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Student Loans: Title IV Loan Program Metrics

Student Loans: Title IV Loan Program Metrics . Mark Weadick Student Loan Capital Strategies LLC. Discussion Topics. Topics to discuss today include: Student Loan Balances and Volumes FFELP and Private Loan Collateral Performance FFELP Portfolio & Default Portfolio Runoff

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Student Loans: Title IV Loan Program Metrics

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  1. Student Loans:Title IV Loan Program Metrics Mark Weadick Student Loan Capital Strategies LLC

  2. Discussion Topics • Topics to discuss today include: • Student Loan Balances and Volumes • FFELP and Private Loan Collateral Performance • FFELP Portfolio & Default Portfolio Runoff • Predictions for 2013 and beyond • and…….Industry Gossip • I’m looking forward to an open discussion, so please ask Qs as we go. • Thank you for having me at your meeting. Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  3. Student Loan Market Loan Programs: $900 B Funding Source: $900 B Dollars in Billions, Public sources and SLCS guesstimates as of September 30, 2011 Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  4. Loan Portfolio “Fair Market Value” • The chart below shows Sallie Mae’s fair market value disclosures for their FFELP and Private Loan Portfolios from Dec. 31, 2006 to the present. Source: SLM SEC filings Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  5. FFELP Financing Spreads • The table below shows FFELP FRN financing spreads over time. Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  6. FFELP Performance Stabilizing? • Cohort gross defaults have increased; likely will reach low- to- mid 20% levels. Rating agency “single-A” gross default rate assumptions in the low 30% range. Source: SLM public reports; SLCS estimates Forbearance and delinquency have increased Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  7. FFELP CPRs are Slower Source: SLM securitization reports Since issued Trust CPRs as of 12/31/11: Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  8. FFELP Consolidations lost? Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  9. Private Loan Market Dynamics Size of Market (1) • Fewer institutions are originating loans • ABS market remains very challenged: • Long-tail nature of assets • Unsecured • Limited performance data • Poor performance history • Lender friendly terms • Higher FICO scores • Co-borrowers required • LIBOR+ 6 to 8% pricing • Loans are currently non-dischargeable in bankruptcy, though political debate is active • Schools will remain the primary distribution channel due to certification issues and asset quality concerns Loan Originations ($ in billions) CAGR (through ’07-’08): 24.5% Key Players Today State Programs Credit Unions ________________________________________________ Source: CollegeBoard. Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  10. Private Loan Performance Source: Sallie Mae Public Filings Charge offs are moderating, though still elevated Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  11. Private CPRs have slowed Since Issued Trust CPRs as of 12/31/11: Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  12. ….as has Private Consol activity Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  13. Projected Student Loan Market Dollars in Billions Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  14. FFELP Remaining Life Dollars in Billions Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  15. Projected FFELP Collections Source: DOE for 8/31/12 FYTD actuals, SLCS estimates for projection Dollars in millions Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  16. Direct Loan Servicing Metrics • DOE FY11 Budget = $496 M servicing fees for TIVAs and ACS • TIVAs and ACS estimated servicing volumes: • NFP Servicing – 100,000 accounts each • 15 NFPs approved to date • 9 NFPs operational Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  17. Market Evolution • Private Sector FFELP Portfolio is $300 Billion and amortizing • Non-scale programs: “Restructure”, “right size” or “sell”? • Scale programs: add Portfolio and servicing volumes to defray investment • Capital Markets recovery: more “half full than half empty” • Financing costs have tightened dramatically though remain elevated • Financings are difficult to execute – a “by appointment ” market • An estimated $70B is not term financed, with $22B of Loans in the ECASLA Straight A Conduit • Broker/Dealers & Investors are monetizing losses • ARS Bonds often sold/exchanged at a discount (high-80s to mid-90s) • Whole loan portfolio sales occur (low- to high- 90s) Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  18. Market Evolution • NFPs/Agencies are exploring different business models • NFP DL Servicing opportunity, though economics are thin • State-based Fixed Rate Private loan programs are well received by investors • Non-diversified business models face greater challenges • The Big Guys (SLM/USAF, NNI, Large Banks, TIVAS) • Many are seeking and achieving market share gains • Continuous focus on cost efficiencies • Increased focus on extracting value • Legacy Broker Dealers continue to play a significant role • Continue to hold large ARS and warehouse positions • Broker Dealer financial participation required for most “restructurings” Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  19. Industry Consolidation • Sale of Student Loan Corporation • $26B of securitized FFELP and servicing rights sold to SLM • Citi Holdings purchases remaining FFELP and Privates • Discover purchases “stock”, thus receiving origination platform and certain securitized private loans • Alliance Holdings acquisitions: • Northstar Capital Markets (servicing and admin rights) • Panhandle Plains Servicing (servicing and admin rights) • CollegeInvest sale of $1.4B FFELP; Liquidation of $1.8B NextStudent Trust • Iowa Guarantor sale/transition to Great Lakes • First Marblehead dispositions Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  20. 2013 and Beyond Developments? • Financing “restructurings” and Industry consolidation will continue • Transaction timing will be uncertain – market, Board timing, regulators • Companies, business lines and FFELP portfolios will change hands • Remaining high levels of “stuck” collateral in non-term financings • Dept. of Education’s Policy during FFELP wind down is unclear • DL and NFP Servicing impact • Guarantors: VFA? – Seems highly unlikely • Guarantor Consolidation (e.g. Iowa)? - Seems very likely • FFELP asset values will remain under par: likely in mid-to-high 90s • Value range will be driven by securitization market spreads • “legacy” program and thin buyer base will keep prices at or below par Navigating the Sea of Change 2012 NCHER Knowledge Symposium

  21. Modeling Assumptions Navigating the Sea of Change 2012 NCHER Knowledge Symposium

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