Student Lending Analytics Blog

SLA Market Buzz (6/30/08): Tuition Tree Taking Root

In a conference call with investors today (June 30, 2008) to discuss the upcoming spin-off of Tree.com, IAC/Interactive executives discussed plans for Tuition Tree, which they described as "just like lending tree but for student loans."  With this announcement, Tuition Tree would join several competing loan comparison sites, including Simple Tuition and a host of recent start-ups seeking to capitalize on the recent dislocation in the student lending market.  IAC/Interactive indicated that given their current lending platforms, starting Tuition Tree will require "a very small investment, a couple few hundred thousand dollars in internal site development."   

With the site expected  to be "launch(ing) in about a month", it will be interesting to see how they deal with the following key questions for a comparison site:

MyRichUncle Ceases Federal Loan Programs for 2008-09

With the traditional start of the student lending season on July 1st just hours away, lenders continue to make last minute changes to their loan programs.  These changes are also driven by the finalized Term Sheets for the Department of Education loan purchase and participation program which were released last week and scheduled to appear in the Federal Register on July 1, 2008. 

MyRichUncle, which had been offering an excellent borrower benefit for Stafford borrowers, has ceased their federal loan programs, effective Friday, June 27, 2008, according to a customer service representative there.  The section of their website focused on undergraduate loan offerings only lists "Private" as an option further confirming this move away from federal loans.  MyRichUncle had been offering a 0.5% interest rate reduction at loan repayment to Stafford borrowers.   

New SLA Student Loan Index Measures Investor Sentiment

As a barometer of investor sentiment about the prospects of the student loan industry, the share prices of the publicly held "pure-play" student loan companies would appear to be a good proxy.  Today, SLA is pleased to announce our SLA Student Loan Index.  This is an equally-weighted index which will measure the share prices of the pure-play student loan companies.  The intent of this index will be to provide insights into the short and long-term prospects of the student loan marketplace.  The components of this index will be:

• Sallie Mae (SLM)

SLA Market Buzz (June 27, 2008)

Lender news indicate ongoing problems with downsizings, credit issues and delays in financing:
    250 at PHEAA to take buyouts
    Mohela delays payment to state of Missouri
    First Marblehead funding delayed a few months
    Nelnet shares rise on Wednesday due to upgrade
    Credit card companies facing bigger losses than expected

Several state agencies able to raise capital for 2008-09 year funding (some good news!):
    Securitizations:  South Carolina and MEFA deals
    MEFA to offer private student loans starting in July

Miscellaneous
    U.S. PIRG study:  Nearly 1/4 of college students with credit cards use them to pay tuition
    Dickinson College to Offer Higher Guaranteed Interest Rate for I-529 Plan
    Last minute options to lessen college aid panic

In Defense of a [Focused] Lender List

Why have a lender list? Many in the financial aid field may be asking that question of themselves these days given all the dramatic changes in regulation and the capital markets. 

You might say that I have a vested interest in lender lists, after all I started SLA to help schools put together the best lender lists for their students.  However, if you stop for a minute and take the perspective of an 18 year old soon-to-be freshman college student or her parents, it would be hard to argue about the wisdom of a lender list. 

First, let's get all the points out there that we hear daily from those who choose not to have a lender list (or who provide a long list of lenders that the school has used in the past three years):

Bring on the Liquidity: Notice Regarding Dept. of Ed. Loan Purchase and Participation Plan

The Department of Education has provided a copy of the Federal Register Notice outlining the terms and conditions of the Department’s authority to purchase loans under the Ensuring Continued Access to Student Loans Act of 2008. In case, you did not wade through its 50+ pages, including appendices, I wanted to provide you with some of the highlights. Now that the terms and conditions have been finalized, you could see an additional set of lenders re-enter the marketplace. 

The notice seeks to accomplish three things: terms and conditions of the loan purchases, methodology and factors in evaluating the price that the Department will purchase loans and the methodology used to ensure that the purchases do not result in any additional cost to the Federal Government.

 Here are some of the highlights of what I gleaned from this Notice:

The Alternative Loan Crisis: Myth or Reality (or Too Soon to Tell!)

Consider the following: 

• A recent SLA survey found that over 65% of financial aid administrators are either very concerned or somewhat concerned about the availability of alternative loans for the 2008-09 academic year.


• Credit card lines have been reduced and lenders are becoming more stringent.   Asked recently how Bank of America Corp. is getting pickier about extending consumer credit, Chairman and Chief Executive Kenneth D. Lewis Jr. responded: "That would be higher FICO scores and then an overlay of a human being looking at the credit (Wall Street Journal, June 19, 2008)."

• Home Equity Lines of Credit (HELOCs), a popular source college funding source, have become more difficult to procure.  According to an April survey by the Federal Reserve…Some 70 percent of financial institutions reported that they have tightened credit standards for new applications for revolving home-equity lines of credit, and half have reduced existing lines of credit (Christian Science Monitor, June 16, 2008).

SLA is also archiving and summarizing articles about Alternative Loans.

Given this backdrop, SLA wants to hear from you! 

• Are you concerned about your student borrower's ability to find alternative loans? 
• Do you have anecdotes of students or parents not able to get alternative loans at this early date?
• What strategies or contingency plans are you implementing to address this issue?

Student Lending Analytics Blog

This blog represents a new effort by Student Lending Analytics (SLA) to better serve the financial aid community.

 

First, a little background about SLA. The idea behind SLA came about while researching websites in search of the best loan deals for several of my nieces and nephews who were about to begin college. There was not a single independent, objective site that provided me with the analytical tools to find the best loan! SLA finds the best lenders for students by helping financial aid administrators with their lender selection process. SLA has no affiliations with lenders and shares a common passion with the financial aid community: to find the best loans for students!

 

This blog, like SLA, is designed to harness the collective wisdom of the financial aid community (I am a big fan of “The Wisdom of Crowds”). The following features will make this blog a bookmark that you will return to often:

• Timely topics will be posted frequently so that you and your peers can weigh in on how you are addressing issues such as new Stafford limits, lenders dropping schools, and the struggle to find alternative loans. SLA will review your comments, and summarize and synthesize them into a set of key insights.
• A compendium of articles organized by subject area will make it easier for you to do in-depth research on topics that are important to you.
• Studies and research reports on financial aid issues. SLA will not only point you to recent reports but will also summarize their key points to save you time.
• Trends in capital markets have become increasingly important to track. With almost daily concerns about the state of the economy and its impact on student lending, capital markets increasingly matter to you. Watch for updates on lender conference calls, press releases and “breaking news” items to keep you informed on the state of the markets.

 

Watch for continued innovations on this blog to address your changing needs. As always, please let us know what you think and how we can serve you better.

 

Thank you for your support.

 

Tim