Student Lending Analytics Blog

Discover Acquires Citi's Private Student Loan Business; Sallie Mae To Take Federal Loans

Here are some of the details:

From Discover Press Release:

"Discover Financial Services (NYSE:DFS) today announced that it has reached an agreement to acquire The Student Loan Corporation (“SLC”) for $600 million, or $30 per share. Separately and immediately prior to the closing of Discover’s transaction, SLC will sell $28 billion of assets to Sallie Mae and $9 billion of assets to Citibank. Discover will acquire $4.2 billion of private student loans and related assets at an 8.5% discount, along with $3.4 billion of SLC’s existing asset-backed securitization debt funding. The amount to be paid by Discover for the private student loan assets is subject to a post-closing purchase price adjustment between Discover and Citibank, which owns 80% of SLC’s outstanding common stock.

Rates They Are A Changing...

With peak lending season upon us, six lenders have recently changed the margins on their private student loans with the overall trend being down (four of the six reduced margins).  Here is a table (sorted alphabetically) showing both the current rates and the previous rates:

		Current				Previous
			Max.				Max.
Lender name	Low	High	Fees		Low	High	Fees
Chase	4.14%	9.79%	0%		3.76%	8.76%	0%
Citibank	3.63%	11.38%	3%		4.13%	11.88%	3%
Citizens	3.35%	11.60%	0%		3.35%	13.35%	0%
Sallie Mae	2.88%	11.25%	0%		2.88%	10.25%	0%
SunTrust	4.13%	11.63%	0%		4.13%	11.88%	0%
Wells Fargo	3.50%	9.99%	0%		4.25%	11.24%	0%

More Changes to Private Loans...As LIBOR Inches Up

Schools notified me today of three additional changes to lender private loan programs:

• As of May 15th, Citibank is lowering the minimum interest rate by 100bp on their CitiAssist loan product to LIBOR + 3.75% (or 4.125%) from LIBOR + 4.75%.  Their maximum rate remains at LIBOR + 11.5% (11.875%).  

• As of May 20th, SunTrust's Academic Answer will be equalizing their tiered pricing for both graduate and undergraduate students (previously minimum rates on graduate loans were 50bp lower than undergraduate loans):
  • Cosigner rates will vary from LIBOR + 4.00% to LIBOR + 10.25%
  • Non-cosigned loans will range from LIBOR + 6.00% to LIBOR + 11.25%

• Effective June 1st, PNC will be increasing their autopay discount to 0.50% (from 0.25%) for payments from any savings/checking account from any bank.

Here is a previous post about changes that other lenders have recently made.  I will be updating SLA Ratings and Private Loan Options later this week to reflect these changes.  While the trend is toward better benefits and reduced pricing, the LIBOR rate, which serves as the reference rate for many of these loans is inching up.  While it had been relatively stable at 0.25% for some time, it has risen in recent days to over 0.40% as the Greek debt situation worsened.

Judiciary Committee Hearing Held On Dischargeability of Private Student Loans In Bankruptcy

I missed the hearing earlier today but here are excerpts of the written testimony from each of the witnesses today (here is a link to the hearing held last September on the same topic): 

From Deanne Loonin, National Consumer Law Center and Student Loan Borrower Assistance Project:

U.S. Bank Lowers Minimum Interest Rate On No Fee Education Loan Product

Effective April 1st, U.S. Bank has lowered the minimum interest rate on their No Fee Education Loan from 5.20% (Prime + 1.95%) to 4.20% (Prime + .95%).  Their maximum rate remains unchanged at 12.20% (Prime + 8.95%).  Since lenders do not make public how their loans are distributed across the range of interest rates, it is challenging to determine exactly how this impacts future borrowers (i.e., impossible to know what their credit requirements are to earn their lowest rate loan) This change puts U.S. Bank back in line with other for-profit lenders (excluding Citibank) whose minimum rates are all currently below 4.25% (see SLA Private Loan Options here).  Citibank's minimum rate is currently 5.13%. 

 For those trend spotters out there, US Bank is the second lender in the last month to announce an interest rate reduction.  On March 1st, Chase lowered their maximum interest rate on their private loans to 8.75%.  With schools in the process of selecting lenders for 2010-11, it will be interesting to see if there are more interest rate reductions to come. 

Chase And Sallie Mae Adjust Pricing on Private Student Loans

Here are the changes:

• Chase reduced the lowest rate on their cosigned loans to 4.15% (a 0.25% reduction) and the highest rate to 8.75% (a 1.00% reduction).  Rates go into effect on March 1, 2010
  • Here is their announcement:  Download E-Blast Chase Select Pricing Update 4Y 2-18-10

• Sallie Mae changed their pricing methodology and is now differentiating rates based on whether a borrower has a cosigner or not.  Previously, rates were based on type of school attended, with preferential rates for students at 4-year non-profit institutions.  These changes are effective immediately. 
  
  • With cosigner:  4.25% to 13.0% (1-Month LIBOR + 4% to 1-Month LIBOR + 12.75% (previous maximum rate for borrowers at 4-year non-profit institutions was 0.25% lower)
  • Without creditworthy cosigner:  4.25% to 13.75% (1-Month LIBOR + 4% to 1-Month LIBOR + 13.50%)
  • Zero to 5% disbursement fee (previous maximum disbursement fee was 3%)

VSAC Running Low On Funds For Private Student Loans; May Run Out By End of Week

As I continued to work my way through the state alternative loan programs today, I came across this announcement on the Vermont Student Assistance Corporation (VSAC) website for their private (non-federal) loan product:

VSAC Advantage Loan – 2009-2010 Academic Year

For Loans Approved by 2/12/10*

*Funds for VSAC private loans are limited. All funds could be expended before 2/12/10. VSAC cannot guarantee availability of funds until final loan approval.

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:

For Private Student Loans, Chase No Longer Offering Non-School Certified Product, Continuing to Offer Certified Product

Found this on Chase's website this morning (which had been announced in March apparently so I guess you could say I missed this one!):

"Chase is no longer accepting applications for its non-certified private student loan.  However, the school-certified Chase Select Private Student Loan is still available."

Federal Reserve regulations (to take effect in mid-February) regarding private student loans will require students to complete a self-certification form, with schools providing financial aid information to facilitate this process.  This regulation would appear to make non-certified loans obsolete in the future. 

With Chase discontinuing their non-certified product, the Wells Fargo Education Connection Loan is one of the few private loans that I am aware of that doesn't require school certification.  Wells also offers a school-certified product too, the Collegiate Loan. 

Citizens Bank Eliminates Origination Fees on TruFit Loan

Continuing a recent trend among purveyors of private student loans, Citizen's Bank announced that they would be eliminating origination fees on their TruFit private student loan effective .  Here is the link to their announcement which took effect on November 25, 2009.  The current rates on the TruFit loan are LIBOR + 3.00% to LIBOR + 13.00% or 3.24% to 13.24%, although the maximum rate on their loan with a creditworthy cosigner is 11.49%. 

Previously, Citizens TruFit loan charged origination fees of up to 5%.  SunTrust eliminated their repayments fees of up to 6% in October (their margins did increase 50bp however), while Sallie Mae cut their maximum disbursement fee from 5% to 3%, while also eliminating their 0.25% interest rate reduction for EFT payments and reducing their maximum margin from LIBOR + 14% to LIBOR +12.5%.