Student Lending Analytics Blog

Moody's Outlook For Student Loan Securities: Expect Negative Credit Trends For Private Loans In 2010

Here is a summary of their report (available for sale): 

"Moody’s outlook for the ratings of both sectors of guaranteed student loans originated under the Federal Family Education Loan Program (FFELP) and private (non-guaranteed) student loans is stable. Even though credit performance trends for the private student loan sector are expected to continue to be negative in 2010, the ratings are expected to be stable. The ratings today reflect higher expected default rates for the 2007 through 2010 repayment vintages relative to previous repayment vintages due to the recessionary environment, particularly the high unemployment rate, slowing salary growth and high consumer debt burdens. For the FFELP sector, significant legislative uncertainties continue to exist; however, we do not expect this uncertainty to have a major credit impact on the vast majority of existing outstanding Moody’s-rated FFELP student loan transactions."

What About That Claim That Schools Constituting 96% of Federal Loan Volume Are Ready For Direct Lending? (Update)

As posted earlier, the Chronicle of Higher Education reported that schools constituting 96% of federal loan volume were currently in the DL program actively taking steps to prepare for their transition to Direct Lending.  That was followed up a day later by an email from the Department of Education to college presidents and financial aid administrators. 

Here is the detail behind that 96% figure based on information from the Department of Education:

What Does CBO Baseline Report Mean for Student Aid Reform Bill?

Sorry, I wasn't much help with my earlier post which tried to decipher how the new CBO baseline would impact student aid reform legislation stuck in the Senate.   Thanks to the folks at Higher Ed Watch Blog for their analysis of the CBO baseline which noted that the cost of Pell Grant funding increased by $17 billion from earlier estimates:

Financial Literacy News

• Should financial literacy be a graduation requirement? 
  
  • 74% of New York teachers think it is a good idea based on this survey of New York teachers

What Next For Student Aid Reform Bill?

Washington Post weighs in noting that most now assume that the student aid legislation will be moved through budget reconciliation:

What's Up At the Negotiated Rulemaking Sessions in DC?

With round 3 of negotiated rulemaking on Program Integrity expected to wrap up by mid-day tomorrow (Friday), I thought I would summarize what had happened so far this week.  Recall that the two most controversial issues coming in related to the issue of "gainful employment" and incentive compensation: 

Here is how the week unfolded: 

What Impact Would Elimination of FFEL Program Have On Private Student Loans?

This is a question that I am often asked at conferences by concerned financial aid administrators who have seen the significant drop in private (non-federal) student loans and wonder if there is another shoe to drop should lenders such as Sallie Mae and Citibank no longer make federal student loans. 

Discover Financial reiterated their commitment to their private loan product in their 10-K today:

"We currently offer both federal and private student loans. In September 2009, the U.S. House of Representatives passed the Student Aid and Fiscal Responsibility Act (“SAFRA”), which is currently under consideration in the U.S. Senate. If passed in its current form, SAFRA would require all federal student loans to be made directly by the federal government starting July 2010, rather than by private institutions through the Federal Family Education Loan Program. Because SAFRA allows financial institutions to continue offering private student loans, we do not expect SAFRA to have an impact on our ability to continue offering private student loans, even if we discontinue offering student loans under federal programs."

A few thoughts:

Department of Education to College Presidents: Have Contingency Plans If FFEL Lenders Can't Serve Students Next Year

Here is the email that greeted college presidents and financial aid administrators this morning from Bill Taggart, Chief Operating Officer at the Department of Education.  This follows up on data released by the Department yesterday and reported by the Chronicle of Education (see end of post) that 96% of colleges that administer federal loan programs are in the DL program currently or are have made preparations to do so (Dow Jones article also reported here). 

Meanwhile, SLA's analysis of Dept. data found that over the last six months about 2/3 of federal student loans are still being made by FFEL lenders, with about 2/3 of those loans being sold to the Department through the ECASLA financing programs. Just to make things more interesting, Sallie Mae noted in a conference call last week that: 

"We at Sallie Mae feel that we could fund federal loans without an ECASLA program in today’s marketplace but the size of that requirement would be really a function of how schools moved in and out of DL and how many other lenders participated in that program."

That may be true in the future but does not appear to be the case today, as Sallie Mae has sold $9.4 billion worth of federal student loans to the Department as of December 29, 2009, out of the $11.5 billion in loans that they originated over this period. 

Here are the contents of the email that went out this morning (which in basketball parlance I would refer to as the "full court press"):

College Endowments Drop 18.7% In 2008-09; Worst Since Great Depression

To the long litany of financial challenges facing colleges, an endowment study released today from NACUBO demonstrates the carnage in university endowments, which fell 18.7% for year ending June 30, 2009. 

This survey had 842 participants representing $306 billion in investments meaning this 18.7% decline represented a reduction of $70 billion in assets.  Assuming a 4.4% annual endowment payout (the average for the survey respondents) translates into universities having $3.1 billion less to spend from their endowment over this period. 

Obama Urges Passage of Student Aid Reform Legislation In State of The Union

Here are the highlights from the State of the Union address pertaining to higher education:

• Urges Senate to pass student aid reform bill: 

"I urge the Senate to follow the House and pass a bill that will revitalize our community colleges, which are a career pathway to the children of so many working families. To make college more affordable, this bill will finally end the unwarranted taxpayer-subsidies that go to banks for student loans. Instead, let’s take that money and give families a $10,000 tax credit for four years of college and increase Pell Grants. And let’s tell another one million students that when they graduate, they will be required to pay only ten percent of their income on student loans, and all of their debt will be forgiven after twenty years – and forgiven after ten years if they choose a career in public service. Because in the United States of America, no one should go broke because they chose to go to college. And it’s time for colleges and universities to get serious about cutting their own costs – because they too have a responsibility to help solve this problem."

• On the subject of tax cuts:  "We cut taxes for 8 million Americans paying for college."