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|
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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.
Lender | When? | 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 EducationÂ.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.)
Solution | H.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:
- 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.
- 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.
- 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.
- 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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