Student Lending Analytics Blog

What Are People Reading on the SLA Blog?

Visits were up 22% last week driven in part by the posts listed below.  Here were the five most widely read posts from last week:

• Department of Education Provides Update on Direct Loan Transition
• Bank of America Exiting Federal Student Loan Program
• Let the Matchmaking Begin...
• Which Schools Have the Largest Federal Loan Volumes?
• Incentive Compensation and the For-Profit Sector:  A History

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."

Bank of America Exiting Federal Student Loan Program

Bank of America, the largest U.S. bank based on asset size, announced today that they will be exiting the Federal Family Education Loan Program, or FFELP, in December.  Here is a copy of their announcement to their school customers:  Download Bank of America Student Lending Announcement 11.6.09

Here are some details from their announcement:

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."

Chase's Participation In FFELP Program (Updated With Clarification)

From an email that I received from a financial aid director this morning: 

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:

It's Good To Be A Servicer...

I forgot about this tidbit from the 3Q 2009 Sallie Mae conference call, in which they were describing the future of the company in light of the potential elimination of FFELP (seems to provide insights as to where the profits are for FFELP lenders too):

"In fact those loans as they now exist under contract would provide about $6 billion of servicing income stream over the years. It would also create liquid capital to better capitalize our private loan business. It would likely infuse that capital into our bank."

So, the FFELP loans on their books today will provide $6 billion of servicing revenue over their life...as for holding the loans, Sallie Mae plans to get out of that business by selling their FFELP loans:

"We very likely sell the $120 billion of our FELP loans to shrink our balance sheet to add capital. Of course we would service those loans."

Loan Forgiveness...For Helicopter Pilots At Defunct Training School

CIT's Student Loan Xpress has reached a settlement with 12 state's attorneys general which will benefit students of Silver State Helicopters, which closed abruptly in February 2008, leaving students with mounting private student loan debts and no FAA certifications.  As reported by the Press-Enterprise (Riverside, CA), students who received no training will receive a 75% reduction in their student loan debt while others will see debt reduction on a sliding scale based on the hours of training they completed.  The total settlement amount came to almost $113 million.  Key Bank, Silver State's preferred lender in 2003 and 2004, has yet to reach a settlement with students.  Federal student loans allow students to discharge their loans when the school that they are attending closes while private loans do not.