Student Lending Analytics Blog

Author Suggests Making Federal Loans Contingent On Student Prospects

The book:  The Lowering of Higher Education in America: Why Financial Aid Should Be Based on Student Performance

The author:  Jackson Doby, professor emeritus of sociology at Rutgers University

Inside Higher Ed had a piece authored by Mr. Doby today titled "Subprime Student Loans".  Here are some excerpts:

ACS Bid Protest Decision Offers Insight Into Servicer Selection Process

Here are the highlights of the decision posted here by the Government Accountability Office: 

• Summary:  "Protest of award of four indefinite-delivery/indefinite-quantity, performance-based contracts for servicing direct federal student loans is denied where agency reasonably determined that while incumbent protester’s offer would mitigate risk during transition and benefit government in the short term, these advantages were not worth the increased overall cost to the government resulting from the refusal of the protester (unlike the awardees) to accept the agency’s proposed common pricing terms, and protester’s proposal to continue servicing loans transferred from its contract would frustrate contemplated performance-based approach under the acquisition and introduce uncertainty in contract administration."

Comparing Borrower Demographics And Default Rates

Once every few weeks, I am crunching some data where I expect a certain result and then when I finish the analysis, I have one of those AHA! moments.  Such was the case earlier today.  Bizzaro Watchdog's comment on one of my recent posts led me to dig deeper on the issue he raised : "To truly compare default performance, one has to isolate for the borrower demographics and only then compare across all institutions." 

While I didn't have borrower demographic information, I did have a proxy for income by analyzing Pell Grant recipients as a percentage of students enrolled.  And as luck would have it, when the Dept. of Education recently released their 3-year cohort default data they also provided enrollment data for all of the Title IV schools too.  When I analyzed the figures, here is what I got for the 2007 cohort:

Participate In SLA Flash Survey On Private Loan Lender Lists!

The survey was sent out to financial aid professionals earlier today and will close on Friday afternoon at 5pm.  The survey focuses on how schools are thinking about their private loan lender selection process for 2010-11, and also inquires about the availability of private loans on college campuses. 

If you did not receive a copy of the survey and would like to participate, please feel free to send me an email at tranzetta@studentlendinganalytics.com. 

What Causes Student Loan Defaults?: A Research Report

Thanks to Mark Scanlan for pointing me towards a 2002 study authored by Jennie Woo (whose recent post appeared earlier this week) with the title "Clearing Accounts:  The Causes of Student Loan Default."  Here were Mark's comments on the study and its implications given the current changes in the federal loan program:

"One of its insights is particularly relevant to today's environment: the impact of split servicing, the condition in which a borrower's loans are serviced by more than one entity. Dr. Woo concluded that this condition increased the likelihood of default by 22%. For years, lenders, guarantors, and secondary market holders took pains to try to serialize a borrower's loans to one servicer, and a single servicer was the norm for most borrowers. With ECASLA purchases and the transition to DL, split servicing will affect the approximately 50% of borrowers whose loans are not currently serviced by Sallie, Nelnet, AES, or Great Lakes."

Please send along any other studies that you might be aware of on this topic.  It would certainly seem a good investment to update this study to inform policymakers as to the causes of student loan defaults, given their accelerating growth. 

Thinking About The ROI For That College Degree at State U.?

I probably should have seen this earlier, but the Payscale College Salary Report provides data on salary ranges by major at leading universities.  For example, here are the top 10 state universities based on salary potential with mid-career being defined as 15 years out:

One Word To Describe U.S. National Financial Capability Study: "Unsettling"

"This study has given us a wealth of important—and in some cases, unsettling—data that we can use to help Americans better manage their finances and plan for their futures."

Rick Ketchum, Chairman and CEO, FINRA prepared remarks delivered on December 15, 2009

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Skimming through the National Financial Capability Study released today by FINRA Investor Education Foundation.  I like the fact that it is taking a more expansive view on the issue which shows in the title of the study.  Those who created this survey see financial literacy as only one component of financial capability.  I like the multi-dimensional approach they seem to be taking to this issue, rather than just focusing on specific knowledge:

"Financial capability cannot be measured simply by looking at one indicator, such as demonstrated knowledge of specific terms or concepts. Instead, financial capability encompasses multiple aspects of behavior relating to how individuals manage their resources and how they make financial decisions (including the factors they consider and the skill sets they use). It is a multi-dimensional concept that requires looking at individual behavior from various angles."

Wondering How Your State Stacks Up When It Comes to Student Loan Defaults?

Below is the list created by SLA, which ranks states based on their three-year cohort default rate figures, from data provided by the Department of Education earlier today.  I also thought it would be interesting to take into account the enrollment mix at the state level, since that can have an impact on a state's default rates given the variance in the three-year 2007 cohort default rate by school type:

If It's Monday...It Must Be Three-Year Cohort Default Rates...And Yes, They Did Go Up To 11.8%

Big caveat:  These three-year cohort default rates for federal student loans are being provided for informational purposes only. This press release from Lincoln Educational Services explains when the new three-year CDR calculation will be used by the Department of Education: 

"The DOE will not impose sanctions based on the new three-year CDRs until 2014, when default rates for three consecutive fiscal years will have been calculated under the new methodology. Until that time, the DOE will continue to calculate and publish two-year CDRs and to base sanctions on those two-year CDRs."

As most readers know, the three-year cohort default figures are being released today.  Here is a summary of data provided by the Department of Education.  First, in comparing the overall 2-year cohort default rates with the newly calculated 3-year cohort default rate for all borrowers entering repayment in 2007, one sees an increase in the overall rate from 6.7% to 11.8%.  The proprietary sector has the biggest change on a percentage basis with a 92.7% increase, with their three-year cohort default rate at 21.2%.  

3,000 Miles And Three Presentations Later...A Surprise!

In case you were wondering about the absence of the SLA Blog at the end of last week, there was a flurry of activity on the conference front: