we're doing that right now. So that part continues to be - it's a different business, but it's an important function that we continue to serve."

Meanwhile, the stock market seemed to take the impending changes in stride, unlike the earlier announcement last February when the Obama Administration first proposed the elimination of private lenders from the federal loan program, which led to sharp declines in the share prices of companies involved in the federal loan program (from Wall Street Journal):

"Shares of student lenders turned mostly positive Monday, with giant SLM Corp. (SLM) gaining slightly, after the U.S. House of Representatives finally voted for a bill first proposed more than a year ago that may spell the end of federal funding for originating student loans but had largely been expected."

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Here are some recent videos with commentary on the student loan reform proposal:

•  From PBS NewsHour:  "A new measure allowing college students to bypass banks and receive college aid directly from the government could pass alongside the health reform bill. Jeffrey Brown talks to Jason DeLisle of the New America Foundation and Renee Mang of Sallie Mae."
• From Fox Business:  Video: Sallie Mae CFO on Student Loan Legislation

Who Are Ten Largest Servicers Of Federal Student Loans?

From recent Nelnet 10-K:

Top FFELP Loan Servicers (as of December 31, 2008)
Rank		Name		$ millions	(a)
1		Sallie Mae		178,191	(b)
2		AES/PHEAA		60,063	(b)
3		ACS Education Services (formerly reported under AFSA)		55,600
4		Great Lakes		41,554	(b)
5		Nelnet		35,889	(b)
6		Citibank, The Student Loan Corporation		24,889
7		Wells Fargo Education Financial Services		18,064
8		EdFinancial Services		9,779
9		Xpress Loan Servicing		8,996
10		Kentucky Higher Education Student Loan Corporation		8,186

Source: 2009 SLSA Servicing Volume Survey and company filings

(a)     As of December 31, 2008, except for ACS Education Services and Citibank, The Student Loan Corporation which are as of June 30, 2009.

(b)  Represent the four private sector companies awarded a servicing contract to service Direct Loan Program loans.
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So, how do these figures compare with the 2007 data that Nelnet disclosed in their 2008 10-K? 

University of Texas (and Others) Going Direct

Here are a smattering of recent announcements over the past month or so:

• University of Texas ($240.7 million in federal loan disbursements for 2008-09):  "Beginning with the 2010 summer term, The University of Texas at Austin will join thousands of U.S. colleges and universities in the William D. Ford Federal Direct Student Loan Program.  The university is making the move to ensure continuity of service for its federal student loan recipients in light of uncertainties surrounding the future of the bank-based Federal Family Education Loan Program (FFELP), according to Tom Melecki, director of student financial services."

• University of Miami ($127.0 million): "At the end of the spring semester of the 2009-2010 academic year the University of Miami will end its participation in the privately funded Federal Family Education Loan (FFEL) program Stafford student loans, Grad Plus Loans, and Parent Loans for Undergraduate Students (PLUS). Beginning with Summer 2010 enrollment we will transition to the U.S. Treasury funded student and parent Federal Direct Loans."