Student Lending Analytics Blog

Just When You Thought The News Could Not Get Any Worse...

GAO investigations, lawsuits, regulatory scrutiny, well, add disgruntled investors to the list now.  Investors are taking most companies in the for-profit education sector to the woodshed again today.  I thought it might be useful to see how we got here by focusing on events over the past three weeks, which included a slew of earnings announcements, new Dept. of Education rules and new investigations/reviews from state, Dept. of Education and the SEC. 

Before taking apart the events of the few weeks, I thought it was instructive to see how the stock prices of the leading companies in the industry had performed over the past three months (hint:  it ain't pretty):

NJ Inspector General Report Critical Of HESAA

From the Newark Star-Ledger:

"The state authority that oversees more than $1 billion in financial aid to New Jersey's college students doesn't have an internal auditor, fails to issue annual reports and operates under a management in "disarray," the state Inspector General said Tuesday."

Here were some of the report's findings:

Supreme Court Sides With Debtor in Student Loan Bankruptcy Case

...but it is unclear whether the case will have broad ramifications given the specifics of the case (United Student Aid Funds v. Espinosa) and the narrow ruling from the Court.

Background On the treatment of student loans in bankruptcy:  According to the Student Loan Borrower Assistance website:

"Student loans are not usually discharged in bankruptcy. It is difficult, but not impossible, to do so if you can show that payment of the debt “will impose an undue hardship on you and your dependents.”

USA Today provided this background on the case:

OIG Files A Record 41 Investigative Reports In 2009

The Department of Education's Office of the Inspector General filed 41 investigative reports in 2009, which was the highest total for the years posted (1999-2009) on the OIG website.  Here are the number of investigative reports filed by year:

10-Q Skimming Service: Apollo Group (Parent of University of Phoenix) 1Q Report

Some highlights from their 10-Q released today: 

• Describes ED's program review of their Title IV program which raised a concern about students attending classes before completely understanding eligibility for student financial aid:

Don't Like The Interest Rate On Your Private Student Loan? More Disclosure Is Coming, But It May Not Be Too Helpful...

After writing recently about the travails of a student borrower who wondered why the starting interest rate on her private student loans had jumped from 4.25% to 11.625%, this release from the Federal Reserve ("Agencies Issue Final Rules on Risk-Based Pricing Notices") today caught my eye:

ACS Bid Protest Decision Offers Insight Into Servicer Selection Process

Here are the highlights of the decision posted here by the Government Accountability Office: 

• Summary:  "Protest of award of four indefinite-delivery/indefinite-quantity, performance-based contracts for servicing direct federal student loans is denied where agency reasonably determined that while incumbent protester’s offer would mitigate risk during transition and benefit government in the short term, these advantages were not worth the increased overall cost to the government resulting from the refusal of the protester (unlike the awardees) to accept the agency’s proposed common pricing terms, and protester’s proposal to continue servicing loans transferred from its contract would frustrate contemplated performance-based approach under the acquisition and introduce uncertainty in contract administration."

Filling In The Blanks: OIG Blasts Accreditation Process for American InterContinental University

I realize that this is old news at this point.  See the following articles for the impact of this report on the for-profit sector:

• Barrons Online:  "CECO responds to 20% share drop, says investigation will vindicate"
• Inside Higher Ed:  "Scrutiny for an accreditor"
• Associated Press:  "Career Education drops as accreditor questioned"

For a little background, here is a description of the HLC:

What Can Institutions Do Legally To Collect Student Debt?: A Webinar

Thanks to David Levy of Scripps for passing this along earlier today.  Note that the cost for the webinar series is $95: 

Withholding Transcripts and other Ways Institutions Collect Student Debt: What Can Institutions Do Legally?

Featuring:
Julia R. Hoke, Esq., Director of Legal Affairs and General Counsel
North Carolina State Education Assistance Authority (NCSEAA)

Nelnet 10-Q Provides Details on DL Servicing Contract and Another Whistleblower Suit

First the earnings report, which Wall Street cheered by pushing the stock higher by 7% to $15.64:

Nelnet (NYSE: NNI) today reported base net income of $50.2 million, or $1.01 per share, for the third quarter of 2009, compared with $23.4 million, or $0.47 per share, for the same quarter a year ago. For the first nine months of 2009, the company reported base net income of $113.5 million, or $2.30 per share, compared with $65.2 million, or $1.33 per share, for the first nine months of 2008. Base net income excludes discontinued operations, restructuring charges, and certain liquidity-related charges.

Here are a few of the highlights of the Nelnet 10-Q filed today:

• Nelnet provided some additional details on the federal loan servicing contract which they were awarded with Sallie Mae, Great Lakes and AES/PHEAA (bold type below is provided for emphasis):