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Lender Layoffs and Loan Program Suspensions

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This page provides a list of education lenders who have laid off staff or temporarily suspended or permanently exited one or more student loan programs since August 2007. (Some of these lenders may have exited FFEL or private student loan programs for reasons unrelated to the subprime mortgage credit crisis or the cuts in FFELP lender subsidies.)

Last updated: April 20, 2010.

Lender Layoffs

The total job loss estimate for the student loan industry is more than 6,573 layoffs. This estimate understates the actual total due to several lender layoffs for which no total could be obtained.

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Education lenders laying off staff (including attrition): 22 total

  • Bank of America
  • Brazos Higher Education Service Corporation, Academic Finance Corporation
  • Campus Door
  • College Loan Corporation
  • CoreFirst Bank & Trust
  • Edamerica
  • Education Finance Partners
  • FinanSure
  • First Marblehead
  • Goal Financial
  • Illinois SAC
  • Loan to Learn
  • MOHELA
  • NELNET, Union Bank & Trust
  • National Education
  • NextStudent
  • PHEAA
  • Sallie Mae
  • Student Assistance Foundation of Montana
  • Student Loan Xpress
  • The Education Resources Institute (TERI)
  • US Education Finance Group

Loan Program Suspensions

A total of 184 education lenders have exited or suspended their participation in all or part of the federally-guaranteed student loan program (FFELP). 119 of the lenders have suspended participation in all of FFELP (2 only out of state, 2 in selected locations and/or types of colleges and 1 just first-time borrowers) and 65 have suspended just consolidation loans (for a total of 184 suspending consolidation loans).

51 lenders have suspended private student loans. (A total of 199 unduplicated lenders have suspended federal and/or private loan programs.) MEFA had suspended their private student loan but resumed it 6 weeks later. South Carolina Student Loan restarted their Palmetto Assistance Loan in November 2009.

These totals include 29 nonprofit state loan agencies. Seven state loan agencies -- PHEAA, MEFA, MHESLA, MES, CSLF, NorthStar Guarantee and Brazos -- have suspended all FFELP originations. NorthStar Guarantee had suspended all of FFELP, but has subsequently resumed making Stafford and PLUS loans but not consolidation loans, and then suspended federal and private loans. Brazos had suspended participation in FFELP, then resumed participation and then suspended participation in FFELP a second time. Kentucky Higher Education Student Loan Corporation had previously suspended Stafford and PLUS loans for first-time borrowers, but subsequently resumed making Stafford and PLUS loans (but not consolidation loans) to all borrowers.

Every type of lender has been affected: 29 state loan agencies, 76 banks, 18 credit unions, 4 non-profit lenders, 3 school-as-lender schools (with 45 more coming soon) and 65 non-bank lenders.

The following table summarizes the marketshare of lenders suspending one or more federal loan programs based on FY2006 and FY2007 federal loan volume data in the FFEL program. It does not include lenders who suspended participation and subsequently resumed participation.

Loan Program FY2006 FY2007
Stafford and PLUS Loans
(excluding School-as-Lender schools)
28.1%
$14.0 billion
> 1,659,000 borrowers
31 of the Top 100
30.4%
$17.3 billion
> 1,851,000 borrowers
33 of Top 100
Stafford and PLUS Loans
(including School-as-Lender schools)
31.4%
$15.6 billion
> 1,851,000 borrowers
41 of the Top 100
34.1%
$19.3 billion
> 2,075,000 borrowers
43 of Top 100
Consolidation Loans 93.2%
$67.4 billion
> 2.4 million borrowers
10 of Top 10
73 of Top 100
95.2%
$45.1 billion
> 1.5 million borrowers
10 of Top 10
79 of Top 100

Note that while there were more than 2,000 lenders participating in FFELP in FY06, most of the loan volume is originated by the top 100 lenders. The top 100 lenders accounted for 91.5% of FY2007 Stafford and PLUS loan origination volume and 90.8% of FY2006 Stafford and PLUS loan origination volume. The top 100 lenders accounted for 99.8% of FY2007 consolidation loan volume and 99.7% of FY2006 consolidation loan volume. The top 100 lenders accounted for 98.6% of FY2007 loan holdings and 98.5% of FY2006 loan holdings.

Most of the major lender partners of school as lender schools have ended their participation in the school as lender program, including Sallie Mae, Nelnet, PHEAA, CollegeInvest, Brazos and MHESLA, as well as six other lenders. The 45 affected schools are now looking for new lender partners, but are unlikely to find them. These schools originated $1.7 billion in Stafford loans to more than 200,000 borrowers in FY2006 (3.3% of loan volume) and include 10 of the top 100 Stafford and PLUS loan originators.

If school as lender schools are included in the totals, a grand total of 224 lenders have suspended participation in one or more FFEL loan programs.

Some of the smaller lenders who have exited the student loan programs have reported an inability to liquidate their education loan portfolios even after they have exited.

 
 
Lender Suspensions

The following table lists the lenders who have suspended one or more loan programs, with information about the types of loans they have suspended. It also includes rank information based on FY2006 and FY2007 federal loan volume data. Rank information is included only for lenders who have suspended one or more federal loan programs. If a lender has suspended only private loan programs, no rank information is included. The nonprofit state loan agencies are listed with the name of the state in brackets after the name.

Lender What? FY2006 Federal Rank FY2007 Federal Rank
Originations Consolidations Holdings Originations Consolidations Holdings
A+ Funds/Medfunds Graduate Level FFELP
Private
           
Abilene Teachers Federal Credit Union FFELP            
Academic Funding Group / Provincial Bank FFELP
Private
57     78    
Academic Financial Services FFELP            
Academic Loan Group FFELP   17 31   17 23
Access Credit Union FFELP            
Access Group Consolidation
Private
11 12 13 10 21 13
Affinity Direct/Educational Direct FFELP   19   45 4 84
Alaska Commission on Postsecondary Education [Alaska] Consolidation   92 94   97 86
ALL Student Loan Consolidation
FFELP Outside California
Private
43 42 42 36 55 37
Amarillo National Bank FFELP            
American SLC Consolidation   91     33  
American Education Services (AES) / PHEAA [Pennsylvania] FFELP 19 7 7 19 10 6
Ardent Financial FFELP            
Arizona Higher Education Loan Authority (AHELA) [Arizona] Consolidation     92     79
Arkansas Student Loan Authority (ASLA) [Arkansas] Consolidation 66 69 51 74 65 53
Astrive Student Loans Private            
Axiom Student Loans Private            
Bancorp South FFELP
Private
52     56    
Bank of America FFELP
Private
3 28 16 3 42 16
Bank of Lake Mills FFELP 31   80 28   71
Bank of North Dakota Consolidation 65 59 49 65 82 51
Bank of Texas FFELP            
Bankers Trust FFELP            
Boeing Credit Union FFELP            
Brazos HESC [Texas]
Brazos Student Lending, Academic Finance Corporation, Educational Funding Services, Inc. and Acapita.
FFELP 23 9 4 26 19 4
Bremer Bank Private
Consolidation
FFELP
           
Business Financial Solutions Consolidation   36     27  
Cadence Bank FFELP            
California Dental Association Consolidation   80     93  
Campus Door Private            
Carnegie Student Loans FFELP            
Capitol Federal Savings, Kansas FFELP            
Capital One/Axiom FFELP            
Citi Student Loan Corporation Consolidation
Private Consolidation
2 3 2 2 7 2
Citizens Bank Consolidation 17 58 40 16 81 43
City Bank Texas FFELP            
College Board FFELP 25   73 25   78
College Foundation Inc. (CFNC) [North Carolina] Consolidation 18 27 21 17 40 19
College Guidance Center Consolidation            
College Funding Group Consolidation            
College Loan Corporation FFELP
Private
8 6 8 7 9 9
College Solutions Network FFELP 96 78   40 70 88
Collegiate Solutions FFELP   55 70   28 70
CollegeInvest [Colorado] Consolidation 45 48 38 42 34 39
Comerica Bank FFELP
Private
37   81 39 79 92
Commerce Bank Consolidation 32   59 34   64
Commercial Bank of Texas FFELP
Private
           
CompleteEd Private            
Connecticut Student Loan Foundation (CSLF/Susie Mae) [Connecticut] FFELP
Private
  56     46  
CoreFirst Bank FFELP            
Cornhusker Bank FFELP            
COSTEP FFELP            
Credit Union of Texas FFELP            
Cy-Fair Federal Credit Union FFELP            
Deutsche Bank Trust Company FFELP            
DSS Consolidation   84     47  
EdAmerica [Tennessee] Consolidation 10   47 9 92 56
EdFed Consolidation            
EdSouth Consolidation   22 17   20 17
Educare Financial Consolidation         90  
Education Credit Union FFELP            
Education Finance Partners Private
Private Consolidation
           
Education Loan Resources FFELP
Private
           
Erie Processing Self Service Corporation Consolidation   44     14  
F&M Bank and Trust Company FFELP            
Falcon International Bank FFELP            
Federal Association of Financial Services (FAFS) FFELP   50     73  
Federal Student Loan Solutions FFELP            
FinanSure FFELP
Private
  24 60   18 47
First Commercial Bank FFELP            
First Financial Bank, Eastland FFELP            
First Horizon Bank FFELP            
First Niagara Bank FFELP            
First Service Credit Union FFELP            
First United Bank FFELP            
FirstBank Southwest FFELP            
First Financial Bankshares FFELP            
FirstMark Credit Union FFELP            
Franklin Bank, S.S.B FFELP   81     44  
Freestone Credit Union FFELP            
Frost National Bank FFELP 73     66   98
GATE Student Loan Program Private            
GCO-ELF Consolidation   33 14   24 12
GMAC Bank Education Loans Private            
Goal Financial FFELP   5 10 64 13 11
Graduate Leverage Consolidation
Private Consolidation
  14 48 54 11 44
The Educated Borrower Private            
The Graduate Loan Center Consolidation            
Happy State Bank FFELP            
HCSB, A State Banking Association FFELP            
Heights State Bank FFELP            
HELP Alternative Loans Private            
HERO Student Loans Consolidation            
Hondo National Bank FFELP            
HSBC Bank USA, NA FFELP 41 76 53 43 94 57
Hereford State Bank FFELP            
IEFC Private            
Independent Bankers Bank FFELP            
International Bank of Commerce FFELP            
Iowa Student Loan [Iowa] Consolidation
Private
  26 25   26 22
ISM Education Loans [Indiana] Consolidation 58 23 35 76 22 27
JPMorgan Chase Consolidation 7 20 11 4 5 8
K2 Student Loan Solutions FFELP   37 61   23 52
Kansas State Bank of Manhattan FFELP
Private
62     69    
Kentucky Higher Education Student Loan Corporation [Kentucky] Consolidation 20 41 30 21 43 26
Key Bank FFELP
Private
28 52 24 32 19 24
Kleberg Bank FFELP            
LaSalle Bank FFELP 70     75    
Legacy Texas Bank FFELP            
Loan to Learn Private            
Loanster Financial Group LLC Consolidation            
Maine Education Services (MES) FFELP            
Medfunds Private            
M&I Bank Consolidation            
M&T Bank FFELP 40 97 91 38   91
MEFA [Massachusetts] FFELP 74 72 69 62 77 69
MHESAC [Montana] Consolidation   34 36   32 34
MHESLA [Michigan] FFELP
Private
  60 29   72 29
Mills County State Bank FFELP            
MOHELA [Missouri] Consolidation
Private
  15 12   15 15
MSA Solutions Consolidation         60  
MyRichUncle FFELP
Private
           
National Bank of Andrews FFELP            
National City Bank Consolidation 22 83 62 24 89 67
National Education Consolidation
Private
26 31 18 27 50 48
National Student Loan Group LLC (NSL Direct) FFELP   61     69  
Neches Federal Credit Union FFELP            
NELNET, Union Bank & Trust Consolidation
Private
Private Consolidation
16 2 3 14 2 3
New Mexico Student Loans [New Mexico] Consolidation 46 43 46 49 57 46
NextGrad Consolidation            
NextStudent FFELP
Private Consolidation
100 4 45 59 3 31
NHHELCO [New Hampshire] Private
Consolidation
42 45 39 41 63 41
NorthStar/T.H.E. [Minnesota] FFELP
Private
13 21 15 11 45 14
Northwest Savings Bank FFELP for first-time borrowers   89        
NTHEA Consolidation   38 36   38 37
Oklahoma Student Loan Authority (OSLA) [Oklahoma] Consolidation   52 44   61 42
Omnis Student Loans Consolidation         80  
One Simple Loan Consolidation         29  
Panhandle Plains HEA Consolidation   39 33   51 25
PNC Bank Education Loan Center Consolidation 12 25 34 15 54 38
PlainsCapital Bank FFELP 81     91    
Red River Federal Credit Union FFELP            
Regions Bank Consolidation 34 62 43 18 86 50
Rhode Island Student Loan Authority (RISLA) [Rhode Island] Consolidation 38 100 56 37 95 60
Sallie Mae Private (Recourse Loans Only)
Consolidation
Private Consolidation
1 1 1 1 1 1
San Antonio Federal Credit Union FFELP            
Security Bank of Kansas City FFELP            
Sovereign Bank FFELP 82 88 88 92    
Spokane Teachers Credit Union FFELP            
SAF-MT [Montana] FFELP outside Montana            
ScholarPoint FFELP
Private
  51     53  
School Loans Corp Consolidation   77     76  
South Carolina Student Loan Corporation Consolidation
Private
21 29 22 23 37 20
StarTrust Federal Credit Union FFELP            
Student Capital Corporation FFELP            
Student Financial Services Consolidation   68     25  
Student Funding Services (Jacksonville, FL) Consolidation   82     56  
Student Lending & Consolidation Consolidation   63     49  
Student Loan Solutions, LLC Consolidation         39  
Student Loan Xpress FFELP
Private
15 8 9 12 6 10
Student Trust / ConsolidateYourLoans.com Consolidation            
SunTrust Education Loans FFELP (only in Texas)
Consolidation
14 11 19 13 30 18
Tarrant County Credit Union FFELP            
TCF Bank FFELP 44   98 44    
TD Banknorth FFELP
Private
           
Texas Bay Area Credit Union FFELP            
Texas Independent Bank FFELP            
Texas Rural Communities FFELP            
THE National Bank FFELP
Private
           
TierOne Bank FFELP            
Town and Country Bank Stephenville FFELP            
Trustmark National Bank FFELP            
UHEAA Consolidation            
University Financial Services Inc. (UFS) Consolidation            
University Financial Lending Consolidation         71  
University of Miami FFELP 86     89    
Urban Ed Express FFELP
Private
           
U.S. Bank FFELP 9 54 28 8 58 33
Vermont Student Assistance Corporation (VSAC) [Vermont] Consolidation 33 30 32 33 41 32
Wachovia Education Finance Consolidation
Private
5 10 5 6 16 7
Washington Mutual FFELP
Private
83          
Weatherford National Bank FFELP            
Wells Fargo Consolidation 4 18 6 5 8 5
West Des Moines State Bank FFELP
Private
           
Wichita Falls Teachers Federal Credit Union FFELP            
Widener University FFELP            
Wyoming Student Loan Corporation [Wyoming] Consolidation   79 57   88 61
Zions Bank FFELP
Private
61   97 81    

In addition, 6 lenders that provide K-12 loans have suspended those products: GCO-ELF, M&T Bank, Bank of America (PrepGATE), Citi Student Loans, Brazos StudentLoans.com and TERI PLEASE.

 
     
Failed Securitizations

Lenders with failed student loan securitization (auction rates) include:

  • Brazos
  • EdSouth
  • College Loan Corporation
  • Montana Higher Education Student Assistance Corporation
  • Mississippi
  • Sallie Mae
  • First Marblehead
  • Vermont (VSAC)

Lenders Reentering the Student Loan Marketplace

The following lenders have resumed making loans under one or more education loan programs that had previously been suspended at least in part:

  • Graduate Leverage
  • Independence Federal Savings Bank
  • Kentucky Higher Education Student Loan Corporation
  • MEFA
  • National Education
  • River City Federal Credit Union

Brazos reentered FFELP but then suspended participation a second time after seeing the final details of the terms of the US Department of Education's loan purchase authority. NorthStar Guarantee reentered FFELP but then suspended participation a second time.

Chronology of Lender Actions

This table shows a timeline of actions that lenders have taken with regard to the changed environment for lender profitability, such as suspending one or more loan programs, laying off staff, closing servicing centers and suspending loan acquisitions.

LenderWhen?What?
Loan to Learn 1-AUG-07 Layoff many staff
College Board 22-AUG-07 Exits FFELP 10/15/07 due to NY SLATE
NELNET 6-SEP-07 Layoff 400/3,300 (12%)
GCO-ELF 25-SEP-07 Suspending consolidation loan acquisitions
PHEAA 28-SEP-07 Hiring freeze, attrition
Boeing Credit Union 28-SEP-07 Exiting FFELP effective 9/28/07
Loan to Learn 30-SEP-07 No new private student loans
NextStudent 1-OCT-07 Suspending new Stafford/PLUS loans. Layoff 100/409 (24%).
SunTrust 3-OCT-07 Sells a portion of loan portfolio to Nelnet and will close Murfreesboro TN servicing center in April 2008. Will continue to service FFELP loans.
First Niagara Bank 4-OCT-07 Exits student loans
RISLA 4-OCT-07 Ends NELNET partnership
US Education Finance Group ? Layoff 25/45 (56%)
FinanSure 26-OCT-07 Exit FFELP/Private, layoffs
Illinois SAC 7-NOV-07 Layoff 50/470 (11%) + 18 vacant (4%). Down to 420 staff from 520 in January 2007.
JP Morgan Chase 8-NOV-07 Hired 125 of Nelnet layoffs 12/1/07
College Loan Corporation 12-NOV-07 Layoff 340/700 (49%)
Federal Student Loan Solutions 17-NOV-07 fsls.net site no longer responding
Student Loan Xpress 30-NOV-07 Ended private student loan, continuing FFELP
Student Capital Corporation DEC-07 Dissolved brand, absorbed into College Loan Corporation
Loanster Financial Group LLC 14-DEC-07 Suspending consolidation loans
Sallie Mae 27-DEC-07 Halting FFELP spot market purchases
Goal Financial 31-DEC-07 Exits FFELP, layoff 134/300 (from Warn Act Notices, company web site)
National Education 9-JAN-08 Suspending FFELP 1/15/08, layoffs?
Sallie Mae 18-JAN-08 Layoff 350/11,000 (3%). The company also announced plans to cut costs by 20% by 2010 which will likely entail further layoffs of thousands of employees.
Sallie Mae 18-JAN-08 Sallie Mae ended recourse loans effective 3/1/08 at Corinthian, Career Education, ITT Educational Services Inc., DeVry, Education Management Corporation, Lincoln Educational Services.
NELNET 23-JAN-08 Layoff 300 (10%)
NELNET 23-JAN-08 Stops making new consolidation loans
Kentucky HEAA 25-JAN-08 Ending 3 loan forgiveness programs
NHHELCO 31-JAN-08 Suspending federal consolidation loans effective 2/1/08.
College Loan Corporation 31-JAN-08 Suspending FFELP 3/1/08, layoff 260/360 (72%), no longer offering private loans at certain for-profit colleges
NextStudent 1-FEB-08 Suspending new FFELP consolidation loans (continuing private loans and private consolidation loans)
Ardent Financial / National Student Loan Group LLC (NSL Direct) 1-FEB-08 Suspending participation in the federal consolidation loan program effective 2/1/08. Still making private consolidation loans.
Silver State Helicopters 4-FEB-08 Silver State Helicopters, a Nevada-based helicopter flight school, blames "a rapid, unprecedented downturn in the U.S. credit markets, which severely curtailed the availability of student loans for the company's flight academy students and resulted in a sharp and sudden downturn in new student enrollment" for its Chapter 7 bankruptcy filing and closure. This affected more than 2,500 students.
Collegiate Solutions 5-FEB-08 Exiting FFELP
First Marblehead 6-FEB-08 Layoff (estimate) more than 100 of 1,100, plus attrition and freezing. Company refused to confirm actual number.
Independent Bankers Bank 7-FEB-08 Exiting FFELP 2/15/08
Michigan Higher Ed SLA 12-FEB-08 Suspending MI-LOAN private student loan 2/15/08
ISM Educ. Loans (Indiana) 14-FEB-08 Suspending Consolidation Loans
American Educ. Svcs (AES) 15-FEB-08 Suspending FFELP effective 3/7/08
Security Bank of Kansas City 15-FEB-08 Exiting FFELP
Capital One/Axiom 15-FEB-08 Exiting FFELP 4/1/08
MOHELA (Missouri) 15-FEB-08 Suspending consolidation loans, private loans. Layoff 16/271 (5.9%) plus 23 jobs through attrition.
Iowa Student Loan 18-FEB-08 Suspending FFELP loan acquisitions and FFELP consolidation loans 2/29/08.
NorthStar/T.H.E. 18-FEB-08 Suspending all loan discounts (including existing borrowers)
Sallie Mae 20-FEB-08 Ending serial (subsequent) private student loans at certain for-profit colleges, not just new borrowers.
PHEAA 26-FEB-08 Suspended FFELP loan originations and secondary market acquisitions effective 3/7/08. Affects 140,000 borrowers, $500M loan volume. Still guaranteeing and servicing loans.
HELP Alternative Loans 22-FEB-08 Discontinued private student loan program.
Brazos 25-FEB-08 Suspending in-house originations
Loan to Learn 1-MAR-08 Layoff additional staff. Still servicing existing portfolio.
College Solutions Network 1-MAR-08 Suspended participation in FFELP. Still offering private student loans.
CollegeInvest 1-MAR-08 Suspending consolidation loans
Urban Ed Express 1-MAR-08 Exited federal and private loan programs effective 3/1/08.
K2 Student Loan Solutions 3-MAR-08 Exiting FFELP (consolidator)
Kansas State Bank of Manhattan 5-MAR-08 Exiting FFELP and private effective 3/31/08
Spokane Teachers Credit Union 5-MAR-08 Exiting FFELP effective 3/14/08
New Hampshire Higher Education Loan Corporation (NHELCO) 5-MAR-08 Suspending LEAF private student loan effective 3/11/08. Continuing to participate in Federal Stafford and PLUS loans.
Brazos Higher Education Service Corporation 7-MAR-08 Layoff 163 employees (60%) throughout spring and summer 2008.
MOHELA 7-MAR-08 Layoff 16/271 (5.9%) plus 23 jobs lost to attrition
Penn State University 10-MAR-08 Penn State announced that it will be switching to the Direct Loan program because of concerns over the stability of the FFEL program in the aftermath of PHEAA's suspending its participation. According to the US Department of Education, a total of 42 schools have switched to the Direct Loan program so far.
Nelnet 10-MAR-08 Nelnet ends its participation in the School-as-Lender program, blaming the credit crisis as the reason.
Iowa Student Loan 12-MAR-08 ISL suspends its private student loan program, effective April 2008.
TCF Bank 12-MAR-08 Exiting FFELP effective April 1. Still offering private loans.
ALL Student Loan 12-MAR-08 Suspending new FFELP originations outside California effective 3/14/08.
Graduate Leverage 13-MAR-08 Suspends new FFELP loan originations. Not fulfilling spring disbursements.
Northeastern University 17-MAR-08 Northeastern University announced that it will be switching to the Direct Loan program because of concern about the credit crisis.
HSBC Bank 17-MAR-08 Exiting FFELP effective May 31, 2008.
M&T Bank 18-MAR-08 Suspending participation in FFELP effective April 1, 2008.
Cornhusker Bank 18-MAR-08 Suspending participation in FFELP due to Nelnet's temporary suspension of loan purchases. Assessing options.
NorthStar/T.H.E. 19-MAR-08 Suspending consolidation loans
Sallie Mae 20-MAR-08 Sallie Mae reduces premiums paid to schools participating in its School-as-Lender program.
HEWI 20-MAR-08 HEWI cancels its International Student Lending Conference, which was scheduled for April 11, due to a tepid response to the call for registration, another casualty of the student loan credit crisis.
Brazos 24-MAR-08 Suspending all FFELP originations at four Brazos lenders (Brazos Student Lending, Academic Finance Corporation, Educational Funding Services, Inc. and Acapita) effective 3/27/2008. Still offering private student loans through afclending.com, studentloans.com and efsi.net.
Capitol Federal Savings, Kansas 26-MAR-08 Exiting FFELP effective 4/1/08.
Zions Bank 27-MAR-08 Suspending FFELP loans effective 3/31/08.
ALL Student Loan 27-MAR-08 Suspending all federal consolidation loans effective 3/27/08.
THE National Bank 30-MAR-08 Suspending FFELP and private loans.
GATE Student Loan Program MAR-08 First Marblehead announced in March 2008 to schools that participate in the GATE Student Loan Program that it was suspending the program with a last disbursement date of June 15, 2008.
NorthStar/T.H.E. 1-APR-08 Suspending all FFELP loans, including Stafford, PLUS and consolidation loans. Still making private student loans.
Student Assistance Foundation (SAF) 1-APR-08 Sent letter to schools outside Montana indicating that it was suspending FFELP loan originations outside Montana. Staff reduction of 35 people through attrition.
Montana Higher Education Student Assistance Corporation (MHESAC) 1-APR-08 Continuing to originate Stafford, PLUS and Consolidation loans to Montana students. Will decide in a few weeks whether to suspend consolidation loans.
Student Loan Xpress (CIT Group) 3-APR-08 Exiting FFELP effective immediately. Unspecified number of layoffs. No longer making any new loans, federal or private.
Strengthening Student Aid for All Act of 2008 3-APR-08 Senator Edward M. Kennedy, chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, introduced the Strengthening Student Aid Act for All Act of 2008. The legislation is intended to help avert the impending student loan credit crisis by increasing unsubsidized Stafford loan limits, allowing Parent PLUS loans to be deferred while the student is in college, allows the US Department of Education to buy loans from FFELP lenders, allows lender-of-last-resort to be implemented on a college-wide basis instead of a student-by-student basis, and increases the maximum Pell Grant by up to $750 for the lowest-income Pell Grant recipients. This legislation represents a well-thought-out approach to addressing the challenges faced by education lenders and will go a long way toward resolving the student loan credit crisis, if enacted by Congress.
The Education Resources Institute Inc. (TERI) 7-APR-08 TERI, the largest nonprofit guarantor of private student loans, filed for Chapter 11 Bankruptcy. This came after Moody's Investors Service downgraded TERI's rating on March 26, 2008 to non-investment grade (junk) status. TERI had previously laid off 25 employees (about 20% of staff).

First Marblehead stock dropped 37% on the news, as TERI was the guarantor for most of the company's loans. (The stock has fallen from a high of $77.35 on November 24, 2006 to an all-time low of $4.63 a share on April 9, 2008. The stock price has fallen 89% in the last 12 months.) Fitch Ratings announced that it may be downgrading some of First Marblehead's asset backed securitizations as a result of the bankruptcy. First Marblehead will be writing down the value of its residual income because it will now be shouldering the risk of default on its private student loans. First Marblehead will also not be able to use the $1 billion line of credit offered by Goldman Sachs as part of a previous deal to invest up to $260.5 million in the company. At the time the deal would have involved about 20% of shareholder equity. If Goldman Sachs were to complete the remaining $200.7 million investment it would now pass a 25% threshold which would require regulatory approval.

Nelnet 9-APR-08 Nelnet announced in a SEC filing that it had sold two portfolios of student loans, one on March 31, 2008 and the other on April 8, 2008, totaling $1.286 billion. The company will realize $18 million in after-tax losses on the first portfolio ($858 million in FFELP loans) and $10 million on the second portfolio ($428 million in loans). $842 million of the portfolio involved consolidation loans. The loans were sold at a purchase price of approximately 98% of the principal balance to an unnamed "large National Bank active in student lending and education finance". The sale agreement also provided for Nelnet to continue servicing the loans and to provide future loan origination and servicing activities, so Nelnet expects to receive servicing fee revenue from the purchaser. After the loan sale Nelnet is left with $4.5 billion in student loans.

Nelnet also reported that as of March 31, 2008 it held approximately $600,000 of private student loans that were insured by TERI. Nelnet has suspended its private student loan programs, including both the Nelnet Academic Private Loan (NAPL) and the Nelnet Private Consolidation Loan. Nelnet announced to schools on April 7, 2008 that it would be partnering with other lenders to provide private student loans.

Sallie Mae 11-APR-08 Suspending consolidation loans, effective April 11, 2008. Suspending Stafford loan origination fee waiver, effective May 2, 2008.
NHHELCO 11-APR-08 Eliminated fee waivers on federal education loans.
Access Group 11-APR-08 Suspending consolidation loans, effective April 11, 2008. Suspending the Stafford loan origination fee waiver.
Commerce Bank 1-APR-08 No longer making federal consolidation loans.
South Carolina Student Loan Corporation 1-APR-08 Suspending federal consolidation loans. They will continue to offer private consolidation loans.
Kentucky Higher Education Student Loan Corporation (The Student Loan People) 11-APR-08 Suspending origination of federal consolidation loans effective April 11, 2008.
JPMorgan Chase 14-APR-08 Informed schools that it would only make FFELP loans at schools where they can meet their profitability goals.
TD Commerce Bank (TD Banknorth) 14-APR-08 Exiting FFELP effective April 15, 2008.
MHESAC 14-APR-08 The Montana Higher Education Student Assistance Corporation (MHESAC) announced that it would be cutting its loan discounts from $4.2 million in FY08 to less than $1.2 million in FY09, a 71% reduction. These changes include eliminating the origination fee and default fee waivers on their loans. MHESAC is also asking its business manager, Student Assistance Foundation (SAF), to streamline its operating expenses.
Michigan Higher Ed SLA (MHESLA) 15-APR-08 Suspending all FFELP loans effective April 21, 2008. Michigan State University reacts by switching to the Direct Loan program.
MEFA 15-APR-08 Suspending all FFELP loans effective July 1, 2008. Still making private student loans.
Citi Student Loan Corporation 16-APR-08 Suspending federal consolidation loans effective May 1, 2008. Still making private consolidation loans, private student loans, and federal Stafford and PLUS loans. Citi will, however, stop making loans at schools where the loans are not profitable or the loans too small, such as two-year colleges.
Sallie Mae 16-APR-08 Sallie Mae's Q1-2008 quarterly report revealed that it had laid off nearly 1,000 employees (9%) over the last six months.

Sallie Mae also indicated that it has primary liquidity of $18.4 billion, consisting of $4.9 billion in unrestricted cash and liquid investments, $6.5 billion in unused commercial paper and bank lines of credit, and $6.9 billion in ABCP facilities. Sallie Mae originated $8.7 billion in student loans ($6.3 billion in Stafford and PLUS loans and $2.5 billion in private student loans) in the first quarter. Sallie Mae's primary liquidity would last three more quarters if it is unable to securitize any of the $19.2 billion in unencumbered FFELP loans. (The total origination volume in Q2 through Q4 of 2007 was $17.5 billion. Assuming a 8.75% growth rate brings the total to $19 billion, exceeding the primary liquidity.) This might stretch to another quarter through ongoing securitization activity (it is unclear how much of the $19.2 billion in remaining stand-by liquidity from unencumbered FFELP loans is from pre-10/1/07 loans) and prepayments from borrowers consolidating with other lenders and the Direct Loan program.

Some statements made by Sallie Mae's management suggest that the company's liquidity constraints may be bleaker than the analysis presented in the previous paragraph. Not all of the $18.4 billion in primary liquidity may be available for the origination of new education loans. Much of the primary liquidity may already be committed to pending corporate debt maturities. For example, Jack Remondi, Sallie Mae's CFO, said during the earnings call that "we will not do business that puts our liquidity position at risk". He also testified at the April 15, 2008 Senate banking committee hearing that "we do not have months, or even weeks to decide the best course of action".

Sallie Mae's 2008-04 securitization also priced at a weighted average margin of 141 basis points over the 3-month LIBOR at a 12% CPR, up from 93 basis points at the end of February.

Bank of America Student Lending 17-APR-08 Suspending all private student loan products effective April 18, 2008. Will be focusing on federally-guaranteed education loans. Had previously suspended all Google advertising for education loans on April 1, 2008.
Comerica Bank 17-APR-08 Suspending all private education loan products effective April 17, 2008 and all federal education loans effective May 1, 2008. Will continue to disburse federal loans that were already in the piple that received a federal guarantee on or before April 30, 2008.
Student Loan Xpress (CIT Group) 17-APR-08 An Form 8-K SEC filing by CIT Group attributes $120 million in losses to student lending "reserves for private (non-government guaranteed) loans, principally to students of a pilot training school that filed bankruptcy during the quarter." It also said that "Non-performing assets increased to $87 million from $8 million in the prior quarter reflecting the student loans affected by the bankruptcy of a pilot training school." and that "Reserves for credit losses for our private student lending portfolio were increased by approximately $120 million (to approximately $138 million at March 31, 2008), primarily due to the previously discussed establishment of a reserve for loans to students of a pilot training school. There are no other large single-school exposures within the private student loan portfolio."
Utah Higher Education Assistance Authority 18-APR-08 UHEAA announced that it will use $200 million in cash reserves to provide Utah students with federal education loans. This was approved at the March 27, 2008 meeting of the UHEAA board of directors.
Kentucky Higher Education Student Loan Corporation (The Student Loan People) 18-APR-08 Suspending origination of FFELP loans to first-time borrowers effective May 1, 2008.
IEFC 22-APR-08 Suspending the ISLP private student loan program due to Bank of America suspending its private student loan programs.
JPMorgan Chase 22-APR-08 JPMorgan Chase announced a tender offer to buy up to $1.1 billion ($1,099,150,000) in auction rate asset backed notes associated with the 2003-A, 2003-B and 2004-A securitizations of Collegiate Funding Services (CFS) at par (outstanding principal plus accrued but unpaid interest). JPMorgan Chase acquired CFS on March 1, 2006. The offer expires at 5:00 pm EST on Tuesday, May 20, 2008 and the settlement date is expected to be May 21, 2008. These are the only CFS securitizations that involved auction rate notes. These securitizations currently have rates of LIBOR + 1.50% to LIBOR + 2.50%. By buying the notes JPMorgan Chase will likely reduce its cost of funds and also acquire a portfolio of pre-10/1/07 FFELP loans at par. Many investors are likely to accept the tender offer because they are otherwise unable to liquidate their holdings in the failed auctions.
MHESAC [Montana] 23-APR-08 The Montana Higher Education Student Assistance Corporation (MHESAC) announced that it was suspending the origination of federal consolidation loans.
JPMorgan Chase 24-APR-08 JPMorgan Chase is calling schools to tell them that it will no longer offer origination and default fee waivers on its loans. JPMorgan Chase is also indicating that it no longer expects to grow its FFELP market share.
PHEAA 24-APR-08 PHEAA announced that it is cutting the Pennsylvania state grants by as much as $752 per recipient. PHEAA will no longer be supplementing state funding for the grants with $35 million of its own revenues as it has suffered recent financial losses in its student loan business ($37 million for the nine months ending March 31, 2008). The maximum grant will drop from $4,700 in 2007-08 to $3,948 in 2008-09. PHEAA also announced several other cost-cutting measures: voluntary layoffs of an unspecified number of non-union staff, elimination of overtime and comp-time for management, and elimination of cost-of-living increases for non-union staff. PHEAA eliminated the national business development office, among other offices. (Staff in the eliminated offices have the option of seeking redeployment to other offices within PHEAA.)
JPMorgan Chase 24-APR-08 Suspended federal consolidation loans effective May 1, 2008.
Student Assistance Foundation (SAF) 25-APR-08 The Student Assistance Foundation (SAF) of Montana announced layoffs of 23 of 195 staff (11.8%). SAF is also reducing professional, travel and consulting expenses.
Bank of Texas 25-APR-08 Suspending origination of FFELP loans effective immediately.
Northwest Savings Bank 25-APR-08 Suspending origination of FFELP loans for first-time borrowers.
Independence Federal Savings Bank 30-APR-08 Suspending origination of FFELP loans effective April 30, 2008.
Access Group 1-MAY-08 Notifying schools that it will be suspending private and bar study loans effective May 1, 2008. Borrowers will be referred to Campus Door.
ACPE (Alaska) 1-MAY-08 The Alaska Commission on Postsecondary Education (ACPE) suspended federal consolidation loans effective May 1, 2008.
NextStudent 1-MAY-08 Suspending new private consolidation loans.
Kleberg Bank 1-MAY-08 Suspending FFELP loans.
RISLA 1-MAY-08 RISLA successfully issued a $64 million bond, the Rhode Island Student Loan Authority Series 2008, to fund the Rhode Island Family Education Loan program. This is the first successful state bond issue since September 2007 to fund the origination of private student loans. This private loan program provides funds for up to 6,000 students. Borrowers will receive a 7.74% fixed interest rate with a 15 year term and a 4% fee added to the loan balance at repayment. The loan limits are $35,000 per year and $125,000 cumulative.
First Marblehead 5-MAY-08 Announced layoffs of 500 of approximately 1,000 staff (50%), including some management and executive positions, as part of an effort to cut operating costs by $200 million.
CoreFirst Bank & Trust 5-MAY-08 Announced suspension of participation in FFELP effective May 16, 2008. Some staff will be laid off.
SunTrust Education Loans 5-MAY-08 Suspending FFELP loans in Texas effective June 1, 2008. All disbursements scheduled after June 1 will be honored. (SunTrust Education Loans had stopped their sales and marketing efforts in Texas in November 2006. They are still making FFELP loans. The decision to stop making loans in Texas appears to be focused on streamlining their operations and unrelated to the student loan credit crunch.) Some colleges outside of Texas have also reported being dropped by SunTrust. These colleges are smaller and have higher cohort default rates.
FirstBank Southwest 8-MAY-08 Suspending FFELP loans effective 5/8/2008.
MOHELA 8-MAY-08 MOHELA announced plans to repurchase $30 million of its $3.5 billion in auction-rate bonds through the Restricted Securities Trading Network. The purchase price will be under par.
National Bank of Andrews 8-MAY-08 Suspending FFELP loans effective 5/8/2008.
Heights State Bank 8-MAY-08 Suspending FFELP loans effective 5/8/2008.
First Horizon Bank 8-MAY-08 Suspending FFELP loans effective 5/8/2008.
VSAC [Vermont] 8-MAY-08 The Vermont Student Assistance Corporation (VSAC) announced a one-year credit enhancement deal with KeyBank which they will use to seek $230 million in variable-rate demand obligations in the bond market. Combined with $160 million in repayments on outstanding loans, that will yield $390 million for Vermont students and residents in the 2008-09 academic year. That is $60 million less than the amount awarded in the 2007-08 academic year, a 13% reduction. To avoid passing on the increased costs to borrowers, VSAC is cutting its operating budget by $2 million and eliminating 18 staff positions. VSAC says it plans on honoring the previously announced loan discounts, including 0% origination and default fees on federal Stafford loans for undergraduate and graduate students, 0% default fee on Parent PLUS and Grad PLUS loans, and a 1% interest rate reduction starting at repayment for prompt payment (within 21 days of the due date, retained during deferments and forbearances, benefit recovery after 12 consecutive on-time monthly payments).
First United Bank 9-MAY-08 Suspending FFELP loans effective 5/9/2008.
PlainsCapital Bank 9-MAY-08 Suspending FFELP loans effective 5/9/2008.
Red River Federal Credit Union 9-MAY-08 Suspending FFELP loans effective 5/9/2008.
Sallie Mae 9-MAY-08 Dodge & Cox, a San Francisco money management firm, disclosed in a Schedule 13G SEC filing that it had acquired a 10.5% stake in Sallie Mae (48,942,882 million shares), making it the lender's largest shareholder. The shares are owned by clients of the firm, which may include institutional investors.
Sallie Mae 12-MAY-08 Closing Braintree, Massachusetts office on June 14, 2008, laying off 70-85 staff.
Frost National Bank 13-MAY-08 Exiting FFELP effective 5/13/08. No layoffs.
Student Loan Xpress 13-MAY-08 Student Loan Xpress is laying off 124 staff. The Warn Act Notices show 112 on 6/9/08, 3 on 7/3/08, 1 on 7/18/08, 2 on 9/30/08 and 6 on 12/31/08. A recent SEC filing by CIT Group (the parent company of Student Loan Xpress) indicates that the company is in the process of liquidating the student loan portfolio.
Bremer Bank 14-MAY-08 Suspending private education loans effective May 14, 2008. Still making FFELP loans, but only at selected schools within their geographic area.
NELNET 15-MAY-08 Nelnet securitized $1.3 billion in pre-10/1/07 FFELP loans at a weighted average margin of 1.15% over the three-month LIBOR index. (The NELNET Student Loan Trust 2008-4 securitization priced on May 15, 2008.) This compares with $1.45 billion at 1.42% over the three-month LIBOR on April 22, 2008 and $467 million at 1.43% over the three-month LIBOR on March 31, 2008. This is the first sign of improvement in the capital markets for student loans. It is, however, still higher than the $1.2 billion at 1.02% over the three-month LIBOR on February 15, 2008.
Amarillo National Bank 15-MAY-08 Suspending FFELP loans effective May 15, 2008.
Tarrant County Credit Union 15-MAY-08 Suspending FFELP loans effective May 15, 2008.
Access Credit Union 15-MAY-08 Suspending FFELP loans effective May 15, 2008.
Hereford State Bank 15-MAY-08 Suspending FFELP effective May 15, 2008.
Bank of America 16-MAY-08 Suspending federal consolidation loans effective May 9, 2008. Suspending Stafford origination fee waiver effective June 1, 2008. Unspecified number of layoffs (rumored to be half of sales staff).
Wells Fargo 16-MAY-08 Suspending federal consolidation loans effective May 16, 2008.
Town and Country Bank Stephenville 16-MAY-08 Suspending FFELP effective May 16, 2008.
HCSB, A State Banking Association 20-MAY-08 Suspending FFELP effective May 20, 2008.
Weatherford National Bank 20-MAY-08 Suspending FFELP effective May 20, 2008.
Texas Bay Area Credit Union 20-MAY-08 Suspending FFELP effective May 20, 2008.
Citibank 21-MAY-08 Citibank has notified colleges with minimal loan volume and/or negative profitability that it will no longer originate federal and private loans at their schools effective June 6, 2008.
Arizona Higher Education Loan Authority (AHELA) 21-MAY-08 Suspended federal consolidation loans effective May 21, 2008.
Nelnet 21-MAY-08 Nelnet announced that it was suspending its quarterly dividend to preserve capital.
NorthStar/T.H.E. 21-MAY-08 NorthStar Guarantee has announced that it will begin accepting Stafford and PLUS loan applications for the 2008-09 academic year on May 27, 2008. The loans will provide a 0.25% interest rate reduction for auto-debit. NorthStar will not, however, accept consolidation loan applications.
Legacy Texas Bank 21-MAY-08 Suspending FFELP effective May 21, 2008.
City Bank Texas 21-MAY-08 Suspending FFELP effective May 21, 2008.
Wichita Falls Teachers Federal Credit Union 21-MAY-08 Suspending FFELP effective May 21, 2008.
Commercial Bank of Texas 21-MAY-08 Suspending FFELP effective May 21, 2008.
Nelnet 22-MAY-08 Nelnet sent a letter to colleges announcing that it would continue to originate federal student loans during the 2008-09 academic year.
Neches Federal Credit Union 22-MAY-08 Suspending FFELP effective May 22, 2008.
Mills County State Bank 23-MAY-08 Suspending FFELP effective May 23, 2008.
Bank of North Dakota 23-MAY-08 Suspending federal consolidation loans effective June 1, 2008.
Cadence Bank 23-MAY-08 Suspending FFELP effective May 23, 2008.
MOHELA 23-MAY-08 MOHELA will continue to make Stafford and PLUS loans under the terms recently announced by the US Department of Education. However, MOHELA will be suspending two of their borrower benefit programs effective for new loans first disbursed on or after June 1, 2008: the public service rewards program (up to a 3% interest rate reduction for Missouri teachers, social workers, nurses, law enforcement, firefighters and members of the National Guard) and the rate relief program (2% to 3% reduction in the interest rate after a delayed onset if the borrower paid via auto-debit). The discounts will be replaced with a 0.25% interest rate reduction for auto-debit. Other loan forgiveness programs, such as one for freshmen entering pre-engineering programs, will be continued.
StarTrust Federal Credit Union 27-MAY-08 Suspending FFELP effective May 27, 2008.
Graduate Leverage 27-MAY-08 Resumed making Stafford and PLUS loans on May 27, 2008. Still not offering federal consolidation loans.
Arkansas Student Loan Authority 28-MAY-08 The Arkansas Student Loan Authority will be receiving a $80 million line of credit from the Arkansas state Board of Finance to allow it to continue making Stafford and PLUS loans to Arkansas college students. Federal consolidation loans remain suspended.
Kentucky Higher Education Student Loan Corporation (The Student Loan People) 29-MAY-08 Resuming origination of Stafford and PLUS loans (but not consolidation loans) from all borrowers, including first-time borrowers, starting May 27, 2008 for the 2008-09 academic year.
First Financial Bank, Eastland 30-MAY-08 Suspending FFELP effective May 30, 2008.
Carnegie Student Loans 30-MAY-08 Suspending FFELP effective May 30, 2008.
FirstMark Credit Union 30-MAY-08 Suspending FFELP effective May 30, 2008.
Education Credit Union 30-MAY-08 Suspending FFELP effective May 30, 2008.
Freestone Credit Union 2-JUN-08 Suspending FFELP effective June 2, 2008.
A+ Funds/Medfunds Graduate Level 2-JUN-08 Suspending FFELP effective June 2, 2008.
Credit Union of Texas 5-JUN-08 Suspending FFELP effective June 5, 2008.
Citizens Bank 5-JUN-08 Citizens Bank is calling community colleges in Pennsylvania to tell them that it will no longer provide federal loans to their students. The decision to stop making loans at selected institutions appears to be based on a combination of profitability and geography.
Wells Fargo 6-JUN-08 Wells Fargo is telling some colleges that it will no longer accept Stafford and PLUS loan applications for new borrowers from their schools. Wells Fargo is also eliminating their loan discount programs for all borrowers effective July 1, 2008.
TERI 9-JUN-08 As part of TERI's restructuring, it has terminated its outsourcing agreement with First Marblehead for origination and process of student loans, including their customer service call center. TERI is also no longer accepting new loan applications. TERI is working toward a new guaranteed private student loan program, but nothing has been finalized yet.
Sallie Mae 10-JUN-08 Sallie Mae securitized $2.0 billion in pre-10/1/07 FFELP loans at a weighted average of the 3-month LIBOR plus 0.92%, down from 1.54% in late April. (The SLM Student Loan Trust 2008-6 securitization priced on June 10, 2008 and will issue on June 12, 2008.) This is the second lender to show improved pricing in the capital markets, the other being Nelnet in its May 15, 2008 securitization.
Sallie Mae 12-JUN-08 Sallie Mae sold $2.5 billion of 10-year unsecured notes at a rate of 8.45% (priced to yield 8.75%). The company reported that the offering was "significantly oversubscribed". This helps the company diversify its liquidity position, despite the high cost of the bonds.
Citibank 12-JUN-08 Citibank Student Loan Corporation securitized $2.1 billion in pre-10/1/07 FFELP loans at a weighted average of the 3-month LIBOR plus 0.71%, down from 1.44% in March. (The SLC Student Loan Trust 2008-2 securitization priced on June 12, 2008 and will issue on June 26, 2008.) This is the third lender to show improved pricing in the capital markets, the others being Nelnet in its May 15, 2008 securitization and Sallie Mae in their June 10, 2008 securitization.
Brazos 17-JUN-08 Brazos announced that all Brazos lenders (including Brazos Student Lending, Academic Finance Corporation (AFC), Educational Funding Services, Inc. (EFSI) and Studentloans.com) will resume accepting Stafford and PLUS loan applications effective immediately for the 2008-09 academic year.
Happy State Bank 17-JUN-08 Suspending FFELP participation effective June 17, 2008.
Citizens Bank 19-JUN-08 Citizens Bank has reversed its June 5, 2008 decision to stop making loans at community colleges in Pennsylvania and is calling the colleges to let them know of the change of heart.
Wachovia Education Finance 19-JUN-08 Wachovia is no longer offering federal consolidation loans.
River City Federal Credit Union 20-JUN-08 Resuming FFELP effective June 20, 2008.
South Carolina Student Loan Corporation 23-JUN-08 South Carolina Student Loan Corporation (SCSLC) has announced that it will close on a $600 million corporate bond issue on June 25, 2008. The bond will help fund Stafford and PLUS loans during the 2008-09 academic year. SCSLC will continue to waive origination and default fees on these loans. $50 million of the bond was purchased by the state.
Sallie Mae 24-JUN-08 According to the Burlington County Times, Sallie Mae is laying off 160 of 250 staff (64%) in Mount Laurel, a suburb of Philadelphia. Sallie Mae is ending its private student loan collection operation at that office on July 1, 2008. (According to other reports, the number of layoffs is 163.)
Graduate Leverage 26-JUN-08 Web site contains a message indicating that Graduate Leverage will offer Stafford, Parent PLUS and Graduate PLUS loans for the 2008-09 academic year.
MyRichUncle 27-JUN-08 Suspending FFELP loans effective June 27, 2008.
Falcon International Bank 30-JUN-08 Suspending FFELP loans effective June 30, 2008.
COSTEP 1-JUL-08 The Council for S. Texas Economic Progress, Inc. (COSTEP) is suspending FFELP loans effective July 1, 2008.
University of Chicago 1-JUL-08 The University of Chicago is suspending its school-as-lender program.
PHEAA 1-JUL-08 264 of 1,008 eligible employees (26%) took voluntary layoffs, representing 12% of the 2,144 total work force.
North Carolina State Education Assistance Authority 2-JUL-08 The North Carolina State Employee Credit Union (SECU) announced that it had purchased $1.1 billion of bonds issued by the North Carolina State Education Assistance Authority (NCSEAA). This will provide funding for federal and private loans made by the College Foundation Inc. (CFI) to North Carolina students and residents.
Citibank Student Loan Corporation 9-JUL-08 Citibank Student Loan Corporation is eliminating 146 of 523 jobs (28%). An additional 28 jobs will be eliminated at Citibank N.A. of South Dakota. Citibank N.A. owns 80% of the Student Loan Corporation.
MyRichUncle 10-JUL-08 MyRichUncle securitized $124 million in private student loans with the AAA-rated tranche at 4.00% over the 3-month LIBOR and an overall cost of funds of 4.83% over the 3-month LIBOR. This is the first education lender to securitize private student loans since September 2007. The lender indicated that it is increasing the weighted average interest rate on new loans to the 3-month LIBOR plus 9.0% (currently about 11.8% APR) to compensate for the increased cost of funds. The company's previous maximum rate was the 3-month LIBOR plus 8.0%, so this represents a significant increase in the average interest rate. MyRichUncle says that it focuses on low debt-to-income ratios in underwriting borrowers and cosigners, suggesting that its borrowers may be better able to handle the increase in interest rates on new loans.
Wells Fargo Bank Trustee for Indiana Secondary Market 11-JUL-08 Suspending FFELP loans effective July 11, 2008. It is unclear whether this suspension affects just the relationship between ISM and Wells Fargo or whether ISM has suspended all FFELP loans.
NorthStar Guarantee 14-JUL-08 Kabateck Brown Kellner LLP announced a class-action breach of contract lawsuit against NorthStar Guarantee. NorthStar Guarantee suspended its loan discounts for existing borrowers in addition to new borrowers starting in February 2008. The success or failure of the lawsuit will likely depend on whether the discounts were a contractual obligation of the lender and if so whether the discounts were subject to change. However, NorthStar Guarantee was fairly consistent in including the statement "this amount is based on current financial market conditions and portfolio performance and is therefore subject to change" in connection with descriptions of the T.H.E. Repayment Bonus on its web site and marketing materials. Still, borrowers who lost the discounts through no fault of their own may feel as though they were subjected to bait and switch by the lender.
Texas Rural Communities 16-JUL-08 Suspending FFELP loans effective July 16, 2008.
First Service Credit Union 16-JUL-08 Suspending FFELP loans effective July 16, 2008.
Abilene Teachers Federal Credit Union 18-JUL-08 Suspending FFELP loans effective July 18, 2008.
International Bank of Commerce Oklahoma 18-JUL-08 Suspending FFELP loans effective July 18, 2008.
Northwest National Bank of Arlington 18-JUL-08 Suspending FFELP loans effective July 18, 2008.
Sallie Mae 23-JUL-08 The supplemental earnings disclosure to Sallie Mae's Q2-2008 quarterly report noted restructuring expenses of $47 million (Q2) and $21 million (Q1) and stated "The majority of these restructuring expenses were severance costs related to the aggregate of completed and planned position eliminations totaling approximately 2,500 positions (representing approximately 23 percent of the overall employee population) across all areas of the Company. Cumulative restructuring expenses from the fourth quarter of 2007 through the second quarter of 2008 totaled $90 million. The Company estimates an additional $24 million of restructuring expenses associated with its current cost reduction efforts will be incurred in future periods." This suggests an additional 1,500 layoffs beyond those reported in the Q1-2008 quarterly report.
Brazos 28-JUL-08 Brazos announced that all Brazos lenders (including Brazos Student Lending, Academic Finance Corporation (AFC), Educational Funding Services, Inc. (EFSI) and Studentloans.com) will suspend accepting Stafford and PLUS loan applications effective immediately for the 2008-09 academic year. This is the second time Brazos has suspended participation in FFELP. Timing issues in the details of the US Department of Education's loan purchase authority were the primary reason for this second suspension of FFELP participation.
MEFA 28-JUL-08 Suspending all private student loans effective immediately.
Academic Financial Services 28-JUL-08 Suspending FFELP effective July 28, 2008.
Education Finance Partners 31-JUL-08 Suspends private consolidation loan program. Still making private student loans.
San Antonio Federal Credit Union 1-AUG-08 Suspending FFELP effective August 1, 2008.
Wachovia Education Finance 5-AUG-08 Wachovia sent email to colleges indicating that it would stop making private student loans to undergraduate students effective end-of-business on August 6, 2008. Wachovia is also suspending its continuing education loan.
NJHESAA 7-AUG-08 The New Jersey Higher Education Student Assistance Authority completed a $350 million student loan bond issue on August 7, 2008.
NTHEA 14-AUG-08 No longer offering consolidation loans.
UHEAA 14-AUG-08 Suspended consolidation loans on Thursday, August 14, 2008.
Education Finance Partners 14-AUG-08 Suspending all private student loans, effective immediately, due to a lack of available funds. Laid off 140 staff, including 113 staff in Austin, Texas.
Kentucky Higher Education Student Loan Corp. 15-AUG-08 The state of Kentucky announced that it had closed on a deal to buy a $50 million bond from the state loan agency, the Kentucky Higher Education Student Loan Corporation (KHESLC). KHESLC, also known as The Student Loan People, will use the bond proceeds as bridge funding for the US Department of Education's liquidity program. This program allows FFELP lenders to sell loans originated during the 2008-09 academic year to the US Department of Education at the origination costs plus $75 per loan. It also allows lenders the pledge the loans as collateral for funding at a rate of the 3-month commercial paper rate plus 0.50%. (The Kentucky bonds are at the same CP + 50 rate.) In both cases the lender must already have the loans. The state funding will allow KHESLC to disburse more than $40 million in student loans they had made but not yet funded. Other state loan agencies have been unable to use the liquidity program because of a lack of bridge funding.
Edamerica 18-AUG-08 Edamerica sent letters to students and schools indicating that it would be unable to disburse student loans in a timely fashion due to delays inherent in the US Department of Education's loan purchase authority. The delayed disbursements will affect approximately 200,000 students at 3,200 colleges. Edamerica has stated that it will eventually disburse those loans, just not in the time frame requested by the colleges.
F&M Bank and Trust Company 19-AUG-08 Suspending FFELP effective August 19, 2008.
New Mexico Student Loans 19-AUG-08 New Mexico Student Loans (NMSL) announced that the New Mexico State Treasurer's Office will buy a $50 million bond from NMSL. This will provide bridge funding to get NMSL started in the US Department of Education's liquidity program. This deal will supplement a $20 million line of credit that NMSL has with the Bank of the West.
Sallie Mae 20-AUG-08 Sallie Mae announced that it was the first company to receive funds from the US Department of Education's loan purchase authority. It was approved on August 14, 2008 and requested funding on August 15, 2008, receiving the funding in three business days. The loan purchase authority allows lenders to sell loans at origination cost plus $75 a loan or to pledge loans as collateral for funding at a rate of the 3-month commercial paper rate plus 0.50%.

