Bankers Ease Rules on Private Loan Automatic Defaults

Private lenders are revising student loan contracts to ensure people are not placed in default when the co-signer of their loan dies or declares bankruptcy, putting an end to a practice brought to light by the Consumer Financial Protection Bureau.

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Navient Earnings Report

Navient Corporation’s NAVI third-quarter 2016 core earnings of 50 cents per share beat the Zacks Consensus Estimate of 47 cents. Also, the figure improved 6.4% year over year.

The third-quarter results of Navient were aided by lower provision for credit losses as well as higher non-interest income. However, net interest income decreased while expenses remained stable in the quarter.

Notably, core earnings excludes the impact of the financial results of the consumer banking business for period prior to the spin-off of Navient from Sallie Mae in Apr 2014 as well as the related restructuring and reorganization expenses. It also excluded the impact of certain other one-time items including unrealized, mark-to-market gains/losses on derivatives.

GAAP net income for the quarter was $230 million, or 73 cents per share, compared with $237 million, or 63 cents per share, in the prior-year quarter.

FindTheCompany | Graphiq

Improved Non-Interest Income; Provisions Down

The following figures are calculated on a core earnings basis:

Net interest income declined 12% year over year to $405 million.

However, non-interest income reported a growth of 7.8% year over year to $179 million. Servicing revenues remained stable while asset recovery revenues improved.

Also, total expenses remained unchanged at $228 million. Encouragingly, provision for credit losses decreased 13.8% year over year to $106 million.

Segmental Performance

Federally Guaranteed Student Loans (FFELP): The segment generated core earnings of $69 million, down 1.4% year over year. The underperformance was mainly attributable to a decrease in servicing revenue.

During the quarter, Navient acquired FFELP loans of $596 million. As of Sep 30, 2016, the company’s FFELP loans came in at $90.1 billion, down from $98.5 billion as of Sep 30, 2015.
FFELP loan spread edged up 6 basis points (bps) year over year to 0.96%.

Private Education Loans : For the quarter, the segment reported core earnings of $60 million, a 22.1% decline year over year. The fall was due to reduced net interest income, partially offset by lower provision for loan losses.

Total delinquencies came in at 6.9% of loans in repayment, down 50 bps year over year. Charge-off rate of 1.9% of average loans decreased from 2.3% in the prior-year quarter.

During the quarter, Navient acquired private education loans of $66 million. As of Sep 30, the company’s private education loans totaled $24.0 billion, compared with $27.3 billion a year ago.

Student loan spread decreased 24 bps year over year to 3.64%.

Business Services : The segment reported core earnings of $81 million, up 2.5% year over year. Increase in education loan-related asset recovery revenue on a year-over-year basis led to the upside.

Currently, Navient services student loans for over 12 million customers. This includes 6.2 million customers on behalf of the U.S. Department of Education.

Other : The segment reported a net loss of $53 million, compared with a loss of $52 million in the prior-year quarter.

Source of Funding and Liquidity

In order to meet liquidity needs, Navient expects to utilize various sources including cash and investment portfolio, issuance of additional unsecured debt, repayment of principal on unencumbered student loan assets and distributions from securitization trusts (including servicing fees). It may also issue term asset-backed securities (ABS).

During the reported quarter, Navient completed one FFELP ABS of $1 billion and issued unsecured debt of the value of $1.3 billion. Also, it retired or repurchased senior unsecured debt of $625 million.

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What Does the Average Graduate Owe

So just how much does the average American owe post-college? Here are some key statistics on student debt, courtesy of Student Loan Hero:

  • The average Class of 2016 graduate racked up just over $37,000 in student debt, up 6% from the previous year.
  • The average 20- to 30-year old American’s monthly student loan payment is $351.
  • 43 million Americans collectively owe $1.3 trillion in student loans.
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Does Bernie Sanders Understand the Student Loan Program

Bernie Sanders, stated the other day

  • “In my view, if you can refinance your home today for 2, 3 percent, why the hell are we paying 8 or 10 percent interest rates on student debt?”

First of all mortgage rates have never reached 2%.

Clearly, Mr. Sanders doesn’t understand the differences between non colateralized student loan debt and an resalable physical asset.

Additionally, with income based repayment a student loan borrower can base their repayment directly on their income, try that with your home mortgage.

I am discouraged by Mr. Sanders comparison of two different lending instruments and his lack of understanding of basics of lending.

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Your Uncle Sam Is Largest Holder of Student Loan Debt. But Not Always

A recent article on student loan debt suggests that Uncle Sam has not always been the largest holder of student loan debt. According to Courtney Miller, NerdWallet in a USA Today December 21, 2015 article. Here is an exact copy of the article.

Aftermortgages, student loans represent the biggestdebt being shouldered by U.S. households. Americans owe $1.21 trillion in student loans — that’s an average of $47,712 for each household in debt, accordingto a new study by NerdWallet. Over 70% of this debt is owed to the federal government, making Uncle Sam the largest holder of nonrevolving American consumer debt, with $932 billion owed to it.

It hasn’t always been this way. As recently as the third quarter of 2009, auto loans and credit cards outranked student loans in terms of their burden on American households — and the federal government held just a small part of that debt. The federalization of most education loans and the rising cost of college, which has outpaced inflation for decades, are among the reasons for this surge of money owed to the U.S. government.

How we got here

During the recession that began in 2008, capital dried up, making loans harder to obtain, according to the U.S. Department of Education. To ease the impact on student borrowers, the federal government began to purchase guaranteed student loans — loans issued by private banks, but for which the federal government assumes the risk for default — under the Ensuring Continued Access to Student Loans Act. Then, in 2010, the federal government ended programs that guaranteed private loans altogether, instead issuing loans directly through the Department of Education, making the federal government the most popular lending option.

Federal loans are different

While private loans are still available, they are no longer backed by the government and thus command a higher interest rate. Lower rates, along with other generous repayment terms such as forbearance, deferment and the potential for debt forgiveness for nonprofit and public sector workers, make federal loans a more attractive option for students who qualify.

These repayment options can make a big difference, says Abbey Stauffer, NerdWallet’s student loans expert.

"Federal borrowers can go on income-based repayment plans, which base one’s monthly payment amount on income, whereas with private loans, there’s much more rigidity around your payment amount. When you’re a recent grad scraping by a living, keeping your monthly payment low can be a godsend," she says.

"The reality is that many students need a blend of both federal and private loans to fully cover their college costs. We recommend maxing out federal loans first, then shopping around for private loans that offer the best terms," Stauffer adds.

Also keep in mind that despite their benefits, federal loan options like forbearance and deferment can have unforeseen consequences for borrowers, allowing interest to accrue over longer periods, which will drive up balances.

Ways to keep student debt under control

Stauffer recommends that borrowers first explore income-related repayment plans, under which the borrower continues to make smaller payments including interest, to keep federal loans under control. These programs include Pay As You Earn, income-based and income-contingent repayment programs.

You can explore switching repayment plans on the government’s Federal Student Aidwebsite. If you decide it’s right for you, talk to your loan servicer, who can help you make the switch.

Another option to keep debt down is work-study, which allows students to take mostly on-campus jobs in lieu of or in addition to student loans. These jobs, along with federal loans and grants, are awarded based on need, so students need to fill out the FAFSAin order to be eligible.

The legacy of student loans

It’s difficult to discharge student loans in bankruptcy — although federal loans offer deferment, forbearance and debt forgiveness options to help make your debt more manageable. But because the full responsibility of the loan squarely remains on the borrower, this debt can follow Americans into their retirement.

Borrowers still default, though, with the most recent number from the Department of Education placing the default rate for federal student loans at 11.8%. That’s significantly higher than the 2.7% default rate for private loans.

All this debt will have an impact for decades to come, and it won’t be limited to those who did the borrowing — the entire economy will see the effects. High student loan payments will mean more people won’t be able to afford to buy a home or other big-ticket items.

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Student Debt Perspective

Another Look at Student Debt

Special Commentary
by Wells Fargo Securities

Dec. 17: Fears that student-loan debt has crippled the finances of young households have intensified since the Great Recession. The rapid increase in educational debt, estimated at $1.2 trillion, has been pointed to as one factor holding back consumer spending and limiting the ability of Millennials to participate in the housing-market recovery. But are Millennials’ finances as dire as they are often portrayed?

To evaluate the financial position of Millennials, we use data from the Federal Reserve’s triennial Survey of Consumer Finances (SCF). Net worth among young households—not unlike their middle-age counterparts—has deteriorated in recent years. Two major trends, not entirely distinct, account for the decline: the rise in student-loan debt and the decline in residential real estate holdings. However, since a balance-sheet framework captures the liabilities incurred from student loans, but not the asset, we view debt-to-income payments as more telling of the financial burdens incurred from student loans.

We find that young households’ student-loan burdens, while growing, still look quite manageable given longer repayment terms and lower interest rates. That said, longer repayment terms mean Millennials will have to grapple with student-loan payments later into life, while there are also troubling signs that a rising share of college graduates aren’t making any payments.
—Sarah House, Erik Nelson

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High Debt = Low Default?

Borrowers with low post completion debt after they complete their education often have a higher rate of delinquency and default than borrowers with higher loan amounts and the trend is occurring across geographic areas in the U.S., according to new findings in “Mapping Student Debt” by the Washington Center for Equitable Growth with Generation Progress and Higher Ed, Not Debt.

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