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Fitch: Guarantor Stress Could Pressure US FFELP Student Loan ABS

We do not expect a direct credit impact on Fitch-rated securities because we assumed a 540-day payment lag in our cash flow analysis. Most trusts have sufficient reserves to cover a liquidity shortage and allow commingling of principal and interest collections to smooth short-term liquidity needs.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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Student Loan Program's Costs are Unknown

The Congressional Budget Office has applied a risk-appropriate discount rate to student loans based on what private lenders would offer for a similar level of risk. In contrast to the government’s current accounting practices, which show student loans making a “profit” for the government of 9 percent, the CBO’s alternate — but more accurate — analysis found that between 2010 and 2020 the program would cost 12 percent more than it brought in.

A similar analysis conducted by the CBO, just for FY 2013, also shows a large difference between current accounting practices and the fair value approach. Interestingly, however, the CBO still found a small net budgetary gain in 2013 from student loans even with the fair value approach.

If the federal government is truly able to turn a profit from its student loans in 2013, that raises the question of why private lenders have not offered similar loans to students. The lack of private competition suggests (but does not prove) that the CBO is using a fair value discount rate that is still too low, not fully reflecting the risk that private lenders perceive.

It may be useful to query private lenders about the interest rate they would need to charge if they were to offer student loans on the same terms that the federal government does. That rate may be higher than even the CBO’s fair value discount rate, but it is likely the more appropriate rate to apply.

The federal government claims that student loans make money for taxpayers, but there is a strong possibility that they actually cost the government money. … If Congress again acts to prevent interest rates from rising to 6.8 percent, the extended subsidy would likely increase participation in the program, creating even more unknown costs. Congress should not expand the student loan program before the cost to taxpayers is fully understood.

First appeared in The Washington Examiner.

College needs to be affordable

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Emily Bialkowski

Managing Editor

Last week I received a press release from the office of Rep. Tim Walz, D-MN, about a bill he supports to stop student loan interest rates from doubling from 3.4 percent to 6.8 percent on July 1, 2013.

The bill, the Student Loan Relief Act of 2013, would lock in the lower interest rate until July 1, 2015.

In his release Walz says, “The path to the American Dream runs through college campuses across this nation. As teacher and a parent, I know how critical a high-quality education is to our country’s economic future and I also know how much anxiety middle-class families feel about the rising cost of college. Allowing interest rates to double will make college more expensive and it will make the American Dream for over 200,000 Minnesota students that much harder to realize.”

The release further states that students at Minnesota public and private universities currently graduate with an average debt load of nearly $30,000. The average student would see their debt load increase by about $1,000 per year of school if the bill doesn’t pass.

In the mid-90s, when I entered college, paying for my secondary education was as big a worry for me. My mother was single, had three of us to worry about, and there was no stockpile of money of any type, let alone money to help pay for college. Back then I was relieved to see the propane tank filled to heat the house over winter.

But the thought of aquiring tens of thousands of dollars in debt came secondary to the thought of finding a decent job. I knew I’d get a degree. I always knew it. I knew I never wanted to worry about paying the most essential of bills – heat, electricity, grocery – the way my mom worried about it.

As I visited college campuses and considered the cost, I remember a moment, just a moment, when I wondered if I’d ever really afford such an education. And mom said, “Pick the college you want to go to first and worry about paying for it second.”

It was the best advice she may have ever given me. I chose the right college for my needs and in doing so remained motivated and driven to attain that degree. I am the first person in my family to have earned a college degree, and I paid for it myself.

I’m actually still paying for it 13 years later, but if it weren’t for scholarships, a Federal Pell Grant, federal Perkins loan and a federal student loan, I would have never finished college. And now that I am well out of college and a contributing member of society in terms of paying taxes and paying my bills, I am quite thankful that my student loan interest rate hovers near two percent.

To think that other needy students might face interest rates higher than some mortgages is heartbreaking to me. Without the support system I had, I would have never finished college.

I know budgets are beyond tight, but I am a direct product of how making college affordable helps society. Without my education, I couldn’t afford a home or the land I own – all things that require a tax payment. Without that tax revenue, the burden of paying for roads, public schools, emergency services, etc. would fall on fewer and fewer people.

I’m glad Walz, along with 60 of his colleagues, is trying to keep a college education affordable.

“We should be encouraging higher education, not creating hurdles to it. Congress needs to take immediate action to keep students in the classroom and to keep interest rates low,” he said.

I happen to agree.

 

You can contact Emily Bialkowski at emily.bialkowski@ecm-inc.com

How to Get Your College Student to Use Credit Right

NEW YORK (TheStreet) — “Neither a borrower nor a lender be,” pronounced a disturbed father in Hamlet, as his son prepared to go off into a genuine world. It sounds like good advice, though relatives with college-bound children need to adjust this knowledge to complicated times.

That fact is, but borrowing one doesn’t build a credit history, creation it harder to get a loan when it’s unequivocally necessary. Increasingly, good credit is compulsory to lease an unit and even to get a job.

High propagandize seniors who have been certified recently to college are starting to get credit label offers in a mail. Though a CARD Act of 2009 tempered some attention abuses — requiring, for instance, that a primogenitor or defender co-sign for an applicant underneath 21 — it’s still comparatively easy for a teen to get a card. And, of course, it’s all too easy to abuse one, doing real damage to family finances and wrecking a immature person’s credit rating for years.

The apparent remedy: Don’t rest on a credit card. Instead, for many losses use a withdraw label that will pull on a checking account. That way, a tyro can't spend some-more than a comment holds. There will be no seductiveness charges or late-payment penalties — and no risk of credit damage.

Still, a credit label can be essential if a tyro gets stranded on a approach home for a holidays. And it does compensate to start building a credit story as a freshman, so there’s a good, plain record when a immature chairman graduates and needs to steal for a automobile or home, get a cellphone agreement or win capitulation from a impending landlord or employer.

The simplest pill is to supplement a tyro as an certified user on a parent’s credit card. So prolonged as a primogenitor creates payments on time, a tyro will share in a good credit history. Or a label can be performed in a student’s name.

To build a good credit history, a label contingency be used. Showing we have debt and have paid responsibly does some-more for your credit than carrying a credit line that’s never tapped.

This requirement can be confident with a low-risk plan that has some unchanging expenditures charged to a card, such as repository or online-service subscriptions that are a same each month. That approach there’s reduction risk of a warn that comes if a label is used for pointless losses such as pizza, gasoline or unison tickets.

For an combined covering of safety, a label user can revoke a risk of missed payments by carrying label balances paid automatically by a monthly send from a checking account. Here’s an instance from Wells Fargo (WFC).

Finally, a tyro and relatives should strap all accessible electronic aids including online entrance to a comment and warning services that send emails and content messages when monthly payments are due, when vast charges are done and when accessible credit is using low. Many label issuers have smartphone apps for monitoring a user’s several accounts.

Rep. Kuster bill aims to keep student loan rates from doubling

NASHUA – Congresswoman Annie Kuster, D-NH, spent part of her Monday at Nashua Community College talking with students about how the imminent doubling of student loan interest rates will affect their lives.

Kuster, who has co-sponsored a bill called the Student Loan Relief Act that would prevent subsidized Stafford loan interest rates from doubling from 3.4 to 6.8 percent starting July 1, said New Hampshire students particularly would be hit hard if the rate doubles.

“New Hampshire is first in a lot of things in this country that are positive, but one thing that we are first in that is negative is that New Hampshire is first in the country in terms of average student loan debt,” Kuster said.

Kuster went on to say that the average four-year New Hampshire college student owes $32,440 and that 75 percent of all New Hampshire college students are in debt.

“I know the argument for doubling the rate is that we can’t afford to keep it so low, but the argument against it is that we can’t afford to make college inaccessible to average Americans, that would have terrible social and cultural consequences,” Kuster said.

The Student Loan Relief Act would keep the student loan interest rate level at 3.4 percent for the next two years, a timeframe Kuster says is intentional.

“That will give Congress the time to address the problem of the increasing costs of higher education,” Kuster said. “Certainly I have colleagues who share my concern on this issue, and I am optimistic of reaching a consensus position in Congress to keep higher education affordable, but I want to see this done in a timely fashion, and not just lurch from crisis to crisis like we have.”

With the looming increase in her student loan interest rate, Erica Taylor, a mother of three small children who recently obtained her associates degree, told Kuster that she is now unsure if she and her husband, who is also a Nashua Community College student, will be able to afford to continue with their education.

“To think the rate could double, I am scared, I am scared I can’t make payments and balance a household budget,” Taylor said.

Michael Burnham, who currently attends Southern New Hampshire University after previously attending Nashua Community College, said that the increase would be a burden not only on himself, but many of his friends as well.

“I am a student, I have a full-time job, and I have a part-time job, and in the back of your mind to just know that school will get more expensive, it can make it difficult for people to decide to continue with school,” Burnham said.

Nashua Community College Chief Financial Officer Amber Wheeler said the college is already seeing more students enroll as part-time students instead of attending full-time because of how expensive higher education in New Hampshire has become.

“I can’t imagine interest rates doubling and seeing where the students will be,” Wheeler said.

Kuster thanked all the students for telling her their stories, explaining that when she goes back to Congress next week, she will us their stories as a way to try to convince her peers of the importance of keeping interest rates low on student loans.

“I try to tell my colleagues that a couple of bucks where I come from goes a long way,” Kuster said. “For some people it can mean the difference between owning a car or not, or renting an apartment or owning a house, and that is the kind of stuff that drives our economy.”

bklein@newstote.com