Sallie Mae estimated that it would be originating at least $20 billion in Stafford and PLUS loans under this loan purchase authority during the 2008-09 academic year. Sallie Mae originated $9 billion in Stafford and PLUS loans during FY2007.

Nelnet announced that it had also been approved by the US Department of Education on August 15, 2008 for participation in the loan liquidity program.

Deutsche Bank Trust Company 26-AUG-08 Suspending FFELP effective August 26, 2008 for lender id 834102.
Independence Federal Savings Bank 26-AUG-08 Resuming origination of FFELP Stafford and PLUS loans effective August 26, 2008.
Cy-Fair Federal Credit Union 3-SEP-08 Suspending federal education loans effective September 3, 2008.
College Loan Corporation 4-SEP-08 College Loan Corporation is suspending its private student loan program effective immediately because it lost its funding on September 3, 2008.
MyRichUncle 5-SEP-08 MyRichUncle is suspending origination of its private student loans effective September 5, 2008 due to liquidity constraints.
Tennessee State University 5-SEP-08 According to a newspaper article in the Tennessean, Tennessee State University is blaming layoffs and a budget shortfall on a sharp decline in out-of-state student enrollment. The newspaper reports that 1,300 students (15% of total enrollment) may be dropped because of an inability to pay tuition, bringing total enrollment to the lowest level in two decades. The newspaper quoted the university president as attributing the decline to the combination of a tuition increase with the tightening student loan market.
Illinois Student Assistance Commission (ISAC) 7-SEP-08 The Illinois Credit Union League announced that a group of 8 credit unions (Alliant Credit Union of Chicago, Baxter Credit Union of Vernon Hills, Citizens Equity First Credit Union of Peoria, Corporate America Family Credit Union of Elgin, Credit Union 1 of Rantoul, I.H. Mississippi Valley Credit Union of Moline, Motorola Credit Union of Schaumburg and Scott Credit Union of Collinsville) will be issuing a $100.5 million bond to the Illinois Student Assistance Commission (ISAC) to enable its lending arm, IDAPP, to issue federal education loans to Illinois students. [The deal was approved by ISAC on Friday, September 19, 2008.]
Campus Door 11-SEP-08 A Pennsylvania Warn Notice for Campus Door indicates that the lender will be laying off 142 staff due to a plant closing effective October 26, 2008.

Campus Door loans are also apparently available through private label arrangements with other lenders, including Access Group, Axiom Student Loans, EdAssure and National Education.

In addition, a notice on the Campus Door web site warns prospective borrowers about more stringent credit underwriting criteria: "Please note that as a result of the current credit market environment we have implemented a newly revised and more stringent set of credit requirements. As a result of these changes, we have substantially narrowed the number of applicants whose credit we will approve. We appreciate your inquiry but want to be clear about the prospects of getting a loan with CampusDoor at this time."

MEFA 16-SEP-08 MEFA announced that it is resuming its undergraduate and graduate private student loan programs for the 2008-09 academic year, effective immediately. MEFA successfully raised $400 million through the bond market to fund the loans.
Key Bank 18-SEP-08 Suspending two private student loan products, the Key Education Consolidation Loan and the EdAchiever Loan (a continuing education loan), effective September 18, 2008. Still making other private student loan products as well as federal education loans.
MyRichUncle 19-SEP-08 According to a company press release issued on September 19, 2008, and the company's Annual Report (SEC Form 10-K) issued on September 15, 2008, MyRichUncle has received a "going concern" opinion from its independent registered public accounting firm. The company also announced that it had received a letter from NASDAQ that the company no longer complies with the requirements for continued listing on NASDAQ and has asked the company to provide a plan to achieve and sustain compliance with the listing requirements. The company announced on September 8, 2008 that it is planning to raise $250 million in equity and convertible debt securities.
Hondo National Bank 22-SEP-08 Suspending FFELP loans effective September 22, 2008.
First Commercial Bank 26-SEP-08 Suspending FFELP loans effective September 26, 2008.
ScholarPoint Financial 26-SEP-08 Suspending private student loans effective September 26, 2008. (SunTrust is no longer offering a non-school-certified private student loan through third parties.) According to the ScholarPoint web site, the company is no longer providing education loans to students and parents.
Axiom Student Loans 30-SEP-08 Suspending private student loans effective immediately.
Sallie Mae 30-SEP-08 A Sallie Mae Private Credit ABS Investor Presentation (on secinfo.com) indicates that the company has increased FICO score floors to 670 on private student loans to for-profit schools and to 730 on direct-to-consumer private student loans from the previous floor of 640 in December 2007.
Wachovia Education Finance 1-OCT-08 Suspending all private student loans effective October 1, 2008.
National Education 1-OCT-08 National Education has discontinued its Campus Door private student loan product. The company expects to launch a new private student loan product within a few weeks.
Sallie Mae 10-OCT-08 Sallie Mae announced that it is tightening the credit underwriting criteria and adjusting the pricing on its private student loan products. The tighter credit underwriting criteria will most likely result in lower approval rates for their private student loans. The lender is forced to become more selective because the number of applications is increasing while available funding is not. This will yield a higher quality student loan pool. For example, approximately 2/3 of new Sallie Mae private student loans have cosigners, compared with 1/2 in 2007.

The letter encourages borrowers to "take full advantage of Federal Stafford and PLUS loans before applying for a private credit loan" and to "always apply with a creditworthy cosigner who has excellent credit when seeking a private student loan".

Key Bank 14-OCT-08 Suspending all remaining private student loan programs effective October 31, 2008. Key Bank will continue to offer federal Stafford and PLUS loans (both Parent PLUS and Grad PLUS).
Sallie Mae 17-OCT-08 Sallie Mae is closing 20 SLM Financial offices nationwide, laying off 100 staff. The functions and services provided by these offices have been consolidated to a central location.
National Association of Independent Colleges and Universities (NAICU) 21-OCT-08 NAICU released the results of a September 2008 survey of its membership concerning the availability of student loans. It was a follow-up to a similar March 2008 survey.

Key findings include:

  • 85.2% of the FFELP colleges lost lenders and 9.6% found it difficult or extremely difficult to replace these lenders.
  • 19.6% of FFELP colleges experienced delayed disbursements from lenders.
  • 31.5% of colleges reported an increase in the number of parents applying for the Parent PLUS loan and 19.6% reported an increase in the number of parents who previously qualified for the Parent PLUS loan but were now rejected.
  • 87.4% of the colleges that use private student loans lost lenders and 27.8% found it difficult or extremely difficult (or were unable) to replace these lenders.
  • 74.0% of the colleges that use private student loans reported that their students were experiencing tighter eligibility criteria from the remaining lenders. 59.1% reported that their students were finding that the loans were more expensive.
  • 45.7% of the colleges that use private student loans had 11 to 50 students who were unable to obtain a private student loan and 11.0% had more than 50 students who were unable to obtain a private student loan.
  • 55.5% of the colleges that use private student loans reported that the lack of a cosigner was the primary reason why the students were unable to obtain a private student loan. 10.5% reported denials because the credit scores were below the lender's FICO floor.
  • 45.8% of the colleges that use private student loans reported that some of the students who were denied private student loans were taking time off or switching to part-time enrollment. 38.3% reported that their students were working more and 34.3% reported that their students were choosing to pay with credit cards. 5.0% reported that their students were relying on peer-to-peer loans.
  • 52.6% of the colleges that use private student loans reported that some of the students who were unable to obtain private student loans were relying on the college's tuition installment plans.
  • 2.8% of the FFELP colleges had converted to the Direct Loan program and 7.9% had certified or recertified for the Direct Loan program.
  • 75.1% of the colleges reported a moderate or substantial increase in demand for student aid in 2008-09.
  • 17.7% of the colleges reported fewer returning students than expected. 19.0% reported fewer incoming freshmen than expected. 66.5% reporting no change in enrollment due to the credit crunch.

Note that many of these findings are reported in terms of the percentage of colleges impacted and not the percentage of students and parents.

