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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

Student Loans:Title IV Loan Program Metrics

Mark Weadick

Student Loan Capital Strategies LLC


Discussion topics
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


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


Loan portfolio fair market value
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


Ffelp financing spreads
FFELP Financing Spreads

  • The table below shows FFELP FRN financing spreads over time.

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


Ffelp performance stabilizing
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


Ffelp cprs are slower
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


Ffelp consolidations lost
FFELP Consolidations lost?

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


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


Private loan performance
Private Loan Performance

Source: Sallie Mae Public Filings

Charge offs are moderating, though still elevated

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


Private cprs have slowed
Private CPRs have slowed

Since Issued Trust CPRs as of 12/31/11:

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


As has private consol activity
….as has Private Consol activity

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


Projected student loan market
Projected Student Loan Market

Dollars in Billions

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


Ffelp remaining life
FFELP Remaining Life

Dollars in Billions

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


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


Direct loan servicing metrics
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


Market evolution
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


Market evolution1
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


Industry consolidation
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


2013 and beyond developments
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


Modeling assumptions
Modeling Assumptions

Navigating the Sea of Change 2012 NCHER Knowledge Symposium


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