Student Lending Analytics Blog

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:

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. 

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:

Seven Questions With Paul Goebel, University of North Texas Money Management Center

I came across the University of North Texas Money Management Center through some financial literacy research that was passed along to me from a colleague.  The program had been cited as a model program whose comprehensive approach to financial literacy was worthy of emulation.  I thought I would check in with Paul Goebel, the founding and managing director of the program there to learn more about his award-winning center.  What follows is the result of an email exchange over the past week:

Question:  Paul, can you please describe the various elements of your program.

Answer:  The center provides four primary services to students to help them strengthen their financial literacy skills:

• Information:  Online resources
• Education:  Workshops, seminars, presentations
• Application:  Personal consultations
• Retention:  Emergency short-term loan programs

Question:  What are the main issues that students are concerned about today?

Answer:  The main money issues/concerns of students today include: 

• Understanding financial aid processes
• Building a livable budget
• Planning for transition (graduation, graduate school, new professional life, etc.)
• Building and repairing credit
• Financial goals setting and achieving

Financial Literacy In The News

• An improvisational play "Mad About Money" produced by the National Theatre for Children (Minneapolis) has proven effective at teaching children basic financial literacy concepts (here is a link to the four financial literacy programs currently being offered by NTC which seems geared to middle-schoolers):

"While student and teacher feedback has consistently indicated that the plays make an impact, a recent study by Dr. Lewis Mandell of the University of Washington provides empirical evidence that NTC's productions are influencing student attitudes on personal finance. Professor Mandell's research showed that watching the Mad About Money play - and using the student workbooks and Web site aligned with the program - significantly increased a student's knowledge of personal finance concepts. "The intervention increased knowledge by more than 13 percent, which was highly significant," writes Dr. Mandell in his report."

Now This Is An Interesting Pricing Model...

I was researching a new college search site called WiseChoice (slogan is "Your Personalized Path to College").  It looks like it is bringing the concept of a college consultant to the masses.  I will post a more detailed review of the site later but I was drawn to it because of its holistic approach to helping students select the right college while also incorporating a financial planning module to ensure they can afford it too.  When I went looking for the cost of this service, I came to this screen, which I wasn't able to replicate for you. 

Here is the gist of their pricing model:

House Bill To Create Roosevelt Scholars Program

I received this email this morning from Congresswoman Anna Eshoo (CA-14):

"I just signed on as a cosponsor of H.R. 3510, the Roosevelt Scholars Act of 2009. The bill would create a new, elite scholarship program to fund graduate level study in exchange for a civil service commitment to areas across the federal government. H.R. 3510 would also establish a foundation to administer the application process, selection of scholars, and ongoing support activities associated with these scholarships. The scholarship would provide full tuition, support for room and board, and a stipend for graduate study. In exchange, the scholars will complete an internship with a federal agency and, upon graduation, complete a minimum of three years of civil service.

H.R. 3510 would provide the much needed pipeline of professional talent for the federal government which is facing a workforce crisis.  The Government Accountability Office (GAO) estimates that in approximately five years, the government's top scientists, engineers, physicians, mathematicians, economists, and other highly specialized professionals will be retiring.  The bill will initiate a major recruitment effort that utilizes our nation's expansive network of colleges to meet vital government staffing needs and serve the American public."

Here is a summary of the bill provided by CRS:

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.

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: