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):

Federal Student Loans Rise To $95.7 Billion in 2009-10

Federal Student Aid has posted an update to their website today (thanks to Mark Kantrowitz for the heads-up).  The total disbursements for Stafford, Parent PLUS and GradPLUS loans for the 2009-10 academic year came to almost $96 billion [this figure excludes Perkins Loans which are typically about $1 billion].  When comparing them to the 2008-09 data now up on the FSA Data Center site, this amounts to a 12.5% increase (or almost $11 billion).  Please note that these numbers are updated frequently, which might explain why $75 billion was the number announced for 2008-09 last year by the Dept. of Education and is close to the $77 billion listed in the FSA Strategic Plan vs. the $85.1 billion that SLA calculated for 2008-09 on the FSA site this evening.

A few highlights:

B of A Made $62 Million In Payments To Colleges For Credit Cards in 2009: Federal Reserve

Here is a link to the report released today by the Federal Reserve.  Here are the highlights:

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." 

Only 1 in 7 Schools Created Preferred Lender List for Private Loans for 2010-11: SLA Flash Survey

Here are the highlights from the recent SLA Flash Survey on Private Loan Lender Lists, which had 170 respondents:

• In findings that mirrored the results of an SLA flash survey last December, only 1 in 7 survey respondents created a private loan lender list for 2010-11 through a formal selection process.  The most popular strategy:  listing all lenders that students have used in the last 3-5 years, which certainly will not make life easy for new entrants into the marketplace.  Almost 1 in 3 of the survey respondents are not providing a list to students. Here are various lender list strategies with the frequency they were selected by survey respondents:

Lender List Strategy
School is listing all private student loan lenders used by students in the last 3-5 years (that are still making loans)	34.1%
School is NOT providing a list of private loan lenders	30.6%
School created private loan lender list through a formal selection process	15.4%
School IS providing a list of private loan lenders by linking to a third party website	11.2%
School has not made a decision	2.9%
Other	5.9%

 

 

 

 

 

 

 

 

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:

University of Phoenix Enrollment Growth Slows; Changing Business Strategy In Light of Regulatory Environment

Apollo Group's 4Q earnings announcement highlighted changes that the company is making to their business model in fiscal 2011: 

"The Company expects fiscal 2011 to be a year of continuing transition in its operations as it implements initiatives, primarily at University of Phoenix, aimed at enhancing the student experience, expanding student protections and shifting the mix of enrollment to more experienced students who have a greater likelihood of succeeding in the Company's programs. Some of these initiatives include:

Changes in the roles of the Company's admissions personnel and comprehensive changes in their evaluation and compensation systems, including the elimination of enrollment results as a component of compensation effective September 1, 2010; University Orientation, a free, three-week, non-credit bearing program which, beginning November 1, 2010, will be required for all new students enrolling at University of Phoenix with fewer than 24 transfer credits; and The continued reduction in emphasis on third-party affiliates for lead generation and other enhancements to the Company's marketing approach."

Wondering What Happened When Incentive Compensation Rules Were Tightened in 1992?

From SLA post in November 2009 (which includes a table showing the percentage of student loans coming from students at for-profit institutions:

• At 22.1% in 2008-09, the proprietary sector is nearing their two decade high of 24.2% share of federal student loan volume which they reached in 1990, just prior to the Nunn report and the ban on incentive compensation in 1992. 

• In the decade where this ban on incentive compensation was weakened through the introduction of twelve "safe harbors" in 2002, the percentage of federal loans going to proprietary schools has grown from 12% in 2000 to 22.1% in 2008-09.  I can't prove causality, but it is interesting to note that in the period following the ban from 1993 to 2000, the proprietary sector's share of the federal loan market, despite annual gyrations, remained almost unchanged from 11.5% in 1993 to 12.0% in 2000.   

Pell Grants Rise 61% in 2009-10 Academic Year; 45% of Students Now Receiving Pell Grants

I might have titled this post:  A Sign of the Times...

The Federal Student Aid Data Center site updated figures last month for Pell Grants.  Here are stats on recipients, grants and average grant size for the past four years with annual changes in the right hand columns:

	Recipients	Grants	Average				Avg
Acad. Yr.	(in millions)	(In $MM)	Grant Size		Recipients	Grants	Grant Size
06-07	5.29	$12,792	$2,419
07-08	5.69	$14,675	$2,580		8%	15%	7%
08-09	6.32	$18,284	$2,892		11%	25%	12%
09-10	8.23	$29,361	$3,566		30%	61%	23%

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Observations:

• The 61% growth in Pell Grants to an annual figure of $29.4 billion was driven by both a 30% increase in recipients to 8.23 million and a 23% increase in average grant size to $3,566.  The maximum Pell Grant for the 2009-10 academic year was $5,350.  The maximum grant is $5,550 for the 2010-11 academic year.

• With NCES estimating that 18.4 million students would attend two year and four-year institutions in fall 2009, that would mean almost 45% of those in attendance received a Pell Grant for 2009-10.  If you assume 100% of students at proprietary schools are Pell-eligible, that suggests that about 1 in 4 students at public and private non-profits are Pell-eligible. 

Reactions to Senate Hearing on For-Profit Marketing Practices

US Names Apollo, Corinthian, Kaplan In For-Profit Probe (Wall Street Journal) includes company and the career college association's reactions to the GAO report and Senate hearing: