student loans and capital markets thomas m. graf executive director mefa december 5, 2008
TRANSCRIPT
Student Loans and Capital Markets
Thomas M. GrafExecutive Director
MEFA
December 5, 2008
Capital Markets
> Early Warning Signs
> Current Environment
> Continued Volatility
Capital MarketsEarly Warning Signs
> Unprecedented Disruption Began With Sub-Prime Mortgage Crisis> Headline risk evident
> Large bank write-downs
> Quality of underwriting concerns as performance shifts
> Investor confidence eroding
> Asset-Backed Securities Impact> Limited liquidity as financing channels begin to close> Increased funding costs for lenders and banks
Capital MarketsEarly Warning Signs
> Bond Insurers Under Pressure> Insured assets performance was deteriorating> Increased capitalization requirements to fulfill outstanding
policies> Bond investors outlook diverging from published actions
> Rating Agencies Scrutinized> Insurers on watch or negative outlook – downgrades were
on the horizon> Investors looking through insurance wrap to underlying
ratings
Capital MarketsEarly Warning Signs
> Education Lenders Exit the Market> Increased funding costs> Liquidity contraction by investors> Investors concerned that student loans will perform like sub-
prime mortgages
Capital MarketsCurrent Environment
13.718.4 15.1
14.5
22.0 18.6
37.0
58.060.5
73.6
86.2
70.0
30.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
($ in billions)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Student Loan Debt Issuance
Capital MarketsCurrent Environment
Education Loan Transactions
Source: Bank of America, The Student Loan Report 11/18/08
Capital MarketsCurrent Environment
Interest Rates
Source: Bank of America, The Student Loan Report 11/18/08
Capital MarketsContinued Volatility
Significant Impact on Families> Fewer education financing options> Tightened underwriting – FICO standards raised to improve
risk management> Borrower benefits eliminated from loan programs> Increased borrowing costs in capital markets> Reliance on home equity limited due to housing price
corrections> Stock market losses impact households net worth
Capital MarketsContinued Volatility
Pressure on College Campuses> Tightened operating budgets and fiscal policies> Impact on institutional financial aid> Shrinking endowments – losses likely to impact operating
budgets and financial aid> Maintain access to broadest socioeconomic demographic
Capital MarketsContinued Volatility
Federal Government Intervention> Continue commitment to ensure students have access to
federal loans> Ensuring Continued Access to Student Loans 2008 (ECASL)
> Term Asset-Backed Securities Loan Facility (TALF)
> Wait and see with new administration…
Capital MarketsContinued Volatility
Education Lenders Focus> Continued commitment to access capital markets to raise
proceeds for affordable education loans> MEFA’s response in challenging marketplace
> Spring 2008 – suspend FFELP participation
> Fall 2008 – successful transaction to fund private education loans