Student Lending Analytics Blog

College Board Report on Student Aid: Federal Aid and Federal Loans Up , Private Loans Down

The College Board released their Trends in Student Aid 2010 today.  Here were their key findings:

• First to provide some context, here are the six top sources of student aid in 2009-10 representing over 90% of student aid (includes graduate and undergraduate aid sources which in total amounted to $199.2 billion for 2009-10):
  
  • Federal loans ($96.8 billion) or 49% of total aid
  • Institutional grants ($33.4 billion) or 17% of total aid
  • Pell grants ($28.2 billion) or 14% of total aid
  • Federal grants other than Pell ($13.1 billion) or 7% of total aid
  • Private and employer grants ($10.6 billion) or 5% of total aid
  • State grants ($8.7 billion) or 4% of total aid

Sallie Mae Back-To-School Private Student Loan Originations Disappoint

I listened to the Sallie Mae presentation at the Barclays Capital investor conference (see presentation here), which took place last week. 

Here were some of the highlights:

• CEO Al Lord talked down SLM's private student loan forecast to $2.25 billion for 2010, which is 36% below the company's forecast just six months ago.  From March 2010 Citi Investor Conference of this year:  "Our volume goal is $3.5 billion for 2010; that is not in the bag.  Goal would be to get that number to $5.0 by 2012-13." 
  
  • If Sallie Mae hits their forecast, their last two quarters of 2010 would be 7% below 2009 levels despite significant marketing spend on their Smart Option loan and a reduced $25 per month payment option they introduced in June of this year.  Sallie Mae is the only major lender that requires borrowers to make payments while they are still enrolled in school.  Let's see if there are any additional product modifications upcoming to try and address this ongoing slide. 
  • Company forecast likely loan growth for 2011 of 10-11%.  Sallie Mae's private loan originations have dropped by more than 24% in each of the last nine quarters.  Their projected private loan volumes for 2010 of $2.25 billion are 71.5% below their peak levels of $7.9 billion in 2007. 
  • Company's research indicated that tuitions rose 4% (after two relatively flat years) on a base of $300 billion or $12 billion incremental costs for students for 2010-11. 
  • Going forward, "company will invest modestly and intelligently to resuscitate its private credit business..."

Federal Student Loans Up 18% After First 3Q of 2009-10; GradPLUS Sees Fastest Growth

Federal Student Aid has updated their data center with the latest figures on federal loan and grant volumes. SLA analyzes disbursement figures for these loan programs one quarter after their initial release since significant adjustments are often made to the most recently released figures. 

Observations:

• Overall, federal loans (Stafford, Parent PLUS and Grad PLUS) grew 18% to $77.8 billion through the first three quarters of 2009-10. 
• GradPLUS loans grew 34% to $4.4 billion over this period, while Parent PLUS loans grew 16% to $8.0 billion.  
• Stafford loans, the most prevalent federal loan program with 84% of disbursements, saw 16% and 18% increases in subsidized and unsubsidized loan programs respectively for the first three quarters.
• Applying this 18% growth figure to the 2008-09 disbursements of $85.2 billion (from FSA Data Center site) yields incremental volume of $15.3 billion for the 2009-10 academic year. 

Dept. Provides Guidance on How Schools Can Access Technical Assistance For DL Transition

Blog readers might recall this earlier post almost two weeks ago about how schools could access the $50 million provided for technical assistance in the Health Care and Education Reconciliation Act.  Today, the Department has posted a Dear Colleague Letter on the topic which mirrors those comments made by David Bergeron at the TG Conference. 

Here are the relevant excerpts:

The rationale on how best to assist schools in the implementation process:

Federal Student Loans Continue Strong Trends; Rise Over 20% In First Half Of 2009-10 Academic Year

The Federal Student Aid Data Center website has updated their federal student loan data for the 3rd quarter (March quarter end) of the 2009-10 academic year.  Given the adjustments made to these figures in the subsequent quarter, SLA chooses to analyze this data one quarter after its initial release, which is why this post analyzes the quarter ending December 2009. 

Observations: 

• Overall, federal loan disbursements grew 20.2% in the first six months of 2009-10 to $41.5 billion.
• Direct Lending saw a 59.5% increase in disbursements to $14.5 billion and held a 35% share while FFELP disbursements increased 6.1% to $27.1 billion for a 65% share. 
• GradPLUS loans saw the sharpest increase in disbursements for the first six months, growing 35% to $2.4 billion while Parent PLUS loans had the slowest growth at 17% to $4.2 billion. 
• Stafford loans, the most popular federal loan program with 84% of disbursements, saw 18% and 21% increases in subsidized and unsubsidized loan programs respectively. 
• Applying a 20% growth rate to the 2008-09 disbursements of $84.7 billion (from Dept's Data Center site) would lead to an estimate of over $100 billion for 2009-10 academic year or an incremental $17 billion in borrowing. For reference purposes, 2006-07 disbursements amounted to just over $60 billion, so if 2009-10 estimates hold up that would be a 70% increase over the past three years.  

Dept. of Education: 90% of FFEL Schools In DL or Transitioning To DL

The Department of Education's COO William Taggart was out with a letter recently to update the financial aid community on the passage of the Health Care and Education Reconciliation Act of 2010 which terminates new loan originations under the FFEL program as of July 1, 2010 (see this earlier post for additional details about this).  Mr. Taggart also highlighted efforts made by the Department to date in transitioning schools to the DL program:

Use of ECASLA Financing Programs Up 28% To $29.6 Billion

Highlights:

• ECASLA financing programs, including the loan participation and loan purchase programs, rose 28% to $29.6 billion from $23.2 billion over the same period last year.  Note that there may be some minor double-counting as participation units owned by the Department at end of February could have been sold to them by late March. 

• Sallie Mae is the largest participant in the programs, with their $14.4 billion in loan participation units sold to the Department accounting for almost 49% of the total ECASLA financings.  These figures are almost flat with their levels from last year of $14.55 billion.

How Can Schools Transitioning To Direct Lending Access Resources To Assist In the Process?

The Health Care and Education Reconciliation Act of 2010, passed in late March, appropriated $50 million for the following purpose:

"The Secretary [of Education] shall provide institutions of higher education participating, or seeking to participate, in the loan programs under this part with technical assistance in establishing and administering such programs."

A question arose during the Federal Update session, delivered by David Bergeron of the Department of Education today at the TG Annual Training Conference, as to how these monies could be accessed by schools. 

Mr. Bergeron indicated that the Department has a contractor tasked to meet the needs of schools during the transition period.  If schools have a need for resources, they should contact their Point of Contact (POC) that is assigned to them as part of the On Boarding process.  It is the POC's role to work with the contractor to ensure that the schools get the resources they need to make their implementation a success.  As for why grants are not being made directly to schools, Mr. Bergeron indicated that time is of the essence and the grant making process wouldn't deliver funds to schools soon enough. 

FFELP Lenders Contacting Schools About Transition Period

With Federal Direct Lending becoming the only source of federal student loans after July 1, 2010, FFELP lenders are writing to their school customers to describe the transition process over the next three months:

Sallie Mae (which also had a Straight Talk call earlier today) posted this letter on their website today which had this transition summary:

What's In The Dear Colleague Letter About New Student Loan Legislation?

Department of Education posted this on Friday to provide a high level description of several provisions of the Health Care and Education Reconciliation Act of 2010: