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

Highlights Of Sallie Mae's 3Q Earnings Announcement

HIghlights from Sallie Mae's earnings announcement earlier this week (sources for this summary include 3Q earnings supplement and conference call transcript from Seeking Alpha):

• Company completed their strategic review which included evaluating whether or not to sell the FFELP portfolio (while retaining the servicing rights)...and the company chose to (drumroll, please)....keep the FFELP portfolio:  "So maybe there's another way of just saying that you are not going to see any dramatic balance sheet actions from the company at least anytime soon."  It seems that as long as they serviced the assets, they would need to keep them on their balance sheet.  

• Wondering how profitable it is to service FFELP loans?  Answer:  Very profitable, as in 90% cash flow margins.  "Our securitized FFELP portfolio generated $444 million in excess cash to the company in the third quarter and to put that into some perspective, our FFELP servicing costs in the quarter were $52 million." 

3Q Private Student Loan Trends: Wells Fargo Originations Surge 29%; Sallie Mae Sees 6% Drop

Here are some snippets from recent conference calls/earnings releases/supplementals regarding 3Q private student loan originations.  This quarter tends to be the most important from a seasonal perspective and provides a good sense of how academic year originations will unfold.  Reviewing past history indicates that 35-40% of a lender's originations come in this quarter.  Here are reports from the leading private student lenders: 

• Wells Fargo noted in their 3Q earnings supplemental released today (see page 8) that "private student lending (up 29% from 3Q09)" and also that they have had great success at growing loans in the Wachovia footprint (see slide #16), "Private student lending originations up 50% YTD in Wachovia footprint."  Wells Fargo doesn't publish annual private loan data but SLA now estimates that they are rapidly approaching Sallie Mae in terms of new private loan originations. 

Improving the Self-Certification Process For Private Student Loans

Here is some of the feedback provided by the financial aid community on the new regulations requiring students to complete a self-certification form prior to receiving a private student loan.  The original intent of the form was to inform students about federal loan options before they took out a private loan and to limit overborrowing by having the student complete information on their total cost of attendance and estimated financial assistance.  The form carries this warning should the student seek to borrow more than the difference between their COA and est. financial assistance:  "WARNING: If you borrow more than the amount on line C, you risk reducing your eligibility for free or lower-cost federal, state, or school financial aid."

The suggestions from the financial aid community about self-certification fit into a few buckets:

Discover Provides Additional Details on Acquisition of Citibank's Student Loan Business

From Discover's 3Q Conference Call on September 20, 2010 (thanks to Seeking Alpha for their transcript):

What are some additional details on the private loan portfolio that Discover is purchasing from Citibank?

• Terms of the deal:  "We plan to acquire The Student Loan Corporation for $600 million or $30 per share, subject to a post closing adjustment pay between Citi and Discover. 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. We will then acquire $4.2 billion of private student loans and related assets at an 8.5% discount, along with assuming $3.4 billion of SLC’s existing asset-backed securitization debt funding against these private loans.  We expect to receive approximately $150 million from Citibank under the purchase price adjustment agreement. The ABS funding has had attractive rates and maturities represented by the trust identified in our 8-K. So funding is largely in place."

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..."

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%

Sallie Mae To Move HQ To Delaware; FFELP Comes To An End

From Business Wire: 

SLM Corporation (NYSE: SLM - News), commonly known as Sallie Mae, today announced that it will relocate its corporate headquarters to near Newark, Del., by March 31, 2011. The relocation to Delaware is consistent with other strategic initiatives the company is taking to align its cost structure with its continuing businesses following the passage of the Health Care and Education Reconciliation Act.

“This decision reflects our need to adapt to the massive changes in our business. We have enjoyed nearly 40 years in the D.C. area; however, the objective is to combine the senior management team in a single location. Delaware officials helped make these changes as efficient as possible,” said Albert L. Lord, CEO."

Looking For A Private Student Loan Resource For Your Students?: SLA Updates And Improves Private Loan Options Site

For those looking for a neutral, timely and comprehensive private loan lender list, SLA created Private Loan Options with the following features:

• Lists sixteen major lenders, including credit unions, regional and national lenders
• Details interest rate ranges and fees for each loan product
• Provides timely updates when changes occur to lender margins or interest rate indices (LIBOR or Prime Rate)
• Identifies and provides links to 16 states with alternative loan programs providing your students with fixed-rate alternatives
• Generates dynamic list of lenders each time page is refreshed
• Provides borrowers with standard application and solicitation disclosures to help them compare private loans
• Lists borrower benefits, cosigner release terms and whether lenders require payments while student is in school
• Provides upfront statement encouraging borrowers to seek federal loans first
• Describes common loan terms with a borrower glossary

Here is just a sampling of the colleges currently linking to SLA's Private Loan Options site: