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)
- The Student Loan Corporation (SLC)
- Nelnet (NNI)
- First Marblehead (FMD)
- MRU Holdings (UNCL)
While these five companies vary greatly based on their focus (First Marblehead is focused on securitizations of private loans while Sallie Mae is a vertically integrated provider of FFEL and private loans) and their size (Sallie Mae has a market cap. over $9 billion while MRU is just north of $70 million), this index will still provide some insights on both the individual prospects of companies and also the overall direction of the industry.
The following charts indicate the recent long-term (4 and 1/2 year), 1 year and 3 month performance of an index consisting of these five components (please note that UNCL was added on 2/17/05):
- As of Friday's close (6/27/08), the SLA Student Loan Index stood at 51.2, which is a 48.8% decline since it was originally indexed on January 1, 2004.
- After peaking in early 2007 at 187.8, the first significant downdraft in the index occurred as it became apparent that the private equity firm, J.C. Flowers, would drop their bid for Sallie Mae in September of 2007. This action dropped SLM's stock price significantly below the buyout bid of $60/share.
- In
addition, the College Cost Reduction Act which lowered lender
subsidies, the developing "credit crunch" and subsequent shutdown of
the securitization markets led to dramatic declines across the board
for student lenders in the fourth quarter of 2007.
- In the fourth quarter of 2007, the index declined by 48.9% from 150.9 at the beginning of the quarter to 77.1 by quarter end, as the chart below so graphically indicates:
- The chart below shows how the industry has stabilized in the last three months, with the index oscillating within a tight band between 50-60. This stabilization coincides with the recent legislation providing liquidity to FFEL lenders through a Department of Education loan purchase and participation program which occurred in May 2008.
As with any index, there are individual differences in stock price performance driven by company-specific issues. For example, Sallie Mae saw their $60 buyout offer disappear in 2007 and First Marblehead has seen their primary revenue source, fees from private loan securitizations, dry up due to the "credit crunch."
Look for the SLA Student Loan index to be updated on a monthly basis with brief commentary about what the financial markets are signaling about the state of the industry.
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