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FDL and our community of activists worked hard to pass legislation that changed the way student loans are handled, and that work paid off with the passage of the Student Lending and Fiscal Responsibility Act (SAFRA). Jane described the work that went into it from FDL and many others. The lenders fought with tons of money, and nearly won with their bogus arguments, which included the scary “government takeover” and the silly “competition benefits everyone”. We thought that the government would save a lot of money, and that industry would do nicely acting as loan servicers. Let’s see how things have worked out.
Sallie Mae is the largest student loan company. In its third quarter 10-Q filed with the SEC, it said results will change in three income categories (see p. 64), but it doesn’t give net income figures, only revenue numbers.
SLM originated student loans and sold them to the Government. In 2009, it generated $324 million in revenue and interest income, and expects to generate $417 million in revenue and interest income in 2010. SAFRA terminated that business. SLM earned money collecting on delinquent and defaulted loans and guarantor account maintenance fees. It collected $265 million in 2009, and $232 million in the first nine months of 2010. That will decline going forward as securitized student loan pools decline, as a result of SAFRA.
It earned revenue from guarantor issuance fees on new student loan guarantees, $64 million in 2009, and $31 million in the first nine months of 2010. That revenue stream was killed off by SAFRA.
All told, that looks like a drop of about $725 million in revenues. In addition, SLM wrote off $660 million of goodwill from its balance sheet (p. 85). In the last six months, the stock is up off its low of about $10.40 to a close of $12.81, a rise of 23.3%, although it is down from a peak of about $13.30 around the time SAFRA passed.
Nelnet is the 11th largest student loan company. Its third quarter 10-Q, says it earned $37.7 million selling student loans to the government last year, and $33.8 million this year. Its income from guarantee and servicing fees will decline, from a total of $80 million. Its net interest income of $280 million in the first nine months will decline as its loan portfolio is worked off. Other income will fall $6 million. The stock is up 36.2% in the last six months.
[cont'd.]
Other major lenders do not report this area separately. Citigroup owned 80% of the stock of The Student Loan Corporation, the second largest student loan company. Citi is selling SLC to Sallie Mae and the Discover Financial Services. After the transaction Citi will have a student loan portfolio of about $16.7 billion, presumably serviced by SLM. Citi is recording a loss of $454 million on the sale (page 111). An investor sued, saying the price is too low.
Bank of America has apparently ceased all activity in the student loan business. JPMorgan Chase (announced in December 2009 that it would sell its servicing business. It continues to make private student loans.
Wells Fargo grew its private lending business. They offer new products, aimed at people who have exhausted other means of college funding. PNC and US Bank offer private loans, and their portfolios are growing as other entities exit the business.
Discover Bank is buying part of the student loan business of Citi, including Citi’s interest in certain securitized trusts and its origination business. (p.41).
EdAmerica is a private company located in Knoxville that drew the avid support of both of Tennessee’s Senators. Lamar Alexander was especially aggravated about the effort to get rid of privatized government guaranteed loans. This is from an EdAmerica press release:
“The cost savings that is alleged is … a trick on students to make congressmen look good. What we are going to do if we do not preserve choice is saying to all the students who get a loan that we are going to take money from them and then give it to other students so that congressmen can go home and brag that [they have] increased the amount of the Pell grants.”
EdAmerica is apparently still in business despite the apocalyptic rhetoric they put in Alexander’s mouth.
In summary, just we thought, the government is saving money. We can’t tell how much, but it looks good from the early numbers.
As we thought, the servicing business is proving to be a profitable line of work. For example, one smaller non-profit lender, ALL Student Loan, paid $180,000 to a lobbyist named Vincent Reusing who helped get a provision into the statute giving non-profits a share of the servicing business. It continues to make private loans.
Mark Kantrowitz, publisher FinAid, a financial aid information Web site, said there are about 35 eligible non-profit student loan companies in the country. While the overhaul legislation will likely lead to considerable layoffs and contraction in the industry, those servicers could be the biggest winners.
“They’re losing their origination volume, so they’re losing the fees that they had been getting for originating loans, but they are gaining servicing volume,” he said. “In fact, their servicing volume might compensate.”
One of the most egregious lies handed out by industry was that 35,000 people would lose their jobs. We said that there would be lay-offs, but not nearly that many. This site, last updated April 23, 2010, says that there were at least 6,573 layoffs in the industry, which it thinks is low because several lenders didn’t give numbers. I think the net number is lower because there is no accounting for hires at the companies whose volume of loans and servicing is increasing. It also doesn’t include jobs added by colleges because of additional funds available for student lending.
It’s fun to be right. It’s even more fun to win. And it is really great to know that we helped students struggling to get an education.
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ok done
I got no money. I can only support FDL with my comments, my diaries and my good wishes to the folks here.
T’is all I got.
And that is appreciated very much. Happy New Year, demi.
What has always fascinated me about the student loan problem, is how one big firm like Sallie Mae–or a handful of the big banks–were allowed to write national higher education funding policy for decades. No one flinched: the Republicans loved it, and the Democrats (like Ben Nelson) were bought off year after year.
The answer was really very simple: direct lending with an income-based factor and mandatory loan amortization at government cost. (Well, really the answer is grant money like how all the other countries do it, but that’s an aside.)
Every party at the other end of that Sallie money stream sucked it out of student debtors for years and years. The suckees would be:
1. Yes, Sallie and their ilk; but also:
2. Investors in the collateralized debt, who got a government-guaranteed premium for what ended up being something virtually the same to government debt.
3. Universities, and not just private businesses like Apollo (Univ. of Phoenix) fronting as degree-granting institutes of higher education. The real universities were making out like bandits, and never bothered to point out the unequitable treatment the funding program gave to their graduates who didn’t make it big.
4. Other student borrowers. There was not an identifiable constituency, like with social security, Medicare, subsidized Tennessee Valley Authority electric, etc., to be organized and lobby for fairer treatment and lower interest rates. Everyone had their own deal, and the lender side represented private investors, not the federal treasury. So if a politician stood up and said, “we should lower the rate on Direct Loans”, it’s not clear there would have been a groundswell of support from all the student debtors. Math confuses people, and for years the private industry would do a small discount on the rate to make people think they were getting some big bargain. Some student borrowers with relatively smaller loans, or who went to school in the ’70′s like the Boomers, or got great subsidized deferment deals had an advantage over those who didn’t have. Everyone should have been treated fairly across class and across time.
The kinds of situations the old regime created are the kind that have young people overturning and burning cars at colleges in European or Latin American countries. How they ever got away with it is beyond me. Kudos to FDL for pointing out in clear terms why the private lending had to go.