Today in Student Loans

Continued fallout from the Obama budget plan to eliminate FFELP was felt in the student loan market:

Symbol	Last Trade		Change		Volume	Intraday	Related Info
SLM	4:01PM ET	4.60	1.20	20.69%	32,143,526		Chart, Messages, Key Stats, More
NNI	4:01PM ET	5.10	0.19	3.87%	1,014,161		Chart, Messages, Key Stats, More
STU	4:01PM ET	37.72	3.79	9.13%	132,063		Chart, Messages, Key Stats, More
FMD	4:07PM ET	0.95	0.03	3.06%	393,179		Chart, Messages, Key Stats, More

Sallie Mae fell another 21% today after a 31% drop yesterday.  Here was some of the negative chatter from the analyst community: 

• Moody's may cut Sallie Mae's debt rating due to "uncertainty regarding SLM's business plan going forward." 
  
  • Moody's currently has SLM rated Baa2, the second lowest investment grade rating. 
  • This would not only raise Sallie Mae's cost to raise additional debt but make it more difficult given challenging credit markets. 
    
    • Sallie Mae’s ability to raise money in the capital markets is “hobbled by this news,” said Sean Egan, president of Egan- Jones Ratings Co. in Haverford, Pennsylvania. “Any intelligent investor will question the ability for Sallie Mae to earn a reasonable return.”
• Bloomberg reports that Sallie Mae could lose 74% of their loan originations under the new plan.  
  • This represents their FFEL volume as a percent of their total loan book in 2008.  
  • Analyst indicated that Sallie would effectively become just a loan servicer and debt collector in a post-FFEL world:
    • “They go from being an originator of loans to what could be just a servicer,” said William Ryan, an analyst at New York- based Portales, which rates the stock a “buy.” “The two parts of the business that effectively would remain would be servicer and the default management business. The final part of their business, private credit lending, is up in the air.”
  • Matt Snowling an analyst at FBR indicated the following:
    • “We view this proposal as meaning that lenders such as Sallie Mae will face continuous threats during the current administration’s tenure, which likely cause significant risk and turnover of the shareholder base.”
• WSJ blog is reporting that TALF will not be backing student loans, based on the following comments from Joseph Astorina, a securitization research analyst at Barclays. 
  
  • "The budget proposal seeks to eliminate all private lending so there will be no private lender FFELP student loan asset-backed securitization.."
  • That said, the government could securitize federal student loans in the future, Astorina said, noting that the latest move “is effectively eliminating FFELP student loan asset-backed securities as an asset class.”
  • Private student lenders like Sallie Mae, Nelnet Inc., Student Loan Corp. and others will only have “some legacy loans or private loan originations but that’s probably about all,” Astorina said.