Debunking Student Loan Headlines
Presented by Jillian Gajtka
• Headlines
bubble
crisis
• Student Loan Jeopardy What percentage of the $1.19 Trillion in student loan debt do private loans account for? A. 5.2% B. 7.6% C. 11.8% D. 21.3%
• Student Loan Jeopardy What percentage of the $1.19 Trillion in student loan debt do private loans account for? A. 5.2% B. 7.6% C. 11.8% D. 21.3%
• Headline #1: Growth in Student Loan Debt $1.19 Trillion in Outstanding Student Loans $91B (7.6%) is Private Student Loans $7.5B in private student loans originated in 2014 Total Student Loan Debt Q2 2005 Total Student Loan Debt Q2 2005 $370B Total Student Debt Q2 2015 Total Student Debt Q2 2015 $1.19T
• Student Loan Jeopardy What is the average Cost of Attendance per year at a public out‐of‐state, 4‐year college/university for 2015‐ 2016? A. $24,000 B. $28,500 C. $30,000 D. $38,500
• Student Loan Jeopardy What is the average Cost of Attendance per year at a public out‐of‐state, 4‐year college/university for 2015‐ 2016? A. $24,000 B. $28,500 C. $30,000 D. $38,500 Source: Collegeboard – Trends in College Pricing 2015, Figure 1 http://trends.collegeboard.org/sites/default/files/2015‐trends‐college‐pricing‐final‐508.pdf
• Cost of Education
$24M Indoor Football Practice Facility
• Cost of Education
• MI Tuition & Fees for In‐State Students
Michigan 4‐year public institutions are still in the top 15% of the country for tuition/fees
Source: The College Board, Annual Survey of Colleges http://trends.collegeboard.org/college‐pricing/figures‐tables/2015‐16‐state‐tuition‐ and‐fees‐public‐four‐year‐institutions‐state‐and‐five‐year‐percentage
• MI Tuition & Fees for Out‐of‐State Students
In the state of Michigan, public 4‐year institutions are the 2nd highest in the entire country
Source: The College Board, Annual Survey of Colleges http://trends.collegeboard.org/college‐pricing/figures‐tables/2015‐16‐out‐state‐ tuition‐and‐fees‐public‐four‐year‐institutions‐state‐and‐five‐year
• The Cost of Education • Cost of Attendance (COA) • The cost for the student to attend school as if it were his/her job: • Tuition • School Fees • Housing/Rent • Books • Food • Transportation • Miscellaneous Expenses
• Headline #2: A Bubble & Skyrocketing Default Rates • Though tuition rates have increased rapidly, the overall rate of return on college education has remained at around 14% ‐ 15% over the past decade • In comparison, for the past 60 years stocks earned a return, on average, of 7% and bonds only 3%
• BA/BS Degrees Increase Earnings The median earnings for young adults (ages 25‐34) with a bachelor degree is more than 65% those with just a high school diploma ($50,000 vs $30,000). CFPB indicates that a college degree earner will, on average, earn approximately $1 million more over their career than someone with a high school diploma. Starting salaries are keeping pace with education debt loads. A student’s salary is almost 2x their student debt.
• Lower Unemployment
Unemployment rate for individuals with at least a bachelor’s degree has
• Loan Performance 34% of the borrowers with under $5,000 defaulting on their student loans. Borrowers with over $100,000 defaulted at less than half the time than those carrying balances of $5,000 or less. Conclusion: You would rather graduate from college with $26,000 in debt than drop out with under $5,000.
