Student Lending Analytics Blog

FSA Posts Presentations For 2009 FSA Annual Conference

Here is a link to the presentations.

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):

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. 

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:

Dept. of Education Provides Update on Direct Loan Transition

First, I applaud the Department for providing some additional insights on the direct loan transition in their recent newsletter, as I had called for in this post last month.

From the Department of Education November edition of Direct Loan Source:

There has been much discussion about the risk of transitioning thousands of schools into the Direct Loan Program by the beginning of the next academic year. Most of the schools that have already made the transition to Direct Lending report having done so with few, if any, issues. The Department has ample capacity to transition all remaining schools before July 1. There is minimal transition risk if schools begin the process in the next few months.

• Over 5,000 domestic schools currently make disbursements in either the Direct Loan or the FFEL Program. Of those, over 2000 schools currently participate in the Direct Loan Program.
  
  
• Of the approximately 3000 schools currently participating in the FFEL Program, more than 2,800 currently participate in the Pell Grant Program and thus are familiar with the Common Origination and Disbursement (COD) System. This is the same system used to originate Direct Loans, and existing familiarity with the system greatly simplifies the transition process. In addition, more than 600 of these schools have officially notified the Department of their intent to participate in the Direct Loan Program and over half have registered for Direct Loan training in the coming month.
  
  
• Of the less than 200 domestic schools not currently using COD, 36% have begun the transition process by registering for Direct Loan training.

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.

Share of Federal Loans Taken Out By Proprietary (For-Profit) School Students Near 20 Year High

After my earlier post about the history behind the incentive compensation ban and later "safe harbors",
I thought it would be interesting to analyze the historical distribution of federal student loan dollars and how it has varied by school type over the past decade.  Here are the figures for the 1990-2000 period (which include FFEL for the ten year period and DL from 1997-2000), which show proprietary schools share of federal student loan volume dropping from a high of 24.2% in 1990 to a low of 9.4% in 1997. 

Fiscal Yr.	Public 4-year	Private 4-year	Public 2-year	Private 2-year	Proprietary
1990	34.4%	34.2%	5.4%	1.8%	24.2%
1991	37.7%	36.0%	5.8%	1.7%	18.7%
1992	40.0%	36.7%	6.0%	1.8%	15.5%
1993	43.3%	37.7%	5.8%	1.7%	11.5%
1994	42.4%	39.8%	5.6%	1.6%	10.6%
1995	38.1%	42.6%	6.3%	1.8%	11.2%
1996	36.2%	44.5%	6.3%	1.9%	11.1%
1997	45.8%	39.0%	5.1%	0.7%	9.4%
1998	45.2%	39.2%	5.0%	0.7%	9.9%
1999	44.1%	39.2%	4.7%	0.7%	11.3%
2000	43.6%	39.2%	4.5%	0.6%	12.0%

Center For American Progress Calls For Office of Consumer Protection in Education

After my recent posts about the need for "Truth in Educating" disclosures and the need for greater transparency in the education market (see Minnesota example that I blogged about here and my concept of a warning label here), it was nice to see some validation of these ideas in this memo from the Center for American Progress. 

Here are the highlights from the piece by Louis Soares: