With the ever rising college costs, students are turning to “the riskiest way for paying for schooling”, as dubbed by an education organization: private student loans. They have been termed as “risky” since they are likened to credit card debt.
The danger with private student loans is the fact that they have a variable interest rate. For instance, a report submitted by the group called The Project on Student Debt found that undergraduates who took out these loans in the academic year 2003-04 at 5% interest ended up securing the same loans at 14% in 2007-08. The group reported that the worst thing was that over two-thirds of the people who borrowed privately did not exhaust their options of applying for what is regarded cheaper and safer – the federal loans.
Most students graduate with the a degree in the subject of their choice but a very few percentage of them get into the job market all smiles. A good example is Kristin Schlaud (with a law degree from Wayne State University and a master’s degree in commercial real estate from John Marshall Law School) who wonders whether her degrees were worth what she is going through currently. Three years down the line she is broke and in debt, owing almost $250,000.
College students need more protection, said Lauren Asher, president of the Institute for College Access & Success, the mother organization for The Project on Student Debt. She said that the federal government ought to prevent students from taking unnecessary private student loans; especially after the federal loans have been made so affordable – effect from July 1.
Apart from the fact that it is difficult to discharge the private student loans on claims of bankruptcy, they are cumbered with more disadvantages: the students who take out private loans are not eligible for payment deferments, loan forgiveness programs or income-based repayment options that federal loans offer.
Source
Monday, December 28, 2009
Tuesday, December 15, 2009
An Education in Student Loans
Graduation day should have been a happy one for Tyrone Bailey. The first in his family of three children to earn anything beyond a high-school diploma, Bailey, 24, received a bachelor's in criminal studies from Westwood College in Torrance, Calif., two years ago. But even while the day's pomp and circumstance played out, his thoughts turned quickly to the tough job market and the $20,000 in loans he borrowed directly from his alma mater that were set to accrue a whopping 18 percent interest rate.
Not long ago, low-interest student loans were as easy to come by as a pass to get out of gym class. But the economic downturn and ensuing credit crunch put an end to that. As relatively cheap, private bank and federally backed loans became harder to come by, some colleges, vocational schools, and online institutions filled the void by lending directly to students like Bailey. Loans from traditional sources like Student Loan Marketing Corp., commonly known as Sallie Mae, fell by more than 50 percent from 2007–08 to 2008–09 after years of rapid growth, according to the College Board.
Source
Not long ago, low-interest student loans were as easy to come by as a pass to get out of gym class. But the economic downturn and ensuing credit crunch put an end to that. As relatively cheap, private bank and federally backed loans became harder to come by, some colleges, vocational schools, and online institutions filled the void by lending directly to students like Bailey. Loans from traditional sources like Student Loan Marketing Corp., commonly known as Sallie Mae, fell by more than 50 percent from 2007–08 to 2008–09 after years of rapid growth, according to the College Board.
Source
Sunday, November 15, 2009
Science and maths teachers 'should have student loans paid off'
Science and maths graduates should have their student loans paid off by the Government if they choose to become teachers, an influential scientific society recommends.
The Institute of Physics says that monthly student loan repayments could be scrapped as long as the graduate remains in teaching. And teenagers who take “hard” A levels should be awarded more points per qualification for their university applications, according to the institute’s chief executive. A lower grade in physics should be given the same points for university entry as a higher grade in some other subjects, Dr Robert Kirby-Harris said.
The institute wants to boost the quality of physics teaching in schools and the number of teenagers studying the subject in sixth form and university. About 24,000 students sit A-level physics each year — about half the number who chose to do so in the 1980s. A quarter of secondary schools in England do not have a dedicated physics teacher, according to a survey last year, meaning that lessons at A level are sometimes led by teachers without a proper grasp of the subject.
This crisis in recruitment could be improved with bold initiatives to attract physics, chemistry and maths graduates into teaching, the institute said.
RELATED LINKS
Get higher grades from teachers first
Double whammy for students on grants and fees
Funds withheld for 10,000 extra university places
Although many can receive “golden hello” payments from schools of up to £5,000, heads are often reluctant to differentiate between staff in this way.
The institute proposes that instead of, or as well as, such incentives, the Government could meet the cost of graduates’ monthly student-loan repayments.
Professor Peter Main, a director at the institute, said: “There’s a shortage of specialist physics teachers. Head teachers are reluctant to have differential pay in subjects because they can run into problems. They could pay off student loans, which are effectively a graduate tax, for graduates teaching in shortage subjects.
“They would continue to pay off the student loan while the graduate remained in teaching. This would be an incentive to graduates to go into teaching and to remain in teaching.”
Professor Main said that schools and colleges could also receive financial incentives to boost the number of students taking “strategically important” subjects such as science, technology, maths and languages. He said that other ideas that could be discussed included capping the number of students universities could take in subjects other than these. And he suggested that the choice of degree courses was being steered by the whim of teenagers, resulting in a growth in subjects such as drama, psychology and media studies, even though employers were crying out for science and maths graduates.
He added: “The market is led by people aged 15 and 16, which does not seem to be the right answer.”
Professor Main said that the Government was “in denial” about research that claims to prove some A levels are harder. He said: “If they came out of denial that would solve many problems — the first stage of making it better is the admission that the problem is there.”
Dr Kirby-Harris echoed his comments, saying it was an “open secret” that A levels differed in difficulty.
He said: “The best schools and teachers know this and the best universities select on this. Everyone’s admitted it, apart from the Government.”
A spokeswoman for the Department for Children, Schools and Families said that as a result of bursaries and golden hellos the number of trainee science teachers recruited last year reached more than 3,000, and applications were up so far this year by 42 per cent compared with last year.
Source
The Institute of Physics says that monthly student loan repayments could be scrapped as long as the graduate remains in teaching. And teenagers who take “hard” A levels should be awarded more points per qualification for their university applications, according to the institute’s chief executive. A lower grade in physics should be given the same points for university entry as a higher grade in some other subjects, Dr Robert Kirby-Harris said.
The institute wants to boost the quality of physics teaching in schools and the number of teenagers studying the subject in sixth form and university. About 24,000 students sit A-level physics each year — about half the number who chose to do so in the 1980s. A quarter of secondary schools in England do not have a dedicated physics teacher, according to a survey last year, meaning that lessons at A level are sometimes led by teachers without a proper grasp of the subject.
This crisis in recruitment could be improved with bold initiatives to attract physics, chemistry and maths graduates into teaching, the institute said.
RELATED LINKS
Get higher grades from teachers first
Double whammy for students on grants and fees
Funds withheld for 10,000 extra university places
Although many can receive “golden hello” payments from schools of up to £5,000, heads are often reluctant to differentiate between staff in this way.
The institute proposes that instead of, or as well as, such incentives, the Government could meet the cost of graduates’ monthly student-loan repayments.
Professor Peter Main, a director at the institute, said: “There’s a shortage of specialist physics teachers. Head teachers are reluctant to have differential pay in subjects because they can run into problems. They could pay off student loans, which are effectively a graduate tax, for graduates teaching in shortage subjects.
“They would continue to pay off the student loan while the graduate remained in teaching. This would be an incentive to graduates to go into teaching and to remain in teaching.”
Professor Main said that schools and colleges could also receive financial incentives to boost the number of students taking “strategically important” subjects such as science, technology, maths and languages. He said that other ideas that could be discussed included capping the number of students universities could take in subjects other than these. And he suggested that the choice of degree courses was being steered by the whim of teenagers, resulting in a growth in subjects such as drama, psychology and media studies, even though employers were crying out for science and maths graduates.
He added: “The market is led by people aged 15 and 16, which does not seem to be the right answer.”
Professor Main said that the Government was “in denial” about research that claims to prove some A levels are harder. He said: “If they came out of denial that would solve many problems — the first stage of making it better is the admission that the problem is there.”
Dr Kirby-Harris echoed his comments, saying it was an “open secret” that A levels differed in difficulty.
He said: “The best schools and teachers know this and the best universities select on this. Everyone’s admitted it, apart from the Government.”
A spokeswoman for the Department for Children, Schools and Families said that as a result of bursaries and golden hellos the number of trainee science teachers recruited last year reached more than 3,000, and applications were up so far this year by 42 per cent compared with last year.
Source
Wednesday, October 28, 2009
Beware of treating free student loans as a licence to spend
STUDENT loans will be free from September for students taking up places at university, which is good news given they could end up with typical debts of up to £16,000 to fund a four-year course, according to the National Union of Students Scotland.
Interest on student loans is normally charged at either the Retail Prices Index in March, or base rate plus 1 per cent. While RPI turned negative last March, dropping to minus 0.4 per cent, base rate remained at 0.5 per cent, indicating that interestADVERTISEMENT
should be charged at 1.5 per cent. However, with more students than ever heading off to college, the government decided zero interest would be charged on all student debts from September.
This will not be a licence for students to burn their way through a mountain of cash. Once inflation picks up again interest will rise, perhaps significantly. Students who use zero interest rates as a green light to borrow could come to regret it when repay day arrives. Repayments are deducted from wages once you earn £15,000, at the rate of 9 per cent of gross earnings.
Scottish students studying in Scotland can also celebrate the fact that they can attend university for free, as they do not face the fees charged by universities south of the Border. If you have lived in Scotland for three years, you should not have to pay tuition fees to your college or university, irrespective of how much you or your parents earn.
However, if you want to go to a college elsewhere in the UK you will have to pay fees. These are set by colleges individually, and will typically be around £3,225 for the coming year or £3,000 for Northern Ireland.
Similarly, non-Scottish students who wish to study north of the Border will face annual fees of £1,700, or £2,700 for medical students. Scottish students still have to fund their living costs, and those from families of modest means can apply for a Young Student's Bursary from the Students Awards Agency for Scotland, provided they are under 25, which can be worth £2,640 a year. However, this is means-tested and the full amount is only available to students whose families are on incomes below £19,310. It is clawed back as income rises, until it is phased out completely at £34,195. They can also apply for a small additional top-up loan.
If you don't qualify for a bursary, then you can try for a student loan of up to £4,625 a year for students living away from home. However, this again is means-tested and if a family's income is over approximately £55,550 a year, you will only receive the minimum loan of £915 a year. The Student Loans Company says the typical Scottish student owes it £5,487 when they enter the world of work.
Source
Interest on student loans is normally charged at either the Retail Prices Index in March, or base rate plus 1 per cent. While RPI turned negative last March, dropping to minus 0.4 per cent, base rate remained at 0.5 per cent, indicating that interestADVERTISEMENT
should be charged at 1.5 per cent. However, with more students than ever heading off to college, the government decided zero interest would be charged on all student debts from September.
This will not be a licence for students to burn their way through a mountain of cash. Once inflation picks up again interest will rise, perhaps significantly. Students who use zero interest rates as a green light to borrow could come to regret it when repay day arrives. Repayments are deducted from wages once you earn £15,000, at the rate of 9 per cent of gross earnings.
Scottish students studying in Scotland can also celebrate the fact that they can attend university for free, as they do not face the fees charged by universities south of the Border. If you have lived in Scotland for three years, you should not have to pay tuition fees to your college or university, irrespective of how much you or your parents earn.
However, if you want to go to a college elsewhere in the UK you will have to pay fees. These are set by colleges individually, and will typically be around £3,225 for the coming year or £3,000 for Northern Ireland.
Similarly, non-Scottish students who wish to study north of the Border will face annual fees of £1,700, or £2,700 for medical students. Scottish students still have to fund their living costs, and those from families of modest means can apply for a Young Student's Bursary from the Students Awards Agency for Scotland, provided they are under 25, which can be worth £2,640 a year. However, this is means-tested and the full amount is only available to students whose families are on incomes below £19,310. It is clawed back as income rises, until it is phased out completely at £34,195. They can also apply for a small additional top-up loan.
If you don't qualify for a bursary, then you can try for a student loan of up to £4,625 a year for students living away from home. However, this again is means-tested and if a family's income is over approximately £55,550 a year, you will only receive the minimum loan of £915 a year. The Student Loans Company says the typical Scottish student owes it £5,487 when they enter the world of work.
Source
Thursday, October 15, 2009
Case studies: Making ends meet is a struggle even with loans
STEVIE WISE, 23, is going into the fourth year of a religious studies degree at Edinburgh University and worries about how she is going to make ends meet this year.
She has struggled to get the level of overdraft she needs to sustain her living costs, and her credit card limit was reduced because she missed a payment by 30p.
Ms Wise depends on her two credit cards and bank overdraft to get by.
Over the sumADVERTISEMENT
mer she struggled to find a full-time job meaning she is now going to have to work part-time, which she had hoped to avoid in her final year.
As a last resort she has been forced to borrow money from friends and family.
"I've already had to drop out once for financial reasons, and it's a real worry for me.
"I broke my foot in October 2007 and I couldn't work, which meant my money troubles were horrendous, even worse than now, so I just had to cut my losses and go home."
And she says she is not alone in her money worries.
She said: "It's unbelievable what Scottish students are given to live off, I don't think people realise. We are just getting in more and more debt. Something really, really needs to be done."
She has struggled to get the level of overdraft she needs to sustain her living costs, and her credit card limit was reduced because she missed a payment by 30p.
Ms Wise depends on her two credit cards and bank overdraft to get by.
Over the sumADVERTISEMENT
mer she struggled to find a full-time job meaning she is now going to have to work part-time, which she had hoped to avoid in her final year.
As a last resort she has been forced to borrow money from friends and family.
"I've already had to drop out once for financial reasons, and it's a real worry for me.
"I broke my foot in October 2007 and I couldn't work, which meant my money troubles were horrendous, even worse than now, so I just had to cut my losses and go home."
And she says she is not alone in her money worries.
She said: "It's unbelievable what Scottish students are given to live off, I don't think people realise. We are just getting in more and more debt. Something really, really needs to be done."
Monday, September 28, 2009
Options provide student loan relief
When he graduated from South Dakota State University in spring, Geoff Nixon had more than $20,000 in student loan debt and little hope of quickly finding work in his field.
After studying communications and theater in college, he has spent the summer working at a coffee shop and a bank, saving money for next month's move to New York City, where he hopes to scrape together a living in theater. The first student loan bill comes due in November.
"It's not even in my mind yet like it should be. It's kind of a daunting idea," Nixon said.
Two federal programs that began last month aim to ease the burden for college graduates with high debt loads and little income.
For many students, the Income-Based Repayment program reduces monthly payments and lets them spread out the payback of government loans over as many as 25 years. Those earning no more than 150 percent of the federal poverty level - or up to $16,245 this year - won't have to make any payments until they start earning more. And any remaining debt after 25 years will be canceled and counted instead as taxable income.
A second program, Public Service Student Loan Forgiveness, helps those working in government and other public service jobs. If the borrower makes 10 years of payments, the balance of the loan will be forgiven with no tax penalty.
"The breathing room that comes with this will allow college graduates to pursue a career that they're really passionate about rather than just one that pays well," said Gregory Cendana, president of the U.S. Student Association, a student advocacy group based in Washington, D.C.
Congress created both programs in 2007, but they didn't start until last month.
Cendana said the timing is good: The low payments will help students contribute to the economic recovery. Two-thirds of last year's graduates from four-year colleges and universities had student loan debt, according to a government study. And the amount of debt averaged $23,200, a 24 percent increase over 2004.
"It's really a huge step that U.S.S.A. has been working at for years," Cendana said.
Source
After studying communications and theater in college, he has spent the summer working at a coffee shop and a bank, saving money for next month's move to New York City, where he hopes to scrape together a living in theater. The first student loan bill comes due in November.
"It's not even in my mind yet like it should be. It's kind of a daunting idea," Nixon said.
Two federal programs that began last month aim to ease the burden for college graduates with high debt loads and little income.
For many students, the Income-Based Repayment program reduces monthly payments and lets them spread out the payback of government loans over as many as 25 years. Those earning no more than 150 percent of the federal poverty level - or up to $16,245 this year - won't have to make any payments until they start earning more. And any remaining debt after 25 years will be canceled and counted instead as taxable income.
A second program, Public Service Student Loan Forgiveness, helps those working in government and other public service jobs. If the borrower makes 10 years of payments, the balance of the loan will be forgiven with no tax penalty.
"The breathing room that comes with this will allow college graduates to pursue a career that they're really passionate about rather than just one that pays well," said Gregory Cendana, president of the U.S. Student Association, a student advocacy group based in Washington, D.C.
Congress created both programs in 2007, but they didn't start until last month.
Cendana said the timing is good: The low payments will help students contribute to the economic recovery. Two-thirds of last year's graduates from four-year colleges and universities had student loan debt, according to a government study. And the amount of debt averaged $23,200, a 24 percent increase over 2004.
"It's really a huge step that U.S.S.A. has been working at for years," Cendana said.
Source
Tuesday, September 15, 2009
Consolidate to lock in lower student-loan rates
Should I consolidate my student loans due to the new interest rates?
There are new interest rates for variable federal Stafford and PLUS loans issued between July 1, 1998 and July 1, 2006. The new rates for Stafford Loans are 2.48 percent (down from 4.21 percent) for loans that are being repayed and 1.88 percent (down from 3.61 percent) for loans that have a grace period or are deferred or are for students still in school. PLUS loans have dropped to 3.25 percent from 5.01 percent.
Borrowers with variable-rate federal student loans can lock in the current variable rate on their loans by consolidating them. The interest rate on a consolidation loan is a fixed rate that is equal to the weighted average of the current applicable interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a point.
If you consolidate now and rates drop even lower, can you consolidate again down the road?
Borrowers can only consolidate once. If they’ve done so previously, they will not be able to take advantage of the new low rates. Also, private student loans cannot be included in a federal consolidation loan.
Source
There are new interest rates for variable federal Stafford and PLUS loans issued between July 1, 1998 and July 1, 2006. The new rates for Stafford Loans are 2.48 percent (down from 4.21 percent) for loans that are being repayed and 1.88 percent (down from 3.61 percent) for loans that have a grace period or are deferred or are for students still in school. PLUS loans have dropped to 3.25 percent from 5.01 percent.
Borrowers with variable-rate federal student loans can lock in the current variable rate on their loans by consolidating them. The interest rate on a consolidation loan is a fixed rate that is equal to the weighted average of the current applicable interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a point.