• Loan Performance
½ the delinquency and ¼ the losses of the
private student lending marketplace
• Student Loan Jeopardy What percentage of students owe more than $100,000 in total student loan debt? A. 4% B. 7% C. 11% D. 13%
• Student Loan Jeopardy What percentage of students owe more than $100,000 in total student loan debt? A. 4% B. 7% C. 11% D. 13%
• Headline #3: Too Much Debt? 40% owe less than $10,000. 40% owe less than $10,000. 40% owe less than $10,000. Average student loan debt is still less than the average car. $33,560* Average student loan debt is still less than the average car. $33,560* Average student loan debt is still less than the average car. $33,560* *Kelley Blue Book – April 2015
• Too Much Debt? Are Student Loan Borrowers Good Consumers? 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 2005200620072008200920102011201220132014 % of consumers with auto trade Current look at 2005 consumers: The student loan group is well ahead of control group in auto and mortgage participation in Q4 2014 10% 15% 20% 25% 30% 35% 40% 45% 50% 2005200620072008200920102011201220132014 % of consumers with mortgage 2005 student loan group 2005 control group % of population with an open auto trade % of population with an open mortgage
• Too Much Debt? Are Student Loan Borrowers Good Consumers? 25% 30% 35% 40% 45% 50% 55% 60% 65% % of consumers with auto trade Current look at 2009 consumers: The student loan group has passed the control group in auto and nearly matched them in mortgages in Q4 2014. % of population with an open auto trade 5% 10% 15% 20% 25% Sep ‐09 Ma r‐10 Sep ‐10 Ma r‐11 Sep ‐11 Ma r‐12 Sep ‐12 Ma r‐13 Sep ‐13 Ma r‐14 Sep ‐14 % of consumers with mortgage % of population with an open mortgage 2009 student loan group 2009 control group TransUnion Student Lending Study ‐ 2015
• Too Much Debt? Are Student Loan Borrowers Good Consumers? 2012 New Loan Performance % of pop. w/ n ew loan 60+ D PD thru Dec 2014 % of pop. w/ n ew loan 60+ D PD thru Dec 2014 VantageScore 3.0 tier VantageScore 3.0 tier 2012 student loan group 2012 control group 0% 5% 10% 15% 20% 25% % new bankcard consumers 60+ DPD 0% 2% 4% 6% 8% 10% 12% 14% % new auto consumers 60+ DPD 1% lower 15% lower
• Headline #4: Performance Navient as of 6/30/14 CU Student Choice Historical Differentiation in Underwriting: • Capturing Co‐Borrowers • Refined School Eligibility • Conducting School Certification • Disbursing Directly to the College/University
• Student Loan Jeopardy What is the latest Department of Education 3‐year Student Loan Default Rate? A. 6.6% B. 9.8% C. 11.8% D. 13.7%
• Student Loan Jeopardy What is the latest Department of Education 3‐year Student Loan Default Rate? A. 6.6% B. 9.8% C. 11.8% D. 13.7% *In 2011, the federal default rate was at 13.7%, so it is trending downward
• Positive Performance
…Delinquency and
Defaults are Decreasing
Declining Delinquency & Charge‐off Rates CU Student Choice 90+ DPD = 1.10% Gross Annualized CO = 0.55% (Q3 2014) Gross Annualized CO = 0.71% (Q3 2015) PSL Industry (Measure One) 90+ DPD = 2.12% Gross Annualized CO = 2.37% (Q3 2014) Gross Annualized CO = 2.23% (Q3 2015) Federal Student Loans Cohort Default Rate = 11.8%* *as of 2015 data• CU Student Choice Portfolio Performance • 0.50% Annualized Gross Charge‐off Rate • 1.47% 60+ Delinquency Rate • 0.82% 90+ Delinquency Rate Student Choice Portfolio Snapshot as of Q4 2015 • $1.78 Billion in Outstanding Balances • 59.9% Loans in Repayment • $171.1M Loans Paid in Full
• Strong Credit Union Performance $500‐$750M Credit Union ROAA Model PSL Balances (as of 4/'14) $8,500,000 PSL Balances (as of 5/'13) $6,500,000 Average PSL Balances: $7,500,000 Weighted Margin: 3.00% (floor of 6.0%) 3.00% Weighted Index 3.25% Weighted COF Yield (Peer to Peer/5300) 0.75% 3rd Party Insurance* 0.50% Net Yield: 5.00% Gross Annual Interest Revenue $468,750 Net Annual Interest Revenue $375,000 # of Loans (as of 4/30/14) 425 Loan Costs (from remittances 5/'13 ‐ 4/'14) $90,000 Origination costs = $30,000 $30,000 Mgmt Fee/Servicing/Other $60,000 Total: $90,000 Net Annual Total PSL Income: $285,000 Return on Average PSL Assets (ROAA) 3.80% *Amortized over conservative 10 year expected loan life • Strong ROAA = 3.80% • Steady Performance = 0.83% delinquency against loans in Repayment (NO CHARGE‐OFFs) • Launched in 2009 • Assets between $500M ‐ $700M • Just over $12M in funded loans ~ 42% in full repayment ‐ 3.3% PIF • Added over $2M – up 29% YOY (from 2013 to 2014)
• Headline #5: Booming Refi Market $211 billion is available for refinancing • $121B – Federal • $90B – Private • Just $4B has been refinanced Source: Goldman‐Sachs ‐The Future of Finance – 3/2015 Marketplace Lenders Traditional Lenders Credit Unions
• Booming Refi Market $211 billion is available for refinancing • $121B – Federal • $90B – Private • Just $4B has been refinanced Source: Goldman‐Sachs ‐The Future of Finance – 3/2015 Credit Unions are not about a myopic focus on ‘Super Prime’ – rather, it is about helping a diverse population of members, the broader community, and employer groups in a holistic and helpful manner.
• Refinance Member Profile • Refi borrowers with no cosigners: – Tend to be 29 years old, graduated school 4+ years ago, have been employed 3+ years, make almost $70K per year, have reasonable credit scores of 720+, reasonably low DTI of 29, and take out ~$32K refi loan. • Refi borrowers with cosigners: – These borrowers tend to be younger and have slightly less employment, income, credit history and/or larger loan needs. – As such, these borrowers choose to add a cosigner with strong credit (750+ credit score) and high income ($88K) to help secure larger refi loans ($49K).
Segmentation Profile Non‐Cosigned Cosigned Blended
% of Applications 51% 49% 100% Avg. Borrower Age at Application 29 27 28 Avg. Borrower Credit Score 725 714 720 Avg. Borrower Monthly Income $5,727 $3,228 $4,487 Avg. Borrower Months at Employer 38 27 33 Avg. Borrower Months Since Graduation 52 28 40 Avg. Borrower % Home Owner 21% 11% 16% Avg. Cosigner Age at Application 54 Avg. Cosigner Credit Score 754 Avg. Cosigner Monthly Income $7,369 Avg. Cosigner Months at Employer 237 Avg. Decision Credit Score 725 768 746 Avg. Decision DTI Ratio 29 39 34 Avg. Loan Approved Amount $32,293 $49,431 $40,797 16% of all Refi borrowers are home owners…thus sizeable future mortgage opportunities
• Solution: Co‐Borrower Emphasis
• Solution: School Certification
• Solution: Financial Literacy
• Solution: Education & Engagement • Member Seminars Our Strategic Partners Team conducted nearly 40 national seminars in 2015 attended by more than 1,000 members • Open National Webinars Free national webinars to help college‐bound families on how to keep costs down and survive the first days of college and completing the FAFSA • 1:1 Counseling Free individualized counseling service for families to schedule in‐depth consultations with our college planning expert
• Solution: Education & Engagement
• Solution: Education & Engagement 9 credit unions 8,000 borrowers 58% avg. checking penetration 18% avg. credit card penetration 9% avg. auto loan penetration 6% avg. deposit penetration CU Student Choice Borrower Relationship Study 2015 “Being the first in my family in America to attend college was a big accomplishment! Although, it was a joyful accomplishment, I was not as happy as I should have been because I knew college was not cheap. Joining Georgia’s Own was probably one of the best decisions before college that I have ever made. Receiving a Georgia’s Own Credit Union private student loan has helped me so much!” ‐ Mira
• Who We Are: Credit Union Student Choice By credit unions, for credit unions Credit Unions in full control Sustainable loan growth CU Industry Asset‐Class Expertise Results Snapshot: • 65,000+ young adult members assisted • $1.9B under management • 245 CU programs • Strong portfolio performance • Strong value to members
• Who We Are: Credit Union Student Choice Net Income Positive • Since December 2010 Proven & Trusted • 54% Marketshare based on Q3 2015 5300 Report • $1.9B of $3.5B NO Reputation Risk • Zero Venture capital financing • No exit strategy Credit Union Philosophy • Owned & Managed • Board President Brian Ducharme President of MIT FCU
• Risk Optimization Optimal Window Matching Risk/Return Loan Co‐Borrowers School Eligibility Credit Risk‐based Lending School Certification ESSENTIAL RISK MANAGEMENT FACTORS Variable Interest Rate CU‐to‐School Disbursed Note: Per federal law, student loans are generally difficult to discharge in bankruptcy. Must prove undue hardship which is high threshold and relatively uncommon.
• Bringing It All Together • Millennials offer a win‐win for credit unions: – Member gains affordable financing to earn a degree – Member has ability to leverage this degree for strong employment • Credit Unions gain Members in Peak Borrowing Years – Private student loans are high earning assets – Performance is Strong! – Introduces CU products and services to new members – Places new loan balances on CU books
• Thank you
• Glad to be here!
• Jillian Gajtka
• Manager | Strategic Partnerships