Miscellaneous 23-OCT-08 The number of lenders suspending federal loans increased from 137 to 168 today because of an in-depth review of the top 100 consolidators and not because of a spike in lender loan program suspensions.
EdAssure 26-OCT-08 EdAssure posted the following notice on its web site: "Due to uncontrollable economic circumstances, EDASSURE is not able to offer private educational loan products at this time. We apologize for any inconvenience this may cause and regret that our products and services are not able to assist students and families desiring to pay for college with a private loan."
Astrive Student Loans 3-NOV-08 Astrive Student Loans, a loan program of First Marblehead, stopped accepting new student loan applications as of November 3, 2008.
Franklin Bank SSB 7-NOV-08 Franklin Bank SSB (Houston, TX) was closed by the Texas Department of Savings and Mortgage Lending on November 7, 2008. The FDIC is now receiver for this lender. The lender had previously stopped making consolidation loans and is now no longer making any FFELP loans.
GMAC Bank Education Loans 10-NOV-08 GMAC Bank Education Loans included the following notice on their web site: "At this time GMAC Bank is not accepting new applications for this product. We apologize for any inconvenience."
National Education 13-NOV-08 Resuming originations of Stafford, Parent PLUS and Grad PLUS loans effective Thursday, November 13, 2008.
NorthStar/T.H.E. 19-NOV-08 NorthStar T.H.E. suspended their Medical Residency and Bar Prep loans and is now private labeling the Discover Student Loan program.
South Carolina Student Loan 19-NOV-08 Suspended the Palmetto Assistance Loan (PAL) programs due to "the ongoing disruption in the credit markets" effective November 19, 2008. They continue to offer the SC Teachers Loan, SC Career Changers Loan, and the SC PACE Loan.
Index Rate Mismatch 19-NOV-08 Mark Kantrowitz posted an alert about ongoing distortion of the Commercial Paper Rate and the impact of this on the index rate mismatch.
South Carolina Student Loan Corporation 19-NOV-08 South Carolina Student Loan Corporation announced on November 19, 2008 that it has stopped accepting private student loan applications for new borrowers. Spring semester disbursements for existing borrowers will be honored.
New Jersey Higher Education Student Assistance Authority (NJ HESAA) 25-NOV-08 The New Jersey Higher Education Student Assistance Authority has announced that as of November 25, 2008 new applicants for the NJCLASS private student loan program will be required to make payments of at least the interest that accrues during the in-school period. They will no longer have the option of deferring payment of principal and interest during the in-school period (option 3). In a typical year only 40% to 45% of borrowers opted to defer repayment, but this year the percentage reached 50%. The bond that funds the loan program limits deferments of principal and interest to no more than 50% of the student loan pool. HESAA also reported a 21% increase in the number of new applicants for its private student loan program.
The Educated Borrower 15-DEC-08 The Educated Borrower is no longer accepting new loan applications as of December 15, 2008.
Education Finance Partners 18-DEC-08 Education Finance Partners filed for Chapter 7 bankruptcy protection in the U.S. Bankruptcy Court in Austin, Texas. It's largest unsecured debt is $2.5 million owed to the New York attorney general's office.
Oklahoma Student Loan Authority 24-DEC-08 The Oklahoma Student Loan Authority reported that the number of banks in its lending network has decreased from 42 to 17. The Authority has also reported a 34% increase in loan applications since July, as compared with the same period during the previous year.
Campus Door 6-JAN-09 Campus Door now has a notice on their web site which says: "Due to further deterioration of the credit environment, we are not accepting new applications for student loans at this time."
Sallie Mae 8-JAN-09 Sallie Mae announced the closing of a $1.5 billion 12.5 year liquidity deal with Goldman Sachs for funding private student loans. This is the first major event involving the funding of private student loans since September 2007, other than a handful of smaller deals (e.g., $124 million by MyRichUncle on July 10, 2008, $400 million by MEFA on September 16, 2008, $64 million by RISLA on May 1, 2008). It is a positive sign indicating a potential thawing of liquidity for private student loans.

The press release characterizes the deal as a ABS-based total return swap. In a total return swap, the holder of assets gets protection from both market risk and credit risk. The other party gets the economic benefits of the assets without including them on its balance sheets. For example, the holder agrees to pay the other party the payments of principal and interest on a portfolio of loans, plus any capital gains (not relevant for loan assets). The other party agrees to pay a set rate of interest (e.g., LIBOR plus a margin) and to compensate the holder for any borrower defaults and any decline in market value.

In the Sallie Mae/Goldman Sachs deal, the liquidity is coming from the sale of private student loan ABS to Goldman Sachs. This is coupled with a total return swap in which Sallie Mae is effectively guaranteeing the loans against default and any decline in the market price of the ABS. This provides Goldman Sachs with protection for its $1.5 billion investment from credit and market risk. Sallie Mae pays Goldman Sachs LIBOR plus a margin and Goldman Sachs pays Sallie Mae the principal and interest received on the ABS (i.e., Sallie Mae gets the spread between the two sets of interest rates).

In effect, this is equivalent to Goldman Sachs providing Sallie Mae with a $1.5 billion 12.5 year loan at LIBOR plus a margin, secured by private student loan ABS, with a requirement that Sallie Mae either repurchase the ABS at maturity or compensate Goldman Sachs for the difference between the market price for the ABS and the $1.5 billion.

The deal priced at LIBOR + 5.75%.

MyRichUncle 9-JAN-09 MyRichUncle received notification from NASDAQ that its stock would be delisted on January 13, 2009 because of a failure to maintain minimum stockholders equity of $10 million.
CSLF Susie Mae 12-JAN-09 The Susie Mae (CSLF) web site no longer lists private student loans as a borrowing option.
ABCP Conduit Terms and Conditions 15-JAN-09 Terms and conditions for ABCP Conduits were published in the Federal Register 74(10):2518-2564 on January 15, 2009.
ABCP Conduit 29-JAN-09 Citigroup and Morgan Stanley have assembled a $60 billion asset-backed commercial paper (ABCP) conduit for the purchase of new and existing federal student loans originated from 10/1/03 to 7/1/09. The facility is designed to last five years, with cost of funds increasing over time to encourage lenders to eventually switch back to the capital markets. The Federal Financing Bank will act as a 90-day backstop if the ABCP conduit fails to find investors, after which point the US Department of Education would buy the loans from the conduit at a predetermined price. The ABCP Conduit was approved by the US Department of Education, US Treasury and OMB on January 19, 2009 and is expected to begin operating in mid to late February.
Citibank 2-FEB-09 According to the Associated Press, Citibank will use $1 billion of its $36.5 billion in TARP funding to make student loans.
MyRichUncle 9-FEB-09 MRU Holdings, the parent company of MyRichUncle, has filed for Chapter 7 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy filing reports that the company has assets of $11.0 million and liabilities of $45.7 million.
Citi Student Loan Corporation 13-FEB-09 Citi Student Loan Corporation securitized $604 million in FFELP loans originated before October 1, 2007 by issuing $547 million in SLABS (SLC Student Loan Trust 2009-1) at a weighted average interest rate of the 3-month LIBOR plus 2.41%. (This weighted average takes average lives at 12% CPR into account.) The securitization switched servicing to a unit cost basis of $3.25 per borrower per month, capped at 1/12th of 90 bp. This is the first FFELP securitization of 2009 and the most recent one since Sallie Mae securitized $4.1 billion on August 28, 2008 (SLM Student Loan Trust 2008-9) at a weighted average of the 3-month LIBOR plus 1.55%. So while there is still ongoing securitization activity, the cost of funds continues to deteriorate.
American Recovery and Reinvestment Act of 2009 13-FEB-09 The American Recovery and Reinvestment Act of 2009 was passed by the House and Senate on February 13, 2009 largely along party lines. The bill includes a $500 increase in the maximum Pell Grant (discretionary funding) for 2009-10, a $700 increase in the Hope Scholarship tax credit from $1,800 to $2,500 for 2009 and 2010 (along with partial 40%/$1,000 refundability, an increase from 2 years to 4 years and expanded income phaseouts), $200 million in additional Federal Work-Study funding and $200 million in AmeriCorps funding.
JPMorgan Chase 27-FEB-09 JPMorgan Chase has signed an agreement with Harvard University to offer private student loans to foreign students without requiring a US citizen or permanent resident cosigner. This replaces a similar agreement with Citibank Student Loan Corporation that ended in October 2008.
U.S. Bank 1-MAR-09 Effective March 1, 2009, U.S. Bank is suspending its FFELP consolidation loan.
Maine Education Services (MES) 2-MAR-09 Effective March 31, 2009, Maine Education Services is suspending participation in FFELP.
TALF Terms Updated 3-MAR-09 The Federal Reserve Bank of New York released new terms for TALF today and announced that TALF will be operational on March 17, 2009. The new terms reduced the haircuts for federally-guaranteed student loans and also reduced the cost of funds for such loans by 50 basis points.
JPMorgan Chase 3-MAR-09 JPMorgan Chase announced that it "does not intend to participate in the Department of Education¬.s (DOE) impending Parent PLUS loan auction. As a result, Chase will not originate Parent PLUS loans for new parent borrowers after June 30, 2009."
Sallie Mae 12-MAR-09 Sallie Mae announced that it has decided to not participate in the Parent PLUS loan rights auction.
Nelnet 18-MAR-09 Nelnet announced that it has decided to not participate in the Parent PLUS loan rights auction. It will not be bidding as either a lender or a lender of last resort in any state.
TALF 19-MAR-09 No TALF loans for student loans were requested from the March 17-19, 2009 facility.
Access Group 20-MAR-09 A notice on the Access Group web site states "Private student loans are currently unavailable from Access Group." Further information indicates that Access Group's contract with Campus Door ended on October 31, 2008.
Comerica 20-MAR-09 A notice on the Comerica web site states "We currently are not accepting applications for student loans at this time."
Citi Student Loan Corporation 24-MAR-09 Citi Student Loan Corporation announced that it has decided to not participate in the Parent PLUS loan rights auction. Reasons for not bidding include the uncertainty over any future extensions to the ECASLA loan participation agreements past 2009-10, which would make the loans uneconomic in 2010-11. Also, President Obama has proposed eliminating FFELP starting July 1, 2010, adding to the uncertainty. Finally, the end of April announcement of the winners would require too quick an implementation turnaround.
Edamerica 25-MAR-09 Edamerica announced that it has decided to not participate in the Parent PLUS loan rights auction.
Sallie Mae 3-APR-09 Sallie Mae has sent letters to flight schools announcing significant cuts in flight training loans, effective May 8, 2009.
First Financial Bankshares 3-APR-09 First Financial Bankshares, a group of ten separately-chartered community banks based in Abilene, Texas, has announced that it has sold 86% of its student loan portfolio to the US Department of Education and will be suspending its participation in FFELP at the end of the 2008-2009 academic year. In addition to seven eponymous community banks, First Financial Bankshares also includes Hereford State Bank, San Angelo National Bank and Weatherford National Bank.
Trustmark National Bank 7-APR-09 Trustmark National Bank of Jackson, Mississippi, is suspending participation in FFELP.
Bancorp South 7-APR-09 Bancorp South of Tupelo, Mississippi, is suspending participation in FFELP effective July 1, 2009.
Sallie Mae 7-APR-09 Sallie Mae priced a securitization (SLM Student Loan Trust 2009-1) of $2,179,092,000 in mostly pre-10/1/07 FFELP loans (3.7% of the portfolio involves post-10/1/07 loans) at the 3-month LIBOR plus 2.25%. The securitization will issue on April 9, 2009.
Bremer Financial Corp. 17-APR-09 Bremer Financial Corp. of St. Paul, Minnesota, is suspending participation in FFELP.
Sallie Mae 19-APR-09 Sallie Mae priced a securitization (SLM Student Loan Trust 2009-2) of $1,845,143,000 in pre-10/1/07 FFELP loans at the 3-month LIBOR plus 2.25%. The securitization will issue on April 21, 2009.
Sallie Mae 27-APR-09 Sallie Mae extended the term of its $21.8 billion ABCP facility for one year through April 23, 2010. The company paid off a $2.7 billion private student loan facility.
AES/PHEAA 5-MAY-09 AES/PHEAA is hiring for 190 positions in its customer service and collections call centers.
Sallie Mae 6-MAY-09 Sallie Mae priced a AAA-rated securitization (SLM Private Education Loan Trust 2009-B) of $2.59 billion in private student loans at the 1-month LIBOR plus 6.0%. The loans in the securitization have a weighted average life of 4.38 years and are TALF-eligible. Sallie Mae can call the notes between November 2011 and April 2012 at 93% of par, in which case the cost of financing will be approximately 1-month LIBOR plus 3.66%. The securitization will issue on May 12, 2009.

This is the first securitization of private student loans since First Marblehead's $1.464 billion securitization on September 19, 2007 and Sallie Mae's $2.239 billion securitization on March 28, 2007, aside from a handful of smaller deals (e.g., $124 million at 3-month LIBOR plus 4.0% by MyRichUncle on July 10, 2008, $400 million by MEFA on September 16, 2008, and $64 million by RISLA on May 1, 2008) and Sallie Mae's private placement of $1.5 billion at LIBOR plus 5.75% with Goldman Sachs on January 8, 2009. The size and economics of the deal are a positive sign for the private student loan industry.

Nelnet 7-MAY-09 Nelnet is closing its Jacksonville, Florida, operations center in early 2010, leading to approximately 250 layoffs.
Sallie Mae 11-MAY-09 Sallie Mae completed a placement in the ABCP conduit Straight-A Funding LLC for $750 million to settle on May 19, 2009 at the 3-month LIBOR plus 5 bp. This represents a significant reduction in the cost of funds as compared with their most recent securitization at the 1-month LIBOR plus 225 bp and their existing $21.8 billion ABCP conduit at LIBOR + 130 bp. The company expects to place a total of up to $16 billion of FFELP loans in this or similar ABCP conduits in 2009.
Citi Student Loan Corporation 14-MAY-09 Citi Student Loan Corporation announced that it will be placing FFELP loans in the ABCP conduit Straight-A Funding LLC on May 19, 2009 to be settled on May 26, 2009. The amount of funding and the cost of funds remains to be determined. The company has up to $11 billion in FFELP loans eligible for the ABCP conduit.
NorthStar Education Finance 21-MAY-09 NorthStar Education Finance is suspending participating in federal and private education loan programs effective May 21, 2009.
MELA 27-MAY-09 The Maine Education Loan Authority (MELA) issued $210 million in 30-year tax-exempt student loan bonds for funding private student loans at 5.875%. Of the total, $156.5 million is for restructuring auction rate bonds into a fixed rate structure and the rest ($53.5 million) is for the origination of new private student loans starting in 2009-10. The funding is sufficient for at least one and probably two years of the state's private student loan programs, as the authority normally originates about $32 million in private student loans per year.
Nelnet 27-MAY-09 Nelnet completed a placement in the ABCP conduit Straight-A Funding LLC for $637 million to settle on June 4, 2009 at the 3-month LIBOR plus 0 to 10 bp. The company expects to place up to an additional $275 million in FFELP loans in the ABCP conduit over time.
ISAC 28-MAY-09 The Illinois Student Assistance Commission (ISAC) sold $50 million in tax exempt bonds through the Illinois Designated Account Purchase Program (IDAPP). The bond issue will enable it to purchase loans of rehabilitated federal education loan borrowers. Due to a quirk in the law, the credit history of previous defaults on federal education loans could only be cleared after the rehabilitated loans had been sold to a lender by the guarantee agency.
State of Texas College Student Loan 2-JUNE-09 The State of Texas College Student Loan issued $75 million of tax exempt general obligation bonds to support student loans to settle on June 30, 2009.
NJHESAA 4-JUNE-09 The New Jersey Higher Education Student Assistance Authority is selling $450 million of tax exempt bonds to fund state private student loans. These bonds qualify for a stimulus provision that exempts certain tax exempt bonds from the alternative minimum tax.
Citi Student Loan Corporation 4-JUNE-09 Citi Student Loan Corporation announced that it placed $3.8 billion in FFELP loans in the ABCP conduit Straight-A Funding LLC. The company has about $7 billion in additional FFELP loans remaining that are eligible for future placement in the ABCP conduit.
CSLF Susie Mae 10-JUNE-09 Susie Mae, the Connecticut Student Loan Foundation (CSLF), announced on June 10, 2009 that it will no longer participate in FFELP starting with the 2009-2010 academic year. CSLF has also laid off nearly three-quarters (117 of 162) of its staff since the start of the credit crisis. CSLF will continue acting as a FFELP guarantor.
Citizens Bank 1-JULY-09 Citizens Bank announced a new private student loan, the TruFit Student Loan, to be available starting July 1, 2009.
Sallie Mae 2-JULY-09 Sallie Mae priced a securitization of $1.1 billion in private student loans at the Prime lending rate plus 1.25%. The securitization will close on July 14, 2009. The loans in the securitization are TALF eligible and are callable by the issuer between January 15, 2012 and June 15, 2012 at 94% of par, in which case the cost of financing will be approximately Prime - 0.71%. The Prime lending rate is currently 3.25%.
US Bank 8-JULY-09 US Bank has notified colleges that it will be suspending its participation in the FFEL program starting September 26, 2009. It will disburse FFELP loans for which the MPN and school certifications are received before that date, and the loans must be fully disbursed by September 15, 2010.
Sallie Mae 21-OCT-09 Sallie Mae sold $589 million in remarketing notes for the A-4 class of the SLM Student Loan Trust 2004-10 at the 3-month LIBOR + 40 bp. This decrease in the cost of funds is a very good sign, demonstrating an increase in demand for student loan securities.
South Carolina Student Loan Corporation NOV-09 South Carolina Student Loan has restarted the Palmetto Assistance Loan, a private student loan.
Key Education Resources 5-DEC-09 Key Education Resources has exited FFELP as of December 5, 2009.
Bank of America 5-DEC-09 Bank of America, the third largest originator of FFELP loans, has suspended all FFELP loans effective December 5, 2009.
Silver State Helicopters 29-DEC-09 Former Silver State Helicopters students are being offered a settlement from Student Loan Xpress to forgive up to 75% of their outstanding loan balances with Student Loan Xpress if they had not received certification due to the school's bankruptcy. Citibank previously forgave 100% of outstanding loan balances for former Silver State Helicopters students. Discussions are still pending with Key Bank.
Education Loan Resources 19-FEB-10 Education Loan Resources (ELR) has suspended their federal loan program and are not making loans to new borrowers, only serial borrowers.
JP Morgan Chase 17-MAR-10 JP Morgan Chase announced on March 16, 2010 that it would suspend its participation in the FFEL program on April 17, 2010 due to the impending expiration of ECASLA. The lender will continue to offer its private student loans.
NorthStar Education Finance 8-APR-10 US District Judge Donovan Frank approves a $9.75 million class-action settlement concerning NorthStar's suspension of its 0.75% interest rate reduction in February 2008. Eligible borrowers will receive $81 on average.

