Student Lending Analytics Blog

Not All Of Those 2,000 Jobs Seem To Back In The U.S. Yet...

April 6, 2009:  Sallie Mae press release:

Sallie Mae, the nation’s leading provider of saving- and paying-for-college programs, today announced that it will create 2,000 jobs by returning its overseas operations to the U.S. Specifically, Sallie Mae will hire call center, information technology, and operations support positions in various communities across the country..."The current economic environment has caused our communities to struggle with job losses. They need jobs, and we will put 2,000 of them into U.S. facilities as soon as we possibly can.”  Sallie Mae expects to hire these employees over the next 18 months.

Why I Have Never Been More Worried About Student Loan Defaults

The light bulb went off as I was reviewing the first set of performance metrics for the four new DL servicers.  The default metrics looked quite good with the only blemish being a 0.01% default rate figure for the prop. school category serviced by Great Lakes.  Of course, it's hard to default when almost all of your borrowers are still in school.  Sallie Mae executives have noted that default figures are not likely to factor into the allocation methodology for several years until the portfolio ages and students enter repayment. 

That led me to think about who is making sure that borrowers in repayment are not defaulting, which led me to the exercise below.  So, who's keeping an eye on the bulk of the $621.1 billion in federal loan debt?  [Hint:  Many companies that don't have a long-term future in the business and therefore may be distracted as they figure out their exit strategies or how to maximize their cash flows.] 

Salie Mae Rated Best By Students, Worst By Feds In First DL Survey Results

Highlights:

• All four servicers had below-average borrower satisfaction levels (ratings of 64-71) compared to the ACSI national averages of 76. 
• Schools rated servicer performance (average of 79) much higher than borrowers did (average of 67).
• The federal personnel ratings had the widest range of scores with PHEAA highest at 81 and Sallie Mae lowest at 61.  

Follow-up questions for Department:

• What specific issues led borrowers to rate servicer performance below average?
  • What is the performance plan to address these concerns?
  • It is absolutely critical that this transition go smoothly.  Poor execution today can only exacerbate student loan default issues in the future. 

• What led to Sallie Mae's low performance rating from federal personnel and what impact might his have on their performance under this contract? 

What Incentives Do Collectors Of Defaulted Federal Student Loans Have To Satisfy Customers?

Hmmm, bet you can guess the answer to that question.  Still, you might be surprised to know that the Dept. doesn't independently survey any borrowers to measure satisfaction levels, which I think is dangerous.  The 2008 RFQ for collectors of defaulted federal student loans were to have the allocation of accounts determined by how they stack up against these criteria:

(1)     PERFORMANCE INDICATOR #1:  DOLLARS COLLECTED PERCENTAGE - 70 Points.

The Jobs Issue: Help Me With The Math

With Sallie Mae town convening another round of town hall meetings (for round 1 details and a further exploration of the jobs issue, see this post) in Florida and Indiana highlighting the potential job losses at their loan servicing centers in those states, I thought it would be useful to revisit an earlier jobs announcement that Sallie Mae made in April of this year. 

In early April, Sallie Mae announced to much fanfare that they would be bringing 2,000 jobs that they had offshored back to the United States.  Whether the move was motivated by patriotism, a failed offshore strategy or the requirements of the Direct Lending contract, I won't make any conjecture.  Accompanying Sallie Mae executives for the announcement was Rep. Paul Kanjorski who stands to gain 600 jobs at the Sallie Mae loan servicing center in his Congressional district in Pennsylvania (in case you were wondering, he was one of four Democrats who did vote against SAFRA).  So, hold that thought for a moment, a net 2,000 new jobs returning to the United States.

Center For American Progress Calls For Office of Consumer Protection in Education

After my recent posts about the need for "Truth in Educating" disclosures and the need for greater transparency in the education market (see Minnesota example that I blogged about here and my concept of a warning label here), it was nice to see some validation of these ideas in this memo from the Center for American Progress. 

Here are the highlights from the piece by Louis Soares:

Ask A Simple Question...

It's a question that I get asked all the time: How well are borrowers in the Direct Lending program being served today?  So, on August 20th, I emailed the Department of Education the following FOIA request:

"The performance ratings that the Department of Education has collected in the evaluation of the current DL servicer, ACS."

Seems kinda simple, right?  I got my answer this week, which included the following paragraph (FOIA's version of the dreaded "Dear John" letter): 

Aargh...Income-Based Repayment Off To Slow Start; Technical Glitch May Be Responsible

The Chronicle of Higher Education reports that a technical glitch may be responsible for the low number of students who have applied for the new income-based repayment plan since it took effect on July 1st.  The glitch (which I might even call a snafu, since the law creating this program passed in October of 2007) is that the Department's account repayment website doesn't include "Income-Based Repayment" as an option in their drop-down menu [Borrowers can download the form on the site and mail it in].  Hmmm..is it any surprise then that only 14,000 borrowers had applied (with 4,500 approvals) for the program.  At a time when defaults are rising, IBR, which sets borrower payments based on income levels, was expected to provide some needed relief.  With many recent graduates having difficulties in the job market and with many loans entering repayment in November, it sure would be nice to have that drop-down menu option added sooner rather than later. 

As for the reason for this delay: 

How Is Senate Student Loan Reform Bill Different From House Bill?

The Chronicle of Higher Education reports the following differences (the draft of a Senate bill is expected to be released next week, a bit later than the September 30th mark-up date for the HELP committee that had been reported earlier):

• Senate version has larger minimum Pell Grant
• Senate version has more money going to states and colleges; $4.25 billion vs. $3.0 billion for College Access and Completion Innovation Fund.  
• Distribution method for Perkins Loans differs:
  • House version would make of the award based on graduation of Pell recipients and keeping tuition increases to a minimum.
  • Senate version awards funds based on need and reduces the size of the Perkins awards based on institutions' failure to hit targets for enrolling and graduating Pell Grant recipients.  
• Draft Senate bill also includes 5% match requirement for Perkins loans which could be reduced if student borrowing was limited. 

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Here is an undated draft of the Senate bill:  Download Senate Bill_Draft   Please note that this version is probably already outdated so read the 284 pages with caution. 

I Called To Find Out About Getting A Student Loan...

As the Federal Reserve noted in the consumer research about private education loans, students and parents like to talk to someone before making the purchase decision:

"However, some are uneasy with the Internet being the only source and want to speak with a live person due to the complexity and magnitude of the financial commitment. They also find it more difficult to judge a bank’s credibility online."

SLA wanted to assess the quality of information that students or their parents might receive from the call center operations of student lenders.  We placed over 140 calls from June to September of this year to eight top lenders, including Wells Fargo, SunTrust, Sallie Mae, PNC, Chase, Discover, Citizens Bank and Citibank.  Each of these lenders provide both federal student loans and private loans.  Our caller requested general information about finding a student loan which helped us understand the degree to which lenders assess each caller's needs.  As the call progressed the caller would then ask for details about federal and private loan programs which allowed us to determine the quality and depth of information provided.