Student Lending Analytics Blog

PLUS Loan Denial Rate 2X Higher In FFEL Program in 2007-08, FinAid Research Finds

Here is a link to the research on the FinAid site. 

Here are the Parent PLUS loan denial rates for 2008-09 calculated by FinAid using the National Postsecondary Student Aid Study (NPSAS):

Overall:  37%
DL program:  21%
FFEL program:  42%

Mark Kantrowitz, the author of this paper, explains how this difference likely came about:

"Anecdotal evidence suggests that several FFEL program lenders are incorrectly implementing the definition of an adverse credit history by using a five-year lookback for the 90-day delinquency restriction instead of limiting it to just current 90-day delinquencies (Footnote:  This is technically not a violation of the regulations, since 34 CFR 682.201(c)(2)(iii) permits FFEL program lenders to adopt more stringent credit underwriting criteria).  This would necessarily lead to increased PLUS denial rates.  Since such a five-year lookback on delinquencies would represent a more stringent credit underwriting standard than education lenders use for private student loans, this error would likely lead to a shifting of some borrowers from the PLUS loan to private student loans."

In Case You Missed These Friday Posts...

Factors To Consider With Private Loan Vs. Grad PLUS Comparison Tables

In Case You Were Wondering About The Banking Industry...

Feed My Future: Gifts To Support Student Loan Repayment

Prepaid Tuition Plans In The News

I'm Sensing A Pattern...

While College Tuition Rates Rose by 5.9% to 6.4% in 2008-2009...

Consumer prices dropped by 2.1% for 12 months ending July 2009 (primarily driven by a 28.1% decrease in energy costs.  Note that many economists quote an adjusted CPI number which excludes energy and food.  Since I like to drive and eat I include those figures).  I found these numbers on the College Board site regarding increases in college prices:

Average College Prices 2008-09
Private four-year $25,143 (up 5.9 percent from last year) Public four-year $6,585 (up 6.4 percent from last year)

One Executive's Story Typifies Shifts In Student Loan Marketplace

NY Times column, Generation B, profiles employment challenges for a former Sallie Mae sales executive.  I thought this passage summarized the last 12-18 months in the student loan market:

Like steelworkers in the 1980s recession, Mr. Blattman was part of an industry, financial services, where entire companies and divisions collapsed and disappeared. “It wasn’t anything about me personally,” he says. “The world around me just changed overnight. Like East Germany, one day it was there, next day gone.”

Several factors were at play: credit markets contracted; a scandal over questionable ties between lenders and college aid offices put private lenders on the defensive; and Congress cut the subsidies paid to private lenders for issuing federally guaranteed loans, reducing profitability.

Mr. Blattman has many people to commiserate with, but few to network with. “Ninety percent of the people I worked with lost jobs,” he says.

A Sign of the Times: Credit Unions Investing in Google Adwords

They had two of the top four Sponsored Links this evening under "student loans" search:

I'm Sensing A Pattern...

Headlines from the last 48 hours: 

Prepaid Tuition Plans In The News

I noticed a smattering of stories over the past few weeks.  My earlier post "Prepaid College Tuition Plans:  Not Always A Guarantee" highlighted the importance of having a state guarantee to support the plan.  My initial research found that only 40% of plans had some form of a state guarantee although I also noted that should a plan without a state guarantee fail there would be lots of political pressure to compensate the victims (see Alabama PACT program below). 

States are rapidly discovering the problem with how these prepaid tuition programs are structured: 

"When you couple the market's performance with the rising cost of tuition, the states determined that they could no longer continue in the programs and track tuition inflation with their investment gains," said Chris Hunter, associate director with the Lexington, Ky.-based trade association [National Association of State Treasurers]."

Feed My Future: Gifts To Support Student Loan Repayment

I came across this new company, Feed My Future, which is in start-up mode or alpha pre-release as their website describes it.  Here is the company description that appeared in an article about a business incubator called Betaspring in Providence, RI:

Feed My Future, led by Johnson & Wales University professors Mehdi Moutahir and Brian Alves, wants to tap the powers of social media to help young adults repay their student debt. Moutahir and Alves are developing a website that would allow family members and friends of, say, a recent college graduate to make secure contributions that go directly toward paying down that person’s student loans. The team also plans to create widgets that people can put on their Twitter pages, Facebook profiles, and other social networking sites to bring people to their Feed My Future Web page.

In Case You Were Wondering About The Banking Industry...

• The "too big to fail" banks have gotten even bigger, according to the Washington Post...
  • Here is a link to a graphical representation of this phenomenon
  • Here are a few stats on the collective dominance of JP Morgan Chase, Bank of America and Wells Fargo:

"Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show."

• Meanwhile, the health of the overall banking sector continues to worsen...

Factors To Consider With Private Loan Vs. Grad PLUS Comparison Tables

I have been scanning school's financial aid websites to see examples of how the comparison between these loan programs is being presented to graduate students.  With interest rates so low, it can be difficult to get a student who has a variable-rate private loan with a 5% interest rate to even consider a fixed-rate Grad PLUS loan of 7.9% to 8.5% with fees which make the APR even higher.  That's why I think it is so important for students to have access to comparison tables so that they can see how the loans differ, especially when it comes to repayment options and interest rate structure.  The recent implementation of IBR and public service loan forgiveness programs on federal student loans should be reflected in these tables as they are factors students may weigh heavily in their decision. 

Here are a few websites that I thought were worth noting:

Harvard Graduate School of Education: