Student Loans:
Title IV Loan Program Metrics
Mark Weadick
Student Loan Capital Strategies LLC
Discussion Topics
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Topics to discuss today include:
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Student Loan Balances and Volumes
FFELP and Private Loan Collateral Performance
FFELP Portfolio & Default Portfolio Runoff
Predictions for 2013 and beyond
and…….Industry Gossip
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I’m looking forward to an open discussion, so please ask Qs as we go.
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Thank you for having me at your meeting.
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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
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2012 NCHER Knowledge Symposium
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
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2012 NCHER Knowledge Symposium
FFELP Financing Spreads
•The table below shows FFELP FRN financing spreads over time.
Student Loan ABS Spreads
Interest Cost of Bonds Backed by Student Loans
Interest Cost Expressed as a Spread (bps) to LIBOR
5
Bond Average Life
3 Years
5 Years
7 Years
Pre Credit Crunch
-1
3
8
15
November 2009
May 2010
May 2011
March 2012
May 2012
October 2012
75
65
65
80
60
35
90
80
85
110
85
55
105
95
120
135
120
75
NA
NA
140
175
165
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2012 NCHER Knowledge Symposium
10 Years
FFELP Performance Stabilizing?
• Forbearance and delinquency have increased
6/30/2012
12/31/2011
12/31/2010
12/31/2009
12/31/2008
12/31/2007
12/31/2006
In Forbearance
As % of Forbear. and Repayment
16.6%
17.2%
18.6%
16.8%
15.2%
14.2%
14.0%
31+ Delinquent
As % of Repayment
17.1%
18.1%
17.2%
17.6%
16.5%
16.7%
16.4%
• 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
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FFELP CPRs are Slower
• Since issued Trust CPRs as of 12/31/11:
Stafford/PLUS
Consolidation
2004-4
13.5%
2005-3
1.6%
2005-1
15.0%
2006-2
2.4%
2006-1
11.8%
2007-1
1.9%
2007-2
6.9%
2007-8
1.0%
2008-1
1.4%
2009-1
2.2%
Source: SLM securitization reports
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FFELP Consolidations lost?
Q3 12
2010
--
--
To Third Parties
(7,092)
(749)
(1,489)
(7,209)
Net Gain (Loss)
(7,092)
(749)
(1,027)
(3,117)
From Third Parties
2008
462
In Millions
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2006
4,092
Private Loan Market
Size of Market (1)
Dynamics
» Fewer institutions are originating loans
Loan Originations ($ in billions)
» 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
Key Players Today
» 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
Credit Unions
________________________________________________
(1)
Source: CollegeBoard.
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State Programs
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Private Loan Performance
• Charge offs are moderating, though still elevated
In Forbearance
As % of Forbear. and Repayment
31+ Delinquent
As % of Repayment
Charge Offs
As % of Forbear. And Repayment
9/30/2012
12/31/2011
12/31/2010
12/31/2009
12/31/2008
12/31/2007
12/31/2006
3.2%
4.4%
4.6%
5.5%
7.0%
13.9%
9.2%
10.0%
10.1%
10.6%
12.1%
10.2%
8.3%
8.7%
3.1%
3.6%
4.8%
5.6%
2.5%
2.2%
1.3%
Source: Sallie Mae Public Filings
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Private CPRs have slowed
• Since Issued Trust CPRs as of 12/31/11:
Private Loans
11
2002-A
3.8%
2003-A
3.0%
2004-A
3.8%
2005-A
4.6%
2006-A
5.1%
2007-A
5.1%
2008
N/A
2009
1.4%
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2012 NCHER Knowledge Symposium
….as has Private Consol activity
Q3 12
2010
--
--
To Third Parties
(55)
Net Gain (Loss)
(55)
From Third Parties
2008
2006
149
96
(13)
(98)
(46)
(13)
51
50
In Millions
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Projected Student Loan Market
Originations
Direct
Direct Consolidation
Private
2012
$115
$45
$9
2013
$120
$10
$10
2014
$124
$10
$10
2015
$127
$10
$11
2016
$131
$10
$12
2017
$135
$10
$13
Dollars in Billions
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2018
$139
$10
$14
2019
$143
$10
$15
2020
$148
$10
$17
FFELP Remaining Life
Net Present Value of Servicing/Admin Cash Flows at 5% Discount Rate
Net Present Value of Residual Cash Flows at 10% Discount Rate
Dollars in Billions
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$6,779,346,205
$7,285,500,221
Projected FFELP Collections
2012
$30,450
2013
$26,882
2014
$24,331
Starting Default Portfolio
2015
2016
$24,039
$23,165
2017
$21,402
Source: DOE for 8/31/12 FYTD actuals, SLCS estimates for projection
Dollars in millions
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2018
$18,922
2019
$15,825
2020
$13,177
Direct Loan Servicing Metrics
• DOE FY11 Budget = $496 M servicing fees for TIVAs and ACS
• TIVAs and ACS estimated servicing volumes:
12/31/2010
Accounts
Balances
Year 3
Allocations
Year 4
Great Lakes
3.8 M
$40 B
32%
28%
Nelnet
2.8 M
$30 B
16%
30%
PHEAA
3.6 M
$35 B
26%
27%
Sallie Mae
3.3 M
$35 B
26%
15%
13.5 M
$140 B
100%
100%
12.0 M
$120 B
ACS
• NFP Servicing – 100,000 accounts each
– 15 NFPs approved to date
– 9 NFPs operational
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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)
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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
– Non-diversified business models face greater challenges
•
investors
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”
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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
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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
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Modeling Assumptions
DOE and Private (Page 13)
FFELP (Page 14)
Existing Pool Status
In School
Deferment
Forbearance
Repayment
DOE
25%
15%
20%
40%
Private
25%
0%
10%
65%
Pool Mix
18 Months
18 Months
On Going Deferment
15% for 24 Months
NA
On Going Forbearance
20% for 24 Months
10% for 12 Months
10 Years
9 Years
CPR
3%
4%
New Originations Growth
3%
8%
Forward Curve
Forward Curve
Interest Rates
Cumulative
Remaining
22%
10%
Average Life
Stafford/PLUS
Consolidation
Funding
Servicing/Admin Fees
2015
25.50%
2016
24.00%
2017
22.50%
2018
21.00%
2019
19.50%
2020
18.00%
2015
26.48%
38.74%
34.78%
2016
26.48%
36.24%
37.28%
2017
26.48%
33.74%
39.78%
2018
26.48%
31.24%
42.28%
2019
26.48%
28.74%
44.78%
2020
26.48%
28.74%
44.78%
Collections by Type
2013
26.48%
43.74%
29.78%
2014
26.48%
41.24%
32.28%
Rehab. Sales Discount
4%
Future FFELP Defaults
10%
21
3%
4%
Interest Rates
Collections as a % of Starting Default Portfolio
2012
2013
2014
28.50% 28.50% 27.00%
2012
26.48%
46.24%
27.28%
Stafford/PLUS
Consolidation
Default
Guarantor (Page 15)
Regular
Rehab
DL Consol
35%
65%
CPR
New Volume Status
In School
Average Life
Stafford/PLUS
Consolidation
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5 Years
9 Years
95% at LIBOR + 75 bps
40 bps
Forward Curve