If you consolidate now and rates drop even lower, can you consolidate again down the road?
Borrowers can only consolidate once. If they’ve done so previously, they will not be able to take advantage of the new low rates. Also, private student loans cannot be included in a federal consolidation loan.
Source
Friday, August 28, 2009
The Student Loan Corp. Reports Operating Results
The Student Loan Corporation originates holds and services federally insured student loans through a trust agreement with Citibank N.A. an indirect wholly-owned subsidiary of Citigroup Inc. The Student Loan Corporation is one of the nation\'s leading originators and holders of student loans guaranteed under the Federal Family Education Loan Program authorized by the Department of Education under the Federal Higher Education Act as amended. The Student Loan Corporation also holds student loans including CitiAssist Loans that are originated under alternative programs and are not insured under the Act. The Student Loan Corporation was incorporated in Delaware in November and commenced operations on December. Prior to that date the Student Loan Corporation operated as a division of Citibank of South Dakota. Citibank N.A. is the primary shareholder with an ownership of eighty% of the Student Loan Corporation\'s outstanding common stock. The Student Loan Corp. has a market cap of $1.04 billion; its shares were traded at around $51.86 with a P/E ratio of 21.3 and P/S ratio of 0.8. The dividend yield of The Student Loan Corp. stocks is 2.7%. The Student Loan Corp. had an annual average earning growth of 19.7% over the past 10 years. GuruFocus rated The Student Loan Corp. the business predictability rank of 3-star.
Highlight of Business Operations:
During the second quarter of 2009, the Company further diversified its sources of funding by accessing $8.5 billion of secured borrowings from the Conduit. The Company also continued to draw on financing through the Department s Participation Program, which is currently available for FFEL Program loans originated during the 2008-2009 and 2009-2010 academic years, by procuring an additional $0.6 billion of funding for its current quarter disbursements. The Company has funded $2.7 billion of FFEL Program Stafford and PLUS Loan disbursements through the Participation Program since its inception. At June 30, 2009, $1.3 billion of funding under the Participation Program remained outstanding. During the second quarter of 2009, the Company also completed a $1.2 billion sale of loans originally funded under the Participation Program to the Department through the Purchase Program, which resulted in a gain on sale of $17.9 million. The proceeds of this sale were used to pay back funding from the Participation Program.
Net interest income of $70.9 million for the second quarter of 2009 was $48.5 million or 41% lower than the same quarter of 2008 as the Company continues to experience net interest margin compression. This compression is largely due to the continued dislocation between CP and LIBOR. Although the Company has experienced some narrowing in the spread between CP and LIBOR since the first quarter, the spread between CP and LIBOR is still significantly higher than the historical average. This dislocation reduced second quarter net interest margin on the Company s FFEL Program loans by 40 basis points and net interest income by $18.5 million as compared to the same quarter in 2008. Net interest margin compression has also been impacted by an increase in the spread between the prime rate and LIBOR, which decreased second quarter net interest margin on the Company s prime rate based loans by 81 basis points and net interest income by $11.9 million as compared to the same quarter in 2008. Net interest margin is being further compressed by increases in credit spreads as the Company replaces maturing long-term debt with new borrowings. These increased credit spreads decreased second quarter net interest income by $21.6 million compared to the same quarter in 2008.
During the twelve-month period ended June 30, 2009, the Company s managed student loan portfolio grew by $3.7 billion or 9% to $43.0 billion, reflecting the Company s continued commitment to the FFEL Program as well as a decrease in borrower prepayment activity. The managed portfolio includes $26.6 billion of the Company s owned loan assets and $16.4 billion of loans serviced on behalf of securitization trusts or other lenders. Originations for the quarter included FFEL Program Stafford and PLUS loan originations of $0.7 billion, a 3% increase from the same quarter of 2008. Almost all of the FFEL Program Stafford and PLUS loan originations during the quarter were funded through the Participation Program. The Company also made new CitiAssist® loan commitments of $0.1 billion, which was 30% lower than the same quarter of 2008. This decrease is a direct result of initiatives the Company has introduced to improve the profitability of its private education loan product and changes to its underwriting standards.
In order to comply with certain legal and regulatory requirements, private education loans are originated by CBNA through an intercompany agreement. After final disbursement, the Company purchases all private education loans from CBNA. At June 30, 2009 and December 31, 2008, the private education loans disbursed and still held by CBNA were $1.6 billion and $1.0 billion, respectively.
Historically, loans were not specifically purchased or originated for resale, and accordingly were recorded in the Company s portfolio. However, certain loans originated since December 5, 2008 have been originated with the intent of selling to the Department under the Purchase Program and, accordingly, were recorded in held for sale. Of the $2.9 billion of FFEL Program loans originated during 2009, $1.9 billion were funded through the Participation Program. At June 30, 2009, $1.6 billion of loans funded were classified as held for sale.
The Company s allowance for loan losses at June 30, 2009 increased by $46.9 million compared to the balance at June 30, 2008. This increase was primarily the result of portfolio seasoning (new loans transitioning into repayment) and higher loss estimates given current adverse economic conditions. The provision for loan losses, which is comprised of builds or releases in the loan loss reserves plus net charge-offs, decreased by $5.2 million for the first half of 2009 compared to the same period in 2008. Loan loss reserve builds in 2009 were lower than 2008 largely due to estimate enhancements made in the second quarter of 2008 associated with the seasoning of the Uninsured CitiAssist Custom portfolio. Charge-offs increased by $20.6 million for the first six months ended June 30, 2009 compared to the same period in 2008 primarily as a result of seasoning of the Uninsured CitiAssist Custom portfolio. The Company expects charge-offs will continue to increase as a result of the expected seasoning of the higher risk Uninsured CitiAssist Custom portfolio as well as credit deterioration across all portfolios. The Company no longer originates Uninsured CitiAssist Custom loans and the portfolio balance is starting to decrease.
Source
Highlight of Business Operations:
During the second quarter of 2009, the Company further diversified its sources of funding by accessing $8.5 billion of secured borrowings from the Conduit. The Company also continued to draw on financing through the Department s Participation Program, which is currently available for FFEL Program loans originated during the 2008-2009 and 2009-2010 academic years, by procuring an additional $0.6 billion of funding for its current quarter disbursements. The Company has funded $2.7 billion of FFEL Program Stafford and PLUS Loan disbursements through the Participation Program since its inception. At June 30, 2009, $1.3 billion of funding under the Participation Program remained outstanding. During the second quarter of 2009, the Company also completed a $1.2 billion sale of loans originally funded under the Participation Program to the Department through the Purchase Program, which resulted in a gain on sale of $17.9 million. The proceeds of this sale were used to pay back funding from the Participation Program.
Net interest income of $70.9 million for the second quarter of 2009 was $48.5 million or 41% lower than the same quarter of 2008 as the Company continues to experience net interest margin compression. This compression is largely due to the continued dislocation between CP and LIBOR. Although the Company has experienced some narrowing in the spread between CP and LIBOR since the first quarter, the spread between CP and LIBOR is still significantly higher than the historical average. This dislocation reduced second quarter net interest margin on the Company s FFEL Program loans by 40 basis points and net interest income by $18.5 million as compared to the same quarter in 2008. Net interest margin compression has also been impacted by an increase in the spread between the prime rate and LIBOR, which decreased second quarter net interest margin on the Company s prime rate based loans by 81 basis points and net interest income by $11.9 million as compared to the same quarter in 2008. Net interest margin is being further compressed by increases in credit spreads as the Company replaces maturing long-term debt with new borrowings. These increased credit spreads decreased second quarter net interest income by $21.6 million compared to the same quarter in 2008.
During the twelve-month period ended June 30, 2009, the Company s managed student loan portfolio grew by $3.7 billion or 9% to $43.0 billion, reflecting the Company s continued commitment to the FFEL Program as well as a decrease in borrower prepayment activity. The managed portfolio includes $26.6 billion of the Company s owned loan assets and $16.4 billion of loans serviced on behalf of securitization trusts or other lenders. Originations for the quarter included FFEL Program Stafford and PLUS loan originations of $0.7 billion, a 3% increase from the same quarter of 2008. Almost all of the FFEL Program Stafford and PLUS loan originations during the quarter were funded through the Participation Program. The Company also made new CitiAssist® loan commitments of $0.1 billion, which was 30% lower than the same quarter of 2008. This decrease is a direct result of initiatives the Company has introduced to improve the profitability of its private education loan product and changes to its underwriting standards.
In order to comply with certain legal and regulatory requirements, private education loans are originated by CBNA through an intercompany agreement. After final disbursement, the Company purchases all private education loans from CBNA. At June 30, 2009 and December 31, 2008, the private education loans disbursed and still held by CBNA were $1.6 billion and $1.0 billion, respectively.
Historically, loans were not specifically purchased or originated for resale, and accordingly were recorded in the Company s portfolio. However, certain loans originated since December 5, 2008 have been originated with the intent of selling to the Department under the Purchase Program and, accordingly, were recorded in held for sale. Of the $2.9 billion of FFEL Program loans originated during 2009, $1.9 billion were funded through the Participation Program. At June 30, 2009, $1.6 billion of loans funded were classified as held for sale.
The Company s allowance for loan losses at June 30, 2009 increased by $46.9 million compared to the balance at June 30, 2008. This increase was primarily the result of portfolio seasoning (new loans transitioning into repayment) and higher loss estimates given current adverse economic conditions. The provision for loan losses, which is comprised of builds or releases in the loan loss reserves plus net charge-offs, decreased by $5.2 million for the first half of 2009 compared to the same period in 2008. Loan loss reserve builds in 2009 were lower than 2008 largely due to estimate enhancements made in the second quarter of 2008 associated with the seasoning of the Uninsured CitiAssist Custom portfolio. Charge-offs increased by $20.6 million for the first six months ended June 30, 2009 compared to the same period in 2008 primarily as a result of seasoning of the Uninsured CitiAssist Custom portfolio. The Company expects charge-offs will continue to increase as a result of the expected seasoning of the higher risk Uninsured CitiAssist Custom portfolio as well as credit deterioration across all portfolios. The Company no longer originates Uninsured CitiAssist Custom loans and the portfolio balance is starting to decrease.
Source
Monday, August 10, 2009
Colorado school loans to get bypass
An expected shift in federal law means the financial-aid arm of the Colorado Department of Higher Education likely will have to get out of the business of issuing student loans.
CollegeInvest, the state's largest student-loan provider, is preparing, reluctantly, to hand that role over to the federal government.
The Obama administration has decided the Federal Family Education Loan Program is inefficient and is proposing a new system.
Under the current system, the federal government guarantees student loans issued by private and nonprofit lenders such as CollegeInvest.
Tax attorney Sima J. Gandhi, writing in the San Jose Mercury News, said the current program delivers subsidies to private lenders, who are then guaranteed a consistent profit with little risk. The Obama plan, she said, would grant money directly to students.
In March, the White House said its plan "will end wasteful subsidies to banks under the Federal Family Education Loan (FFEL) program, and redirect billions in savings toward student aid."
The Congressional Budget Office estimates the administration's plan could save $87 billion.
The shift is contained in the administration's 2010 budget plan, which must still be passed by Congress.
But stopping the Obama administration's push is unlikely, said Lynn Tindall, CollegeInvest's chief operating officer, during a briefing with members of the Denver City Council on Tuesday.
Besides issuing bonds that it sells to investors to fund student loans, CollegeInvest also provides scholarships and oversees the state's 529 College Savings Plans. Those savings plans will not be affected by the expected transition.
A year and a half ago, troubled credit markets made it difficult for CollegeInvest to finance loans, said Colorado State Treasurer Cary Kennedy. She said the federal government then agreed to issue loans to such loan providers, making it possible for CollegeInvest to continue making loans.
Source
CollegeInvest, the state's largest student-loan provider, is preparing, reluctantly, to hand that role over to the federal government.
The Obama administration has decided the Federal Family Education Loan Program is inefficient and is proposing a new system.
Under the current system, the federal government guarantees student loans issued by private and nonprofit lenders such as CollegeInvest.
Tax attorney Sima J. Gandhi, writing in the San Jose Mercury News, said the current program delivers subsidies to private lenders, who are then guaranteed a consistent profit with little risk. The Obama plan, she said, would grant money directly to students.
In March, the White House said its plan "will end wasteful subsidies to banks under the Federal Family Education Loan (FFEL) program, and redirect billions in savings toward student aid."
The Congressional Budget Office estimates the administration's plan could save $87 billion.
The shift is contained in the administration's 2010 budget plan, which must still be passed by Congress.
But stopping the Obama administration's push is unlikely, said Lynn Tindall, CollegeInvest's chief operating officer, during a briefing with members of the Denver City Council on Tuesday.
Besides issuing bonds that it sells to investors to fund student loans, CollegeInvest also provides scholarships and oversees the state's 529 College Savings Plans. Those savings plans will not be affected by the expected transition.
A year and a half ago, troubled credit markets made it difficult for CollegeInvest to finance loans, said Colorado State Treasurer Cary Kennedy. She said the federal government then agreed to issue loans to such loan providers, making it possible for CollegeInvest to continue making loans.
Source
Monday, July 20, 2009
Asking for student loan may get easier
WASHINGTON - The Obama administration took dead aim yesterday at one of the biggest headaches faced by college students and their families -- how to fill out what has become a lengthy and complicated application for financial aid.
Education Secretary Arne Duncan outlined a series of changes that could allow some applicants to skip many of the 153 questions.
"Too many students who qualified found applying for student loans was too difficult to understand," Duncan said. "Too often, they simply got frustrated and they gave up. The form itself was liter-
ally a barrier to entry in college. That has to change.
"Next year's applicants should see a 20 percent reduction in the number of questions and a 50 percent reduction in the number of Web pages to navigate," Duncan said.
He also asked Congress to adopt a sweeping overhaul aimed at making the form easier to fill out, including allowing families to attach their tax returns from the Internal Revenue Service to the application. Currently, families have to include separate investment and banking records.
As tuition soars, financial assistance is crucial to keeping students in college. Of the 60,000 students at Ohio State University and its regional campuses, more than 32,000 receive financial aid.
The reforms are aimed at the Free Application for Federal Student Aid, known as FAFSA. The six-page application is so complex that last year former Education Secretary Margaret Spellings jokingly complained, "It asks you how old you are three different ways."
In the final months of the Bush administration, Spellings asked Congress to reduce the number of questions in the form to just 27. Congress never acted on that.
"It's a good step," said Tally Hart, senior adviser for economic access at Ohio State. "That form is really a deterrent in its existing structure because it looks so intimidating. and the problem is the greatest for the people it should serve the most."
Educators and financial-aid specialists hailed the move, saying it eventually could lead to more students applying for financial aid.
"Could the department have gone further? Yes," said Terry Hartle, senior vice president of the American Council on Education, which represents the nation's universities. "Some people think you should get them on a postcard. But the fewer the questions, the less accuracy you have. What the department is trying to do is balance the importance of simplification with accuracy."
Beginning this summer, students who have reached the age of 24 or are married may skip 11 questions dealing with their parents' financial history. Men older than 26 will not have to answer the question about Selective Service registration. And when the new forms are made available in January, low-income students will not be asked about assets.
In another effort to simplify federal assistance, the Education Department has been giving students instant estimates of Pell Grant and student-loan eligibility since May.
Source
Education Secretary Arne Duncan outlined a series of changes that could allow some applicants to skip many of the 153 questions.
"Too many students who qualified found applying for student loans was too difficult to understand," Duncan said. "Too often, they simply got frustrated and they gave up. The form itself was liter-
ally a barrier to entry in college. That has to change.
"Next year's applicants should see a 20 percent reduction in the number of questions and a 50 percent reduction in the number of Web pages to navigate," Duncan said.
He also asked Congress to adopt a sweeping overhaul aimed at making the form easier to fill out, including allowing families to attach their tax returns from the Internal Revenue Service to the application. Currently, families have to include separate investment and banking records.
As tuition soars, financial assistance is crucial to keeping students in college. Of the 60,000 students at Ohio State University and its regional campuses, more than 32,000 receive financial aid.
The reforms are aimed at the Free Application for Federal Student Aid, known as FAFSA. The six-page application is so complex that last year former Education Secretary Margaret Spellings jokingly complained, "It asks you how old you are three different ways."
In the final months of the Bush administration, Spellings asked Congress to reduce the number of questions in the form to just 27. Congress never acted on that.
"It's a good step," said Tally Hart, senior adviser for economic access at Ohio State. "That form is really a deterrent in its existing structure because it looks so intimidating. and the problem is the greatest for the people it should serve the most."
Educators and financial-aid specialists hailed the move, saying it eventually could lead to more students applying for financial aid.
"Could the department have gone further? Yes," said Terry Hartle, senior vice president of the American Council on Education, which represents the nation's universities. "Some people think you should get them on a postcard. But the fewer the questions, the less accuracy you have. What the department is trying to do is balance the importance of simplification with accuracy."
Beginning this summer, students who have reached the age of 24 or are married may skip 11 questions dealing with their parents' financial history. Men older than 26 will not have to answer the question about Selective Service registration. And when the new forms are made available in January, low-income students will not be asked about assets.
In another effort to simplify federal assistance, the Education Department has been giving students instant estimates of Pell Grant and student-loan eligibility since May.
Source
Monday, July 13, 2009
Grand jury indicts Peoria woman on alleged student loan fraud
A federal grand jury in Phoenix has indicted a Peoria woman and 64 other people for alleged fraud in taking out student loans from Rio Salado College.
Prosecutors contend Trenda Lynne Halton, 37, recruited the codefendants to pose as Rio Salado students to get loans. The U.S. Attorney’s office for Arizona alleges Halton and her “straw students” received more than $530,000 in secured federal loans and financial aid. They are charged with mail and financial aid fraud and making false statements on financial aid documents. Halton was arrested Wednesday.
Source
Prosecutors contend Trenda Lynne Halton, 37, recruited the codefendants to pose as Rio Salado students to get loans. The U.S. Attorney’s office for Arizona alleges Halton and her “straw students” received more than $530,000 in secured federal loans and financial aid. They are charged with mail and financial aid fraud and making false statements on financial aid documents. Halton was arrested Wednesday.
Source
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