student loans: title iv loan program metrics

Student Loans:Title IV Loan Program Metrics

Mark WeadickStudent 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– 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.

2Navigating the Sea of Change

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Student Loan Market

Loan Programs: $900 B Funding Source: $900 B

Dollars in Billions, Public sources and SLCS guesstimates as of September 30, 2011

3Navigating the Sea of Change

2012 NCHER Knowledge Symposium

Loan Portfolio “Fair Market Value”

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• 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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FFELP Financing Spreads

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

Bond Average Life 3 Years 5 Years 7 Years 10 Years

Pre Credit Crunch -1 3 8 15

November 2009 75 90 105 NAMay 2010 65 80 95 NAMay 2011 65 85 120 140March 2012 80 110 135 175May 2012 60 85 120 165October 2012 35 55 75 110

Student Loan ABS SpreadsInterest Cost of Bonds Backed by Student Loans

Interest Cost Expressed as a Spread (bps) to LIBOR


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FFELP Performance Stabilizing?

• Forbearance and delinquency have increased

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• 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

6/30/2012 12/31/2011 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006

In Forbearance 16.6% 17.2% 18.6% 16.8% 15.2% 14.2% 14.0%As % of Forbear. and Repayment

31+ Delinquent 17.1% 18.1% 17.2% 17.6% 16.5% 16.7% 16.4%As % of Repayment


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FFELP CPRs are Slower

• Since issued Trust CPRs as of 12/31/11:

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Source: SLM securitization reports

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%


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FFELP Consolidations lost?

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Q3 12 2010 2008 2006

From Third Parties -- -- 462 4,092

To Third Parties (7,092) (749) (1,489) (7,209)

Net Gain (Loss) (7,092) (749) (1,027) (3,117)

In Millions


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Private Loan MarketDynamics Size of Market (1)

Key Players Today

» 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)

________________________________________________(1) Source: CollegeBoard.

CAGR (through ’07-’08): 2

4.5%

Credit Unions

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State Programs


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Private Loan Performance

• Charge offs are moderating, though still elevated

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Source: Sallie Mae Public Filings

9/30/2012 12/31/2011 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006

In Forbearance 3.2% 4.4% 4.6% 5.5% 7.0% 13.9% 9.2%As % of Forbear. and Repayment

31+ Delinquent 10.0% 10.1% 10.6% 12.1% 10.2% 8.3% 8.7%As % of Repayment

Charge Offs 3.1% 3.6% 4.8% 5.6% 2.5% 2.2% 1.3%As % of Forbear. And Repayment


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Private CPRs have slowed

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

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Private Loans

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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….as has Private Consol activity

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Q3 12 2010 2008 2006

From Third Parties -- -- 149 96

To Third Parties (55) (13) (98) (46)

Net Gain (Loss) (55) (13) 51 50

In Millions


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Projected Student Loan Market

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Dollars in Billions

Originations 2012 2013 2014 2015 2016 2017 2018 2019 2020Direct $115 $120 $124 $127 $131 $135 $139 $143 $148Direct Consolidation $45 $10 $10 $10 $10 $10 $10 $10 $10Private $9 $10 $10 $11 $12 $13 $14 $15 $17


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FFELP Remaining Life

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Net Present Value of Servicing/Admin Cash Flows at 5% Discount Rate $6,779,346,205Net Present Value of Residual Cash Flows at 10% Discount Rate $7,285,500,221

Dollars in Billions


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Projected FFELP Collections

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Source: DOE for 8/31/12 FYTD actuals, SLCS estimates for projectionDollars in millions

2012 2013 2014 2015 2016 2017 2018 2019 2020$30,450 $26,882 $24,331 $24,039 $23,165 $21,402 $18,922 $15,825 $13,177

Starting Default Portfolio


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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

Accounts Balances Year 3 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%

ACS 12.0 M $120 B

12/31/2010 Allocations


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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

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”


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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

Modeling Assumptions

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Guarantor (Page 15)

Collections as a % of Starting Default Portfolio2012 2013 2014 2015 2016 2017 2018 2019 2020

28.50% 28.50% 27.00% 25.50% 24.00% 22.50% 21.00% 19.50% 18.00%

Collections by Type2012 2013 2014 2015 2016 2017 2018 2019 2020

Regular 26.48% 26.48% 26.48% 26.48% 26.48% 26.48% 26.48% 26.48% 26.48%Rehab 46.24% 43.74% 41.24% 38.74% 36.24% 33.74% 31.24% 28.74% 28.74%DL Consol 27.28% 29.78% 32.28% 34.78% 37.28% 39.78% 42.28% 44.78% 44.78%

Rehab. Sales Discount 4%

Future FFELP Defaults 10%

FFELP (Page 14)

Pool MixStafford/PLUS 35%Consolidation 65%

CPRStafford/PLUS 3%Consolidation 4%

DefaultCumulative 22%Remaining 10%

Average LifeStafford/PLUS 5 YearsConsolidation 9 Years

Funding 95% at LIBOR + 75 bps

Servicing/Admin Fees 40 bps

Interest Rates Forward Curve

DOE and Private (Page 13)

Existing Pool Status DOE PrivateIn School 25% 25%Deferment 15% 0%Forbearance 20% 10%Repayment 40% 65%

New Volume StatusIn School 18 Months 18 Months

On Going Deferment 15% for 24 Months NA

On Going Forbearance 20% for 24 Months 10% for 12 Months

Average Life 10 Years 9 Years

CPR 3% 4%

New Originations Growth 3% 8%

Interest Rates Forward Curve Forward Curve


Knowledge Symposium

student loans: title iv loan program metrics

Documents

sea of change

private loan portfolios

student loan balances

bfunding source

loans abs market

student loans

trust cprs

private consol activity12