Anticipating a Falloff in Student Loan Defaults

Student Loan Girl — Thu, 22 Oct 2009 19:47:00 GMT

After hitting a new high of $443 million in charge-offs on its student loans this past quarter, major student lender Sallie Mae anticipates a slowdown in these student loan defaults, the company announced during its third-quarter earnings call yesterday (SLM Corp. Q3 Earnings Call Transcript, Oct. 21, 2009).

Although Sallie Mae’s student loan charge-offs — the student loans the company writes off as defaulted and not being repaid — rose to a total of $443 million over the third quarter, up from $355 million in the previous quarter, monthly charge-offs declined month by month through the third quarter itself.

Monthly student loan charge-offs during the third quarter fell from $160 million in July to $129 million in September, and the company sees this trend continuing into 2010 as more borrowers with stronger credit profiles begin to represent a larger portion of Sallie Mae’s student loan portfolio.

In the credit crunch that followed the subprime mortgage implosion, Sallie Mae and other student lenders struggled to find investors willing to buy bundled student loans and take on the risk of student borrowers. As a result, student loan lenders tightened their credit criteria for their private student loans, requiring higher credit scores from borrowers and creditworthy co-signers for student borrowers with low or unestablished credit.

“The credit of the new borrowers is extraordinarily strong,” said Albert Lord, Sallie Mae’s chief executive officer.

Remondi concurred, “The quality of the loans we disbursed in the [third] quarter was very strong,” with an average borrower FICO credit score of 746 and with 88 percent of the loans carrying a co-signer. In 2007, only 54 percent of the company’s private student loans carried a co-signer.

Already, October 2009 charge-offs are projected to be more than $40 million lower than in July, Remondi said.

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In Declining Economy, Student Loans May Be More Difficult to Secure

Student Loan Girl — Tue, 04 Nov 2008 22:27:00 GMT

Students are finding it increasingly challenging to find the money they need to pay for college as the credit crisis continues to hamper student loan providers’ ability to fund new loans, reports MustangDaily.net, the college newspaper of California Polytechnic State University (“Student Loans Harder to Come By in Uncertain Economy,” Oct. 30, 2008).

In 2007 alone, Cal Poly lost almost 25 percent of its student lenders, leaving many families scrambling to find a new student loan provider.

“Last year (Cal Poly students) borrowed through 76 different lenders,” said Lois Kelly, the school’s director of financial aid. “Nineteen of those lenders are now declining to make any student loans. That is a substantial number of lenders no longer in the market.”

With fewer lenders serving the school, Kelly says students will have a harder time finding a student loan provider that will “be there for them” until they graduate.

To date, more than 100 lenders have stopped issuing federal student loans and 37 lenders have stopped offering private student loans due to a reduction in federal subsidies and a lack of funding to make new loans.

Lending Problem Affecting Students Nationwide

A recent study conducted by the National Association of Independent Colleges and Universities revealed that out of the 500 institutions surveyed, nearly 50 percent reported that some of their students were dropping out of school or switching to part-time status because students couldn’t get college loans and couldn’t afford tuition costs without them.

“We lost a large portion of our freshman class who were unable to secure a private loan and whose parents were either denied a PLUS loan or could not take one,” said an unidentified NAICU survey respondent.

Of the students who were denied a student loan and chose to remain in school, many turned to credit cards, which are generally more costly, to help pay their tuition expenses.

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Student Loan Blog : student loan credit crisis

Anticipating a Falloff in Student Loan Defaults

In Declining Economy, Student Loans May Be More Difficult to Secure