Note: Student Loan Xpress and Goal Financial have not returned numerous telephone calls and email messages. The Goal Financial layoff figures are based on the Warn Act Notices.

Loan Program Expansions

A handful of lenders are actively trying to significantly increase their marketshare. This mainly includes lenders that are recent entrants into the student loan programs or who are building an in-house student loan business after dissolving a previous relationship with another lender. An example includes Discover Student Loans.

Secondary Markets for Student Loans

Most secondary markets for education loans have evaporated. However, some SLARS are being sold at a discount on the Restricted Securities Trading Network (RSTN), now known as SecondMarket.

Impact on Students

The impact on students and their families breaks down into three main areas:

  • Availability. While many lenders have left the student loan marketplace, eligible borrowers should still be able to obtain federal education loans. This is in part due to the one-year bandaid enacted by Congress as part of the Ensuring Continued Access to Student Loans Act and implemented by the US Department of Education. Students at community colleges and trade schools may find it more difficult to find willing lenders because average aggregate loan balances are smaller at 1 and 2-year programs than at 4-year colleges, but the colleges can always switch into the Direct Loan program. So borrowers may have to hunt around for a lender but will ultimately be able to find federa loans. This will represent more of an inconvenience than a major impediment. Private student loans, however, may suffer from availability issues, especially at foreign medical schools that do not participate in the Title IV federal student aid programs.

  • Eligibility. The Federal Stafford loan should no suffer from eligibility issues. However, the PLUS loan depends on the borrower not having an adverse credit history. One of the components of an adverse credit history is having had a foreclosure or repossession in the last five years. To the extent that the subprime mortgage credit crisis was precipitated by an increase in foreclosure rates there should be an increase in PLUS loan denial rates. Education lenders are also adopting more stringent credit underwriting criteria on private student loans. While one could have obtained a traditional private student loan in 2007 with a FICO score as low as 620, now lenders are requiring FICO scores of at least a 650 and in some cases 680 or 700 or more. (Anything under 650 is considered subprime, and education lenders are eliminating their subprime exposure. Others, given limited liquidity, are focusing that liquidity on the most creditworthy of prospective borrowers.) Approximately 10% of funded borrowers in 2007 had FICO scores between 620 and 650. Approximately 20% to 25% of borrowers had FICO scores between 620 and 680, and approximately 40% to 45% had FICO scores between 620 and 700. Conservatively one can estimate that an additional 1% of borrowers who would have been eligible for a PLUS or private student loan in 2007 will not be eligible in 2008.

  • Cost. Lenders cannot control interest rates and fees on federal loans, since the maximum rates and fees are set by law. They can, however, increase costs to the extent that they were previously offering discounts on those rates and fees. The majority of lenders have eliminated all discounts except a 0.25% interest rate reduction for auto-debit. On the other hand, lenders do have pricing power on private student loans and have been passing on their increased cost of funds by increasing the interest rates and fees on their loans.

  Federal Private
Cost The interest rates and fees on federal education loans are subject to statutory maximums. In addition, the rates borrowers pay and the rates the lenders get are disconnected. Lenders can increase costs only to the extent that they were previously offering discounts to borrowers. Lenders have been eliminating their discounts, partly to cut costs and partly to match the US Department of Education discounts (0.25% interest rate reduction for auto-debit). The latter is required if the lender intends to sell Stafford and PLUS loans to the Department. Lenders do have pricing power over the interest rates and fees on private student loans, and have been increasing interest rates to pass along their increased cost of funds. In addition, some of the lower cost lenders have been encountering liquidity problems, forcing them to suspend their loan programs and to private label the loan products of other, higher cost lenders.
Availability Congress helped avert a crisis by passing the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA), which gives the US Department of Education the authority to buy Stafford and PLUS loans from FFELP lenders.

Overall, while families may be inconvenienced by the need to search for a new lender, they should still be able to obtain federal education loans. Lenders who previously sold their loans on the secondary market continue to suspend their participation in the federal education loan programs, but the larger lenders who typically hold the loans until maturity are remaining in the loan programs. (Most lenders have stopped offering federal consolidation loans, but borrowers can still obtain these loans from the Federal Direct Consolidation Loan Program at loanconsolidation.ed.gov.)

However, some of the state loan agencies have encountered a bridge funding issue. The statutory authority does not allow the US Department of Education to advance funding to lenders. The lenders must already have loans to sell or loans to pledge as collateral. Lenders who have run out of liquidity are unable to get started with the loan purchase authority. It is like trying to jump start a car with no gas in the tank. No matter how many times you turn over the engine, you aren't going anywhere. Part of the problem is that while Congress gave the Department the authority to purchase loans originated since October 1, 2003, the Department is only buying loans originated for the 2008-09 academic year. Clearly, buying loans that have been consolidated or which have already been securitized will not lead to the origination of new Stafford and PLUS loans. But there is approximately $37 billion in loans originated since October 1, 2007 that has not been encumbered with a securitization. If the Department were to purchase those loans it might solve the bridge funding issue.

There is some concern that education lenders may discriminate against borrowers who attend 1- and 2-year institutions, since the average aggregate loan balances are lower than for students attending 4-year institutions. This makes those borrowers less profitable. However, one prong of the Department's loan purchase authority provides for a fixed payment (above origination costs) on a per-loan basis. In addition, community colleges and trade schools have the option of joining the Direct Loan program if lenders refuse to lend to their students.

The ECASLA legislation did nothing for private (alternative) student loan programs. The lenders that offer these loans continue to suspend their loan programs when they run out of liquidity. Congress addressed this in the ECASLA legislation by increasing annual and aggregate unsubsidized Stafford loan limits and by allowing Parent PLUS loan borrowers to defer repayment while the student is in school and for six months afterward. Both measures shift borrowing from private loans to federal loans. In addition, as part of the Higher Education Opportunity Act of 2008, Congress allowed foreign medical and nursing schools, who tend to offer only private student loans, to offer unsubsidized Stafford and PLUS loans to their students if the schools agree to reimburse the US Department of Education for any defaults. Still, the ongoing suspension of private student loan programs is causing problems for students who are unable or unwilling to borrow from federal education loan programs.

There are many possible reasons why students may be forced to resort to private loan programs. Some community colleges have opted out of the federal loan programs in order to preserve eligibility for the Pell Grant program. Some borrowers are ineligible for federal education loans because they are not making Satisfactory Academic Progress. Independent students and students whose parents were denied a PLUS loan may have reached the Stafford loan limits. Divorced parents may be unwilling to file the FAFSA because of fears that the ex-spouse may be able to learn about their income and assets. Some parents may be unwilling to borrow from the PLUS loan program because the student is not obligated on the loan or because the parents already have too much debt.

Eligibility The Stafford loan does not depend on the borrower's credit history. The unsubsidized Stafford loan and the PLUS loan are available without regard to financial need, so even the wealthy can borrow from these loan programs. However, while the PLUS loan does not look at the borrower's credit score, it does involve a modest credit check that looks for the absence of an adverse credit history. One of the components of an adverse credit history is having had a foreclosure or repossession in the last five years. (Other criteria include a tax lien, default, bankruptcy discharge or wage garnishment in the last five years, or being 90 days of more late on any debt, with a temporary 180 day threshold for medical and mortgage delinquencies.) To the extent that the subprime mortgage credit crisis was precipitated by an increase in foreclosure rates, it is reasonable to expect an increase in PLUS loan denial rates. A back of the envelope calculation suggests that about 1% of students will be affected. Lenders have been adopting more stringent credit underwriting criteria on private student loans. While in 2007 borrowers could have obtained a traditional private student loan with a credit score as low as 625, lenders have universally increased the credit score threshold to 650 to eliminate subprime exposure. In some cases they have increased the threshold to 680 or 700 or even higher. Lenders are also requiring more borrowers to have a creditworthy cosigner. Nontraditional private student loans, such as recourse loans and opportunity pool loans, have also been eliminated. Overall, the tighter lending standards will impact at least 1% of students. (Many private student loan lenders also require borrowers to not have had a bankruptcy or repossession in the last 7 or 10 years, so prospective borrowers who have been denied a PLUS loan are also unlikely to be able to obtain a private student loan. Or a home equity loan or line of credit.)

Pending and Enacted Legislation

Members of Congress have introduced proactive legislation designed to solve the student loan credit crunch. The bills from the education committees are focused on ensuring that students have continued access to education loans, but do not address the liquidity constraints facing education lenders. The bills from the banking committees are focused on injecting liquidity into the education lenders. Both sets of bills are necessary.

The legislation that ensures continued access to education loans includes:

  • Senator Edward M. Kennedy (D-MA), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, introduced the Strengthening Student Aid for All Act of 2008 (S. 2815) on April 3, 2008.
  • Representative George Miller (D-CA-7), Chairman of the House Education and Labor Committee, introduced the Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715) on April 8, 2008 (ECASLA 2008). The White House issued a Statement of Administration Policy on April 16, 2008 in support of the bill, but expressed concern about the potential impact on the 90/10 rule. The bill passed the House on April 17, 2008 by a bipartisan vote of 383-27. The bill, with amendments, passed the Senate on April 30, 2008 by unanimous consent. (This replaced Senator Kennedy's original bill.) The bill was signed into law by President Bush on May 7, 2008 (P.L. 110-227).
  • Representative George Miller (D-CA-7), Chairman of the House Education and Labor Committee, introduced the Ensuring Continued Access to Student Loans Act Extension (H.R. 6889), which passed the House on September 15, 2008 by a vote of 368 to 4 with 61 not voting. This legislation extends the student loan purchase authority and lender-of-last resort provisions by a year, through June 30, 2010. The legislation was passed by the Senate with unanimous consent on September 17, 2008. The bill was signed into law by President Bush on October 7, 2008 (P.L. 110-350).
  • Senator Christopher J. Dodd (D-CT) introduced the PLUS Loan Borrower Protection Act of 2008 (S. 2895) on April 21, 2008.
  • Senators Patty Murray (D-WA) and Christopher J. Dodd (D-CT) introduced the Preventing Student Loan Discrimination Act (S. 3141) on June 17, 2008.

The legislation that injects liquidity into education lenders includes:

  • Representative Paul E. Kanjorski (D-PA-11), Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, introduced the Emergency Student Loan Market Liquidity Act (H.R. 5723) on April 8, 2008.
  • Senator John F. Kerry (D-MA) introduced the Emergency Student Loan Market Liquidity Act (S. 2847) on April 10, 2008.
  • Representative Paul E. Kanjorski (D-PA-11), Chairman of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, introduced the Student Loan Access Act of 2008 (H.R. 5914) on April 29, 2008.
  • The Emergency Economic Stabilization Act of 2008 (HR 1424, PL 110-343) passed the Senate by a vote of 74 to 25 on October 1, 2008 and the House by a vote of 263-171 on October 3, 2008. The bill was signed into law by President Bush on October 3, 2008 (P.L. 110-343). The definition of "troubled assets" in section 3(9)(B) of the act allows the secretary of the treasury, after consultation with the chairman of the Federal Reserve, to designate as troubled assets any other financial instrument besides just those based on or related to mortgages. This could include federal and private student loans, such as SLARS and SLABS. It could also permit the federal government to provide guarantees against issuer default to jump start the capital markets. At this point it is entirely up to the Secretary of the Treasury to decide how to implement this authority.

The following table summarizes the provisions of the Ensuring Continued Access to Student Loans Act of 2008 (P.L. 110-227). The legislation shifts borrowing from private loans to federal loans by increasing the unsubsidized Stafford loan limits for undergraduate students by $2,000 per year and $8,000 in aggregate and by allowing the Parent PLUS loan to be deferred while the student is in school and for a six month grace period after the student graduates or drops below half-time enrollment. Federal loans are less expensive, more available and have better repayment terms than private student loans. This will address the stricter credit underwriting standards on private student loans by allowing borrowers with bad credit to obtain sufficient education financing despite their ineligibility for private student loans. The legislation also remedies flaws in the lender-of-last-resort program and provides some liquidity to the FFEL program by allowing the US Department of Education to buy loans from FFELP lenders. All savings from the legislation is directed into the Academic Competitiveness and National SMART grants.

(The final bill did not include Senator Kennedy's proposal to reduce borrowing by the neediest of low income student by allowing the EFC to go negative and by increasing the maximum Pell Grant by up to $750 for these students.)

SolutionH.R. 5715/P.L. 110-227
Annual Loan Limits on Unsubsidized Stafford Loans The annual loan limit on unsubsidized Stafford loans will increase by $2,000 per year for all undergraduate students. There are no increase for graduate and professional students. The change is effective for loans first disbursed on or after July 1, 2008.

The loan limits for dependent undergraduate students will be:

  • $5,500 freshmen, no more than $3,500 of which may be subsidized
  • $6,500 sophomores, no more than $4,500 of which may be subsidized
  • $7,500 juniors and seniors, no more than $5,500 of which may be subsidized

The loan limits for dependent undergraduate students whose parents were denied a Parent PLUS loan and for independent undergraduate students will be:

  • $9,500 freshmen, no more than $3,500 of which may be subsidized
  • $10,500 sophomores, no more than $4,500 of which may be subsidized
  • $12,500 juniors and seniors, no more than $5,500 of which may be subsidized
Aggregate Loan Limits on Unsubsidized Stafford Loans The aggregate loan limits on unsubsidized Stafford loans will increase for undergraduate students as follows:
  • By $8,000 (to $31,000 from $23,000) for dependent undergraduate students.
  • By $11,500 (to $57,500 from $46,000) for independent undergraduate students and for dependent undergraduate students whose parents were denied a Parent PLUS loan.
There is no increase for graduate and professional students.

The change is effective for loans first disbursed on or after July 1, 2008.

Note that these increases only apply to the unsubsidized Stafford loan. Subsidized Stafford loans remain subject to the older $23,000 and $65,500 aggregate limits, as per section 428(b)(1)(B)(i) of the Higher Education Act. For example, a dependent undergraduate student will be able to borrow up to $31,000 in unsubsidized Stafford loans, minus the amount of any subsidized Stafford loans, but only up to $23,000 in subsidized Stafford loans.

Parent PLUS Loan deferment while the student on whose behalf the loan was borrowed is in school Borrowers will have the option of deferring repayment on a Parent PLUS loan until 6 months after the student on whose behalf the loan was borrowed graduates or falls below half-time enrollment. Interest will continue to accrue and will be capitalized no more frequently than quarterly. This change is effective July 1, 2008.
Allows up to 180-day delinquency on mortgage payments or medical bill payments and less than 90 day delinquency on other debt to count as an extenuating circumstance as an exception to the adverse credit history rules for PLUS loan eligibility. Yes. Effective for delinquencies occurring from January 1, 2007 through December 31, 2009.
Allows guarantee agencies to be designated as a lender-of-last-resort on a school-wide basis instead of a borrower-by-borrower basis Yes, subject to minimum thresholds (for the number or percentage of students receiving rejections from education lenders) to be established by the US Department of Education. Effective upon enactment. Expires June 30, 2009.
Additional requirements for lender-of-last-resort programs. Requires lender-of-last-resort loans to be made at the maximum statutory interest rates and fees. Requires guarantee agencies participating in the lender-of-last-resort program to be subject to the prohibited inducements rules. Bans guarantee agencies from advertising, marketing or promoting the lender-of-last-resort loan program. Requires the US Department of Education to disseminate information about the program to prospective borrowers. Adds reporting requirements to the lender-of-last-resort program. Clarifies the US Department of Education's authority to advance funds from the US Treasury to lenders of last resort without requiring a Congressional appropriation. Effective upon enactment.
Allows the Direct Loan program to act as a secondary market, buying Stafford and PLUS loans (but not consolidation loans) from FFELP lenders. In addition to allowing the US Department of Education to buy Stafford and PLUS loans from FFELP lenders, the legislation allows the US Department of Education to enter into forward-purchase agreements to buy Stafford and PLUS loans from FFELP lenders. It allows but does not require the Department to contract with the lender to continue servicing the loans provided that the cost of the servicing arrangement does not exceed the cost the Department would otherwise incur in servicing the loans.

The legislation requires the loan purchases to "not result in any net cost to the Federal Government (including the cost of servicing the loans purchased)" but does not define "net cost". Instead, it requires the US Department of Education, the Treasury Department and the Office of Management and Budget to jointly define this term and to publish the terms and conditions of the purchases, as well as the methodology used to establish a purchase price, in the Federal Register.

As such, the impact of this provision on the liquidity constraints affecting FFELP lenders depends on how it is implemented. An earlier version of the legislation would have required the loans to be purchased at par (outstanding principal balance plus accrued but unpaid interest) plus the cost of originating the loans in the Direct Loan program. Such a provision would have resulted in a purchase below cost for FFELP lenders (i.e., FFELP lenders pay the federal government a 100 basis point origination fee and so by definition have higher origination costs than the Direct Loan program), meaning that FFELP lenders would be selling the loans at a loss.

The most likely scenario involves capping the premium at the difference in program cost rates as published on page 364 of the education supplement to the President's FY2009 budget. For example, the 2009 estimates have program costs (including federal administrative costs) for new FFELP Stafford and PLUS loans at 5.24% and at 0.77% for new Direct Stafford and PLUS loans. This yields a difference in costs of 4.47%.

The legislation requires the proceeds to be used to ensure continued participation in the federal education loan program and to originate new federal education loans. This probably precludes using this provision to jump start the student loan auction rate securitization market (SLARS), since it does not provide investors in that market with an exit strategy.

The legislation does not require the loans to be representative of the risk profile of the lender's whole portfolio, but presumably that will be addressed under the no net cost provisions mentioned above.

The legislation is effective upon enactment and expires July 1, 2009.

Requires the GAO to conduct a study of whether increasing loan limits leads to higher tuition. Yes.
Directs all savings from the legislation into improvements of the Academic Competitiveness and National SMART grants. Uses the excess revenue from the increased loan limits (estimated at $455 million over five years) to improve the Academic Competitiveness and National SMART Grants effective January 1, 2009 by including a fifth year of eligibility (for programs that require 5 years of coursework), eliminating the full-time requirement (substituting an at-least half-time requirement with proration for less than full-time) and eliminating the US citizenship limitation (allowing eligible non-citizens such as permanent residents to qualify). It also adds provisions for National SMART Grant eligibility at liberal arts colleges where students do not declare majors but nevertheless pursue a rigorous curriculum in STEM fields that includes at least 4 years of study in mathematics and 3 years of study in the sciences (with a laboratory component).

The legislation can be implemented by the US Department of Education without negotiated rulemaking and without conforming to the Master Calendar deadline dates.

The legislation also included a sense of Congress statement encouraging the Federal Financing Bank, Federal Reserve and Federal Home Loan Banks to inject liquidity into FFELP lenders.

Aside from the provisions that allow the US Department of Education to buy FFELP loans, the legislation does not solve the underlying liquidity constraints facing education lenders. Legislation proposed by the House and Senate banking committees would address this problem by allowing the Federal Home Loan Banks or Federal Financing Bank to inject liquidity into the federally-guaranteed student loan program.

Senator Edward M. Kennedy and Representative George Miller sent a letter to the US Government Accountability Office on May 15, 2008, asking the GAO to monitor and evaluate the Bush administration's progress in ensuring continued access to federal education loans. The letter also asks for recommendations of additional actions that could be taken at no cost to the taxpayers.

Representative Kanjorski introduced two bills, one using the Federal Home Loan Banks (FHLB) to inject liquidity in the federally-guaranteed student loan program and one using the Federal Financing Bank (FFB). (Senator Kerry's introduced the FHLB bill in the Senate.) The first bill would allow the FHLB to invest surpluses in highly rated student loan securities and student loans and to make advances for student loan financing. Lenders would be allowed to pledge student loans and student loan-related securities as collateral. The bill would expire two years after enactment. The second bill would allow the FFB to invest in FFELP loans and securities collateralized with FFELP loans, and to make advances for financing such loans. It requires the investments to be made at no net cost to the federal government as determined by the Treasury Department and the Office of Management and Budget. The bill would expire on July 1, 2009, but may be extended in one year increments by the Secretary of the Treasury in consultation with the Secretary of Education.

Chairman Dodd's bill would allow borrowers who are 90 or more days late on their mortgage loan payments or for whom foreclosure proceedings have been initiated to remain eligible for the PLUS loan. Currently, the regulations at 34 CFR 682.201(c)(2)(ii) and 34 CFR 685.200(c)(1)(vii)(B) define an adverse credit history as follows:

  • 90 or more days delinquent on any debt, or
  • having had a write-off of a Title IV debt, default determination, bankruptcy discharge, foreclosure, repossession, tax lien, or wage garnishment in the last 5 years
This bill would override the inclusion of foreclosure in the definition of an adverse credit history.

Margaret Spellings, Secretary of Education, Henry M. Paulson, Secretary of the Treasury, and Jim Nussle, Director of the Office of Management and Budget, sent a joint letter on April 23, 2008 to Senator Dodd indicating that the Federal Financing Bank is not an option for injecting liquidity into the FFEL program. They wrote "The Administration has also considered various means to ensure that necessary short-term liquidity is available for student loan originations for the coming school year. We explored utilizing the Federal Financing Bank (FFB) in this manner but after a thorough analysis, it is clear that the FFB does not have the authority under the Federal Credit Reform Act to purchase, or otherwise participate in, loans to non-Federal borrowers in these circumstances." This means that using the FFB (or the FHLB or Term Securities Lending Facility) will require Congressional action. The letter was supportive of HR 5715 but silent on the prospect of Congressional action to allow education lenders to borrow from the FFB, FHLB or TSLF.

The Preventing Student Loan Discrimination Act would ban FFELP lenders from discriminating against eligible borrowers based on the borrower's choice of an eligible educational institution, length of the borrower's program, academic year in school or the borrower's income.

The Higher Education Opportunity Act (PL 110-315) was signed into law on August 14, 2008. Besides reauthorizing the Higher Education Act of 1965, it included some improvements that addressed aspects of the student loan credit crunch.

  • Foreign medical schools and foreign nursing schools are now eligible to provide unsubsidized Stafford and PLUS loans to their students under certain conditions provided they agree to reimburse the US Department of Education for any loan defaults. (For nursing schools the requirement applies only if the school's default rate exceeds 5%.) Some foreign medical schools are not Title IV institutions and so were ineligible for all but private student loans. The private student loans subsequently evaporated. This legislative change allows these schools to obtain federal loans.
  • The $2,000 increase in unsubsidized Stafford loan limits provided by the Ensuring Continued Access to Student Loans Act of 2008 will not affect the 90/10 rule.

American Recovery and Reinvestment Act of 2009

The US House of Representatives introduced the American Recovery and Reinvestment Act of 2009 on January 15, 2009. The following is a summary of the provisions related to student financial aid:

  • Pell Grant. The bill increases the maximum Pell Grant for 2009-10 under the discretionary funding by $500, from $4,360 to $4,860. When coupled with the $490 in mandatory Pell Grant funding enacted by the College Cost Reduction and Access Act of 2007, this yields an overall maximum Pell Grant of $5,350. This will help an estimated 800,000 additional students, so overall an estimated 7 million students will receive Pell Grants in 2009-10. (Note that eligibility for the Academic Competitiveness and National SMART Grants depend on the student being eligible for the Pell Grant, so increasing the discretionary funding, which controls eligibility, has a secondary benefit of expanding the number of students eligible for these additional grants.)

    The cost of the increase is $15.636 billion over two years. In addition, there is a funding shortfall of $643 million in 2009-10 and $831 million in 2010-11 ($1.474 billion total) in the mandatory Pell Grant funding. The stimulus bill would erase this shortfall as well.

  • Stafford Loan. The bill increases the annual unsubsidized Stafford Loan limits for undergraduate students by $2,000 and the aggregate limits (for both dependent and independent students) by $8,000. Thus the new limits are as follows:

    • Dependent
      • Freshman: $7,500, no more than $3,500 subsidized
      • Sophomore: $8,500, no more than $4,500 subsidized
      • Junior and Senior: $9,500, no more than $5,500 subsidized
      • Aggregate: $39,000

    • Independent (also Dependent whose parents were denied a PLUS loan)
      • Freshman: $11,500, no more than $3,500 subsidized
      • Sophomore: $12,500, no more than $4,500 subsidized
      • Junior and Senior: $14,500, no more than $5,500 subsidized
      • Aggregate: $65,500

    These changes will be effective for loans first disbursed on or after January 1, 2009.

    As with the $2,000 annual limit increase enacted by the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA), this additional $2,000 increase will not have an impact on the 90/10 rule through July 1, 2011 (i.e., the increased loan limits will be treated as revenue received by the college from sources other than Title IV student aid). The language in section 493(c) of the Higher Education Opportunity Act of 2008 that amended section 487(d)(1)(E) of the Higher Education Act of 1965 based the exception to the 90/10 rule on the loan limits in effect prior to enactment of ECASLA. (In addition, the $2,000 loan limit increase will be implemented by amending the $2,000 ECASLA increase to replace it with a $4,000 increase, so any provision that applies to the ECASLA increase would continue to apply to the new higher loan limit increase.)

    487(d)(1)(E) in the case of each student who receives a loan on or after July 1, 2008, and prior to July 1, 2011, that is authorized under section 428H or that is a Federal Direct Unsubsidized Stafford Loan, treat as revenue received by the institution from sources other than funds received under this title, the amount by which the disbursement of such loan received by the institution exceeds the limit on such loan in effect on the day before the date of enactment of the Ensuring Continued Access to Student Loans Act of 2008;

    The federal government will realize an estimated $30 million in savings from these increases.

  • Federal Work Study (FWS). FWS funding will be increased by $490 million ($613 million when institutional matching funds are included), enough for an additional 200,000 recipients.

  • Temporary Fix for Index Rate Mismatch. For the quarter from 10/1/08 to 12/31/08, for loans first disbursed on or after January 1, 2000, the special allowance payments will substitute the 3-month LIBOR minus 13 bp for the 3-month Commercial Paper Rate. This addresses the problems caused by the Federal Reserve's intervention in the marketplace for Commercial Paper through the establishment of the Commercial Paper Funding Facility (CPFF). However, this only addresses the first quarter of CP-LIBOR dislocation; the CPFF runs through April 30, 2009 and may also be extended beyond that date. A more permanent solution is still necessary. But this at least will provide some temporary relief for the $300 billion in existing FFELP securitizations.

  • AmeriCorps. Increases AmeriCorps funding by $200 million.

  • Education Tax Benefits. Establishes the American Opportunity Tax Credit for 2009 and 2010 tax years by temporarily increasing the Hope Scholarship tax credit to $2,500 (100% of the first $2,000 in tuition and related expenses and 25% of the next $2,000). This compares with the current maximum credit of $1,800 (100% of the first $1,200 and 50% of the next $1,200).

    The credit will be allowed for the first four years of post-secondary education and also only for the first four tax years. This is an increase from the current two-year limits.

    The definition of qualified tuition and related expenses will be expanded to include course materials in addition to tuition and fees.

    The income phaseouts will be increased to $80,000 to $90,000 (single filers) and $160,000 to $180,000 (married filing joint). This compares with the current phaseouts of $48,000 to $58,000 (single) and $96,000 to $116,000 (joint).

    The tax credit will be allowed as an offset to the AMT.

    The tax credit will become partially refundable, allowing up to 40% of the tax credit (maximum $1,000) to be refundable unless the taxpayer claiming the credit is a dependent child of another taxpayer who is entitled to claim the credit.

    Despite a press release highlighting the change as a simplification of the existing education tax credits, the legislation does not repeal the Tuition and Fees Deduction or the Lifetime Learning Tax Credit.

    The law will also require a study by the US Treasury of how to coordinate the Hope Scholarship and Lifetime Learning tax credits with the Pell Grant program and a study of the feasibility of requiring community service as a prerequisite for the tax credit.

Several of these provisions were dropped from the final conference bill, which was enacted on February 13, 2009. See American Recovery and Reinvestment Act of 2009 for a copy of the final legislation and a summary of the student aid related provisions.

US Department of Education to Purchase FFELP Loans

The US Department of Education held a briefing for FFELP lenders about the implementation of the liquidity aspects of the Ensuring Continued Access to Student Loans Act of 2008 (PL 110-227) on May 20, 2008. The Department made the following two proposals (press release, fact sheet, 5/21/08 letter to FFEL lenders, 6/18/08 letter to college presidents):

  • Lenders could sell loans made from July 1, 2008 through June 30, 2009 to the Department with 45 days notice at par (outstanding principal plus accrued but unpaid interest +/- SAP), plus a rebate of the 100 basis point lender-paid origination fee, plus $75 per loan. (The $75 fee is per loan, not per borrower.) Servicing would be transferred to the Department's contractor. The lenders could sell the loans to the Department through September 30, 2009. This proposal provides an exit strategy for lenders who are willing to risk making loans during the 2008-09 academic year.

  • The Department would accept Stafford and PLUS loans as collateral through September 30, 2009 for funds provided to lenders at the three-month Commercial Paper Rate plus 50 basis points. The lenders would have to use the funds to originate more Stafford and PLUS loans. The lenders would have to repay the funds (or sell the loans) to the Department at the end of the financing period. The Department would not be providing life-of-loan financing. This proposal provides lenders with liquidity with which to make new loans during the 2008-09 academic year.
The day after the Department's briefing, Sallie Mae announced that it would remain in the federal loan program and NorthStar Guarantee announced that it would start making Stafford and PLUS loans again (but not consolidation loans). The next day Nelnet announced that it too would remain in the FFEL program. Several state loan agencies issued press releases announcing that they would be returning to the FFEL program.

The lenders had several remaining concerns about the legislation and the Department's proposals:

  • The proposals need to be implemented quickly, as several lenders are close to running out of liquidity.
  • If the Office of Management and Budget determines that the numbers are not cost-neutral, it could derail the process or change the numbers.
  • The lenders would like to retain the servicing of loans sold to the Department, partly to provide continuity for borrowers and partly because it can be an additional source of revenue to the lenders.
  • The legislation does not allow lenders to sell existing loans, only new loans originated for the 2008-09 academic year.
  • The temporary nature of the solutions, such as the CP + 50 financing ending on 9/30/09 instead of providing life-of-loan financing.
  • The legislation only addresses Stafford and PLUS loans. It does not address federal consolidation loans or private student loans.
The lenders are also obviously concerned that this solution is a one-year bandaid while the Department ramps up the Direct Loan program's capacity to handle a potential phase-out of the FFEL program.

The US Department of Education issued an announcement on June 12, 2008 indicating that loans purchased by the Department will not continue any discounts offered by the originating lender. Such loans will, however, be eligible for a 0.25% interest rate reduction for auto-debit. Lenders that are subject to the New York SLATE legislation (which sets requirements for preservation of loan discounts on loans sold) will likely replace their loan discounts with this auto-debit discount for loans made during the 2008-09 academic year. (Moreover, margins on such loans are thin enough that most lenders cannot afford to provide more generous back-end discounts.)

During a Webinar on June 17, 2008, Jeff Baker of the US Department of Education said that the Department is capable of doubling the Direct Loan program's capacity immediately, and is capable of increasing it even further if necessary. He also said that the Department can now certify schools for the Direct Loan program in less than five days (not counting any time required for a school to updates its computer and financial systems). (Sources of advice and assistance for colleges considering switching to the Direct Loan program include the US Department of Education Direct Loan Registration page and the National Direct Student Loan Coalition.)

The US Department of Education submitted the loan purchase authority terms and conditions (term sheet) to the Federal Register for publication on June 25, 2008. The notice also includes an outline of the methodology and factors used to evaluate the loan purchase price and to ensure that the loan purchases do not result in any net cost to the Federal government. It will be effective upon publication in the Federal Register. This Federal Register notice did not change the pricing of the loan purchase authority as summarized in the Secretary's May 21, 2008 letter to FFELP lenders. It did include a lot of detail concerning the terms, such as an anti-cherry-picking requirement that lenders who sell any of a borrower's loans sell all of those loans. The term sheet limits loan purchases to loans that have no borrower benefits other than "unconditional upfront fee reductions which are accrued and paid or made prior to the date on which an Eligible Loan is sold" and "permitted reductions in interest rates of not more than .25 percent that are contingent on the use of an automatic payment process by the borrower for any payments due".

The US Department of Education announced the availability of the Master Participation Agreement and the Master Loan Sales Agreement on July 11, 2008. Several lenders have said that they were waiting to see these agreements before deciding whether to return to the federal loan programs. The Department announced revisions to the agreements on July 25, 2008.

On November 8, 2008, the US Department of Education announced that it would implement the full extent of its authority under the ECASLA legislation to provide liquidity to FFELP lenders. In addition to replicating the existing 2008-09 loan purchase and participation programs to the 2009-10 academic year, the Department will provide support for Asset-Backed Commercial Paper (ABCP) conduits involving fully-disbursed non-consolidation FFELP loans originated since October 1, 2003. The Department will enter into forward commitments to purchase loans from new conduits, effectively providing a standby loan purchase agreement. In such a commitment the Department agrees to purchase the loans at a future date at a prearranged price (at no net cost to the federal government). This will make private investors more willing to provide financing for the conduits, since it provides them with an exit strategy, the option of exercising the standby loan purchase agreement. It eliminates the risk that the investor's liquidity will be permanently frozen into the conduit. This solution is attractive to the federal government because it does not increase the national debt, as the conduits are funded with private capital. It addresses the bridge funding and delayed disbursement issues, by allowing lenders to obtain liquidity from older loans, such as unemcumbered 2007-08 loans originated from October 1, 2007 to April 30, 2008. These loans have not been securitized and most have not yet been consolidated. The conduits could also be used to refinance existing auction rate securitizations (SLARS), since the investors in the SLARS would likely be willing to liquidate the SLARS by selling the loans to the conduit in order to recover their investment capital. (The unilateral rights of the issuer of a securitization to sell the loans in a securitization are usually limited to when the remaining student loan pool balance is less than or equal to 10% of the initial pool balance in the securitization. The issuer may also have the right to buy 2% of the trust student loans at any time. Otherwise securitizations do not commonly include a call option.) Terms and conditions were published in the Federal Register 74(10):2518-2564 on January 15, 2009.

The US Department of Education has established a web page for announcements concerning FFELP liquidity facilities. This includes loan purchase activity reports for the 07/08 Loan Purchase Program, 08/09 Loan Participation Purchase Program and 08/09 Loan Purchase Commitment Program.

Federal Reserve

The Federal Reserve announced on Friday, May 2, 2008, that it was opening up the Term Securities Lending Facility (TSLF) to accept all AAA-rated ABS as collateral, including federal and private student loans, starting with the May 7, 2008 auction. This will provide some liquidity to education lenders. However, it is only a 28-day facility.

In addition, the Federal Open Market Committee authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) auctions. Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations, beginning with the Schedule 2 TSLF auction to be announced on May 7, 2008, and to settle on May 9, 2008. The wider pool of collateral should promote improved financing conditions in a broader range of financial markets. Treasury securities, agency securities, and agency mortgage-backed securities continue to be eligible as collateral in Schedule 1 TSLF auctions.

The Federal Reserve issued a press release on November 25, 2008 announcing the creation of a Term Asset-Backed Securities Loan Facility (TALF) intended to enable and stimulate the issuance of new consumer and small business ABS, including student loans. Under this facility the Federal Reserve Bank of New York will lend up to $200 billion on a non-recourse basis with a term of at least one year (later revised to three years) to holders of AAA-rated ABS. The holders of the ABS may not be affiliated with the originator of the securitized loans. The ABS must be backed by newly and recently originated student loans or other forms of consumer credit (e.g., auto loans, credit cards, small business loans). The holders of the ABS will be required to pledge it as collateral for the TALF loans. The originators of the loans underlying the ABS must agree to the executive compensation limits of the Emergency Economic Stabilization Act of 2008.

TALF will facilitate the return of investors (including individuals and businesses) to the ABS market. This will provide liquidity to lenders at a more traditional cost of funds. The pricing will be based on a sealed-bid auction process, with rates pegged to a spread over the one-year overnight indexed swap (OIS).

The US Treasury announced on November 25, 2008 that it will provide $20 billion of credit protection to the Federal Reserve in the form of a Special Purpose Vehicle (SPV), effectively providing a standby loan purchase agreement.

This facility will provide some help for lenders originating private student loans. (While nothing would prevent using TALF for federal education loans, the existing facilities established by the Ensuring Continued Access to Student Loans Act of 2008 are sufficient for new federal loans. These include the US Department of Education's loan purchase and participation agreements, the ABCP conduits, and the 97% solution for 2007-08 FFELP loans.)

TALF, however, mainly helps larger lenders. It will prevent the problems with private student loans from getting worse, but is unlikely to result in the reentry of smaller lenders who had previously suspending their private student loan programs. This is because of several limitations in the TALF program which effectively require the lenders to already have some liquidity:

  1. The structure of TALF involves making loans to holders of ABS, thereby facilitating the return of investors to the capital markets. This means that the lenders who issue the ABS must be able to originate the loans underlying the ABS on their own. Lenders who have run out of liquidity or who have only limited liquidity will not be able to participate because they will not be able to originate new loans eligible for TALF. It is like trying to jump start a car with no gas in the tank.

  2. TALF is limited to ABS involving newly and recently originated consumer credit. The term sheet does not define "newly or recently originated exposures to US-domiciled obligors", but the intention is to facilitate new lending. This means that the issuers of the ABS must have enough liquidity available to make new loans. Many of the lenders who have suspended their private student loan programs did so because they ran out of liquidity. There have been no securitizations of private student loans since September 2007, with the exception of a small securitization by MyRichUncle in July 2008. In order for the lenders who have suspended their loan programs to resume making private student loans, they need to be able to securitize their existing portfolios. Unless the Federal Reserve considers "recently originated" to include loans made during the last 1-2 years, TALF will not facilitate the re-entry of smaller lenders.

    TALF does not provide any solutions for older loans. For example, it does not resolve the CP-LIBOR dislocation that will likely lead to downgrades on existing FFELP securitizations because of the index rate mismatch problem.

  3. TALF is restricted to AAA-rated tranches. AAA is the highest investment grade rating category. This means the lenders may have to hold the subordinated tranches themselves if they are unable to find non-TALF investors. This would require access to liquidity beyond TALF.

  4. It is unclear whether TALF is limited to term securitizations or also includes auction-rate securitizations.

Overall, TALF is unlikely to facilitate the reentry of lenders who have already run out of liquidity. It will, however, help prevent the situation from getting worse for the lenders who are still making private student loans.

It is, however, possible that the capital market "buzz" from a resumption of the issuance of student loan ABS may eventually reinvigorate the market as a whole.

The impact on students is likely to be limited:

  • The smaller lenders are often among the more competitive and innovative. Since TALF will not facilitate their return to the student loan marketplace, competition will likely be limited.
  • TALF does not require any improvements in consumer protections, as had been requested by The Institute for College Access and Success (TICAS).
  • Improved access to ongoing liquidity through TALF may make private student loans somewhat more available as lenders may loosen the tight credit underwriting criteria for private student loans. However, the restriction of TALF to AAA-rated ABS will prevent any significant expansion of credit availability.
  • Decreases in lender cost of funds may lead to lower interest rates on private student loans. However, the minimum spreads on TALF have not yet been published, and the actual cost of funds remains to be determined. Also, TALF is pegged to the OIS, leading to an index rate mismatch with the LIBOR index.
  • It is unclear whether "US-domiciled obligors" includes international students pursuing an education at a US college or university.

For additional details, see the TALF Term Sheet.

Revised terms released on December 19, 2008 indicate a 3-year term for the loans instead of a 1-year term.

The Federal Reserve Bank of New York released a term sheet that is effective on February 6, 2009 and which indicated that student loans must have been first disbursed on or after May 1, 2007 in order to be eligible for the facility. The haircuts for private student loans range from 8% for an average life of 0-1 years to 14% for an average life of 6-7 years. The haircuts for federally-guaranteed education loans range from 5% for an ABS expected average life of 0-3 years to 9% for an average life of 6-7 years. Haircuts for an average life of more than 7 years increase by 1% for each additional year. The interest rates on the TALF loans will be either the 1-month LIBOR plus 100 basis points (floating-rate loans) or the 3-year LIBOR swap rate plus 100 basis points (fixed-rate loans). In both cases an additional 5 basis point fee will be paid to the Federal Reserve. The minimum size for a TALF loan is $10 million. TALF will stop making new loans on December 31, 2009 unless extended by the Federal Reserve.

The May 1, 2007 first disbursement date for student loans means that TALF may actually facilitate the reentry of private student lenders who had previously exited because of limited liquidity. These lenders will be able to sell their existing loan portfolios to raise capital to make new loans.

In addition, on February 10, 2009 Treasury Secretary Tim Geithner announced what amounts to an expansion of TALF from $200 billion to as much as $1 trillion and the addition of commercial mortgage-backed securities to the original set of loan types. The Consumer and Business Lending Initiative is described on pages 3-4 of the Financial Stability Fact Sheet.

On March 3, 2009, the Federal Reserve Bank of New York released revised terms and announced that TALF would become operational on March 17, 2009. The TALF FAQ was also updated. The haircuts for federally-guaranteed education loans were improved to 5% for an ABS expected average life of 0-5 years and 6% for an average life of 5-7 years. Haircuts for an average life of more than 7 years will increase by 1% for every two additional years. The interest rate on ABS backed by federally-guaranteed student loans will be 1M LIBOR + 0.50%. For private student loans the interest rate remains at 1M LIBOR + 1.00%. The prepayment assumptions for calculating weighted average life are 4% CPR for private student loans, 6% CPR for federal Stafford and PLUS loans, and 50% of the CLR curve for federal consolidation loans.

Increases in the Number of Financial Aid Applications

The national FAFSA application statistics published by the US Department of Education for the first half of the federal government's fiscal year (October 2007 through March 2008) overstated the increase in the number of applications as 16.3%. Those statistics failed to include rejected initial transactions. Since the number of rejected transactions decreased significantly in 2008-09, this yielded an increase that was too high.

Corrected data for the first three quarters (October 2007 through June 2008) published on November 6, 2008 demonstrates a 9.1% increase in the number of FAFSAs submitted for 2008-09 as compared with 2007-08, from 12,148,648 to 13,251,850. The number of schools listed on the FAFSAs increased from 16,608,277 to 18,704,989, a 12.6% increase. The number of schools per FAFSA increased from 1.37 to 1.41.

FAFSA processing statistics for Q4 (1/1/08 through 12/28/08) published on January 14, 2009 demonstrate a 10.5% year-over-year increase. During this 12 month period a total of 14,681,650 2008-2009 FAFSAs were submitted, compared with 13,288,109 during the previous year for 2007-2008 FAFSAs, an increase of 1,393,541. The number of schools listed on the FAFSAs increased from 17,920,093 to 20,384,955, a 13.8% increase. The number of schools per FAFSA increased from 1.35 to 1.39.

Nevada had the greatest increase (24.7%), followed by Arizona (19.2%), Florida (17.8%), Georgia (16.0%), North Carolina (15.7%), Oregon (15.2%), California (14.1%), Virginia (13.8%) and Hawaii (12.6%). These were among the areas hardest hit by the popping of the real estate bubble. Foreclosure rates are highest in these states. The states with the lowest increases were North Dakota (0.3% decrease), South Dakota (2.5% increase), Iowa (3.0%), Vermont (4.0%), Louisiana (4.1%), West Virginia (4.7%), Nebraska (4.7%), Oklahoma (4.9%), Montana (4.9%), Wyoming (5.1%), Kansas (5.4%), Maine (5.8%), New York (5.9%), Pennsylania (6.0%), New Hampshire (6.6%), Wisconsin (7.7%), Rhode Island (7.9%), Massachusetts (8.1%), New Mexico (8.3%) and Alaska (8.4%).

Although on average colleges have experienced an increase in the number of FAFSAs they have received, some colleges have experienced a decrease. This is because the change in the number of FAFSAs received in 2008-09 versus 2007-08 follows a bell curve distribution. In particular, if one limits the data to just those colleges that received at least 100 FAFSAs in 2007-08 and for which data was also available in 2008-09, and excludes as statistical outliers the 40 colleges that more than doubled the number of FAFSAs, 16.6% of the colleges had decreases in the number of FAFSAs received. So about 1 in 6 colleges experienced a decrease in the number of FAFSAs received compared with 5 in 6 colleges experiencing an increase. (Of an initial 7,199 colleges in 2007-08, 1,680 were excluded because they had less than 100 FAFSAs in 2007-08, 40 as statistical outliers, 137 because there was no data available for the same schools in 2008-09 and 237 because there was no data available for the same schools in 2007-08. The average increase for the 5,302 remaining colleges was 13.0%, slightly less than the 13.8% overall increase mentioned previously.)

The following graph illustrates the distribution of the change in the number of FAFSAs according to the number of colleges clustered in 5% buckets. The peak is in the bucket from 5% to 9.9%. The distribution is slightly skewed to the right when displayed in 5% buckets, consistent with the overall 13.0% average.

FAFSA processing statistics for the full 2008-09 application season (through Q6) indicated a total of 16,406,795 applications, up 1,801,751 (12.3% growth) from the 14,605,044 applications submitted in 2007-08.

FAFSA Processing Statistics for Q1 (1/1/09 through 3/29/09) published on April 13, 2009 demonstrate a 20.8% year-over-year increase of FAFSAs submitted during the first quarter of 2009-10 as compared with the first quarter of 2008-09. During this 3-month period a total of 6,585,007 2009-10 FAFSAs were submitted, compared with 5,449,774 2008-09 FAFSAs during the same quarter the year before. The application data spreadsheets were later revised to increase the totals to 6,871,201 2009-10 FAFSAs submitted in the first quarter, compared with 5,625,128 during the same quarter the year before, a 22.2% increase.

FAFSA application statistics are now available in the Application Processing Statistics section of the FSA Datacenter.

Year/Quarter Number of FAFSAs Year-over-Year Increase
2009-10 Q1-Q3 15,954,112 19.9%
2009-10 Q3 3,926,017 18.7%
2009-10 Q1-Q2 12,028,095 20.3%
2009-10 Q2 5,156,894 18.0%
2009-10 Q1 6,871,201 22.2%
2008-09 Q6 16,406,795 12.3%
2008-09 Q1 5,449,774 30.3%
2007-08 Q6 14,605,044 4.1%
2007-08 Q1 4,181,989 2.4%
2006-07 Q6 14,023,421 %
2006-07 Q1 4,083,211 8.7%
2005-06 Q1 3,757,971 (decrease) -5.4%
2004-05 Q1 3,973,381 9.3%
2003-04 Q1 3,634,411  

 

 
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