Student Lending Analytics Blog

ASA Cuts Staff By 17%; To Focus on Debt Management Services Going Forward

I picked up ASA's press release from NASFAA News this morning.  It noted that the company will be focusing their efforts going forward on debt management services:

"In recent years, American Student Assistance has emerged as a leader in the student loan industry, providing education debt management services to 1.8 million student loan borrowers. Secondarily, we have supported our school and lender partners in the traditional Federal Family Education Loan origination processes.

Today, we have streamlined our operations and curtailed ancillary expenditures to position ourselves to continue to provide the critical service of higher education debt management, which we believe is, and will continue to be, the most pressing need of student loan borrowers."

• SLA note:  Among large guarantors (over 25,000 borrowers in repayment), ASA had the the second lowest cohort default rate for 2007 with a rate of 3.7%.  For 2005 and 2006, ASA had the lowest cohort default rates among all guarantors with a rate of 1.5% and 1.4% respectively. 

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.

Barron's Article Focuses Spotlight on For-Profits

On a day when many stock indices were up over 2%, four of the larger institutions in the for-profit education sector underperformed:

Symbol	Last Trade		Change		Volume	Intraday	Related Info
APOL	4:00pm ET	55.88	0.11	0.20%	6,755,752		Chart, Messages, Key Stats, more...
DV	4:03pm ET	53.46	1.92	3.47%	2,272,416		Chart, Messages, Key Stats, more...
ESI	4:01pm ET	93.59	0.65	0.69%	1,162,308		Chart, Messages, Key Stats, more...
COCO	4:00pm ET	15.16	0.19	1.27%	4,783,445		Chart, Messages, Key Stats, more...

Why?  Blame it on the Barron's article that ran over the weekend titled "Leveraging Up To Learn."  Here were some of the highlights that seem to have attracted Wall Street's attention, but were probably not all the relevatory for readers of this blog:

Nelnet 10-Q Provides Details on DL Servicing Contract and Another Whistleblower Suit

First the earnings report, which Wall Street cheered by pushing the stock higher by 7% to $15.64:

Nelnet (NYSE: NNI) today reported base net income of $50.2 million, or $1.01 per share, for the third quarter of 2009, compared with $23.4 million, or $0.47 per share, for the same quarter a year ago. For the first nine months of 2009, the company reported base net income of $113.5 million, or $2.30 per share, compared with $65.2 million, or $1.33 per share, for the first nine months of 2008. Base net income excludes discontinued operations, restructuring charges, and certain liquidity-related charges.

Here are a few of the highlights of the Nelnet 10-Q filed today:

• Nelnet provided some additional details on the federal loan servicing contract which they were awarded with Sallie Mae, Great Lakes and AES/PHEAA (bold type below is provided for emphasis):

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

Note To Senate: Time For An Annual Reporting Requirement on The Federal Student Loan Program

As the US Senate considers a student aid reform bill, it strikes me that they may want to incorporate a requirement that the Department of Education produce on annual report on student lending.  With the federal loan programs for 2008-09 nearing $84 billion/year and total outstanding federal student loans exceeding $550 billion, it seems high time that taxpayers demand more transparency to gauge how these loan programs are faring.   Researchers shouldn't have to spend hours piecing together data from press releases, the President's Budget, collections reports, annual reports of publicly held companies, guarantor operating statements and myriad other sources to get an incomplete, disjointed picture of the program. 

For a model, here is the report recently released by the Ministry of Education in New Zealand titled "Student Loan Scheme Annual Report 2009."  Note the plain English, descriptive charts and financial statements within the report.  With the House SAFRA legislation calling for the elimination of FFELP and for all schools to shift over to Direct Lending (Senate has not released a companion bill), the time is right to require an annual reporting requirement which includes financial statements and detailed repayment data (for example, can anyone answer the basic question of what percentage of federal loans are delinquent?), beyond the flawed cohort default rate.  An annual report seems like a perfect opportunity to build some accountability into a student aid reform bill while ensuring that the taxpayer is receiving transparent information commensurate with their $550 billion investment to date.  Who is going to step up?

NegReg And A-T-B Tests: Ability to Borrow or Ability to Benefit?

Thanks to NASFAA for their summary of the recent negotiated rulemaking sessions held this week focused on the integrity of the federal student loan programs.  Here are links to the summaries that they have provided with the issues discussed:

• Day 1:  Discussed protocol and subjects to be discussed 
• Day 2:  Definition of High School Diploma, Ability to Benefit, Misrepresentation of Information, Incentive Compensation
• Day 3:  State Authorization, Verification, Agreements Between Institutions of Higher Education

I wanted to focus my attention on the Ability-To-Benefit Tests, which I have blogged about here and here and was the subject of a GAO report that found fraudulent activity on the two occasions their investigators visited a school testing site. 

Here was NASFAA's blow-by-blow of the rulemaking session dealing with ATB tests:

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: