Don't get swamped by student loan debt

Minnesota Society of Certified Public Accountants

Are you or someone in your family facing heavy student loan debt? Recent graduates left college with an average of $19,646 in student loan obligations, according to a study by the Project on Student Debt. That was up 8 percent from a year earlier, while average starting salaries rose only 4 percent from the previous year, the study found. That means the debt graduates are carrying is growing faster than their initial chances to earn the money to repay it.

Thereís no reason to despair, though, according to the Minnesota Society of CPAs, because there are several steps that you can follow to manage weighty student debt.

Lower your payments
If your monthly loan costs are simply too much, one simple and immediate solution is to reduce them by finding out if you can lengthen the amount of time you have to pay the loan — from 10 years to 20 years, for example. You should be aware that extending the loan term means that you will end up paying more interest over time, but lowering the monthly payment amount may be your top priority right now. Remember, that you can always increase your monthly payments later — and thereby shorten the length of the loan — if your financial situation improves in the future.

Consider consolidation
Students often sign up for a number of different loans to finance their education. That may mean you end up writing several checks to different lenders at various points in the month. When you consolidate, you take out a new loan that is equal to your total debt and use it to pay off all your existing balances. You then can pay just one student loan bill each month. That will make life easier, but it may not necessarily lower your overall monthly outlay, depending on the new loan terms. If you do find a consolidation loan that will reduce your monthly payments, make sure to examine the loan terms carefully. And remember that if you will be paying off the consolidation loan over a longer period, the loan will cost you more in the end, so it may not be the best choice.

Do well by doing good
Do you wish you could make a difference in the world? It's possible to cancel some or all of your federal student loan balance by signing up for any one of a number of programs aimed at making positive change. For example, teaching in an elementary or secondary school in a low-income area can reduce some federal loan totals, while serving a two-year term in the Peace Corps can also lead to a reduction in your loan balance. Volunteers for AmeriCorps and VISTA may qualify to postpone loan payments while they are involved in the program and receive stipends that can be used to pay down student loan debt. Health professionals who spend two years working with the National Health Service Corps serving communities that have a shortage of medical help can qualify for loan forgiveness of up to $25,000 a year. In addition, many law schools have loan forgiveness programs for newly minted attorneys who take jobs in public interest law. If you have a strong interest in making a difference, then that commitment can also help you relieve some of your student loan obligations.

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Another Hint of Student Loan Troubles?

There's growing evidence that some student lenders were as overly enthusiastic as some mortgage lenders in the recent past. A revealing blog post by an employee of a company that makes private educational loans documents how lenders' dependence on Internet applications and computerized processing might have made it too easy for students to borrow too much.

Christopher Penn of the Student Loan Network says he dissuaded a potential commission-paying client from taking out $50,000 in student loans because Penn realized what he believes predictive software programs couldn't—that the student was probably paying too much for courses that were unlikely to increase his earning power enough to cover the $500-a-month loan payments.

Similar concerns about the industry were voiced last month by federal fraud investigators in Seattle. They charged that a ring of women who allegedly borrowed nearly three-quarters of a million dollars in fraudulent student loans took advantage of student lenders who were overeager and overly reliant on technology.

The credit crunch has forced many lenders to pull back and refuse loans to students they believe to be bad risks. It will take years to see if lenders have modified their software and lending rules too much, enough, or too little.

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Paydirt: Student loan locator

Paying for college is a brow-furrowing challenge. But it's particularly confusing this year. From interest rate resets to loan providers exiting the market, there's so much going on that you could spend your summer sifting through the news. Instead, allow me.

Colleges going direct: Despite all the news about turmoil in the student loan markets, Joe and Jane College should be able to find the money they'll need. No question it's been a tough market for financing student loans, and because there are fewer incentives for lenders to offer federally guaranteed loans, 119 outfits have exited or taken breathers from the business in recent months, according to Finaid.org Publisher Mark Kantrowitz's tally. But financial aid directors are doing everything in their power to ensure that students aren't left loanless.

The turmoil has renewed interest in the Direct Loan Program run by the federal government. Locally, Macalester College and the University of St. Thomas in St. Paul are making the switch to government loans to guarantee that students will have access to funds. Without the switch, almost four in 10 borrowers returning to Macalester would have needed to switch lenders for the coming school year. At St. Thomas, more than half the students would have been in the same boat.

New Web tools for loans: Students in need of private loans have a growing list of resources at their fingertips. Greennote.com lets students borrow money from their social network at a rate rivaling federally guaranteed loans without needing a cosigner or a credit check. The loans have a competitive fixed rate of 6.8 percent; borrowers also pay $49 or a 2 percent "document fee." Lenders earn 5.8 percent on their money after Greennote takes a 1 percent administration fee. Virgin Money USA's Student Payback service (www.virginmoneyus.com) allows parents to borrow money for college from their preferred sources and then sets up a formal agreement for the students to pay back all or part of that debt. File an application with Tuitionbids.com, and lenders will bid on your loan. Simpletuition.com lets you compare various loan types for the best terms.

As always, look to federally guaranteed loans before shopping for alternatives. And read the fine print, even though you don't want to.

Big changes

On Tuesday, a host of changes went into effect that should perk up the ears of students heading to school or making loan payments.

Rates went down: The fixed interest rate for new subsidized Stafford loans dropped Tuesday, from 6.8 to 6 percent; the unsubsidized rate stays the same, courtesy of the College Cost Reduction Act passed by Congress last year. The act cuts the rate in half over the next four years.

This will save Minnesota students entering college in 2008 an average of $2,510 in interest, according to U.S. PIRG, the federation of state Public Interest Research Groups.

Stafford loans taken out before July 1, 2006, have variable rates that reset each year. This year, the rate dropped 3 percentage points, to 4.2 percent. This means it's a fine time to consolidate. If you don't, that sweet rate could go up in July 2009. If you do, you'll lock in at 4.2 percent. Recent graduates within their six-month grace period can lock in at 3.6 percent.

There aren't as many lenders offering consolidation loans because of the unfavorable student loan market and borrower benefits for paying on-time or allowing e-payments have pretty much dried up. But you can consolidate directly with the government, through www.loanconsolidation.ed.gov.

Student loans? You're forgiven: Consolidating through the direct loan program is the road to loan forgiveness for students planning at least a decadelong career in public service. The list of details is lengthy, so do your homework The Project on Student Debt -- www.projectonstudentdebt.org -- is a good place to start.

The College Cost Reduction Act also provides upfront tuition assistance for students who commit to be teachers in high-need areas. Visit studentaid.ed.gov and look for TEACH Grant info. The same site also has a wealth of information about much of what I've covered here.

And speaking of free money, Pell grants for low-income students also increased, from $4,241 to $4,731. This is the first of five increases for the Pell.

Kara McGuire • 612-673-7293

By KARA McGUIRE

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Five Charged With $690,000 in Student Loan Fraud

A ring of five Seattle-area women has been charged with taking out more than $690,000 in fraudulent private student loans, raising concerns by some federal officials that the kinds of abuses that have hammered the subprime mortgage sector may also be lurking in the student lender field.

In an indictment filed in early June in Seattle's federal district court, prosecutors allege that beginning in 2005, Kathy L. Hardy, 59, of Renton, Wash., her two daughters, ages 35 and 20, and two 36-year-old associates filed more than 70 applications for private student loans, often using other people's names or Social Security numbers.

According to the indictment, the vast majority of the women's applications were unsuccessful. But it charges that at least 24 fraudulent loan applications were approved. In a search warrant recently made public, investigators allege that the lenders sent checks—some for more than $40,000—to the women's addresses.

Although made to students, private educational loans are simply standard business transactions, little different from, say, auto loans. Banks typically charge comparatively high interest rates but try to make the applications quick and easy. In contrast, to obtain low-cost federally guaranteed Stafford or Perkins education loans, the federal government requires that students fill out the extensive Free Application for Federal Student Aid, and it requires schools to certify much of that information. The federal government caps the amount it will loan to an undergraduate, typically at a few thousand dollars a year. In addition, federal loan payments are usually made directly to a college and aren't sent to a student's home address.

Investigators and prosecutors say the women took advantage of private lenders' eagerness to make big, higher-interest loans. They also believe the defendants took advantage of a wrinkle that makes fraud in student loans harder to catch than, for example, mortgage fraud. Many lenders allow students to defer payments for as long as they are in school, which can easily mean four or five years. That means borrowers with no intention of paying don't attract lenders' or identity theft victims' attention by defaulting quickly. Finally, the investigators believe the women were able to keep taking out loans for two years despite a trickle of complaints from identity theft victims in part because of the Federal Bureau of Investigation's shift in focus to terrorism, which has slowed prosecution of some other types of cases.

While the credit crunch and some reform proposals may make things tougher for future fraudsters, federal officials say the details of this case raise worries that "there are more cases like this out there." Joseph Velling, the Seattle-based special agent in the Social Security Administration's Office of the Inspector General, who spearheaded the investigation, said lenders approved loans based on applications that should have raised warning flags. "What I found surprising was that these checks were mailed to people living at addresses that hadn't been verified well enough. . . . Banks can check Social Security numbers and names" to make sure they match, for example, he noted.

Some of the fraudulent techniques alleged in the indictment and search warrant appeared to be sophisticated. Velling said, for example, that the defendants used Social Security numbers of people who have the same name or a similar name as the defendants. And the search warrant alleges that the women sometimes provided copies of doctored driver's licenses.

But the search warrant also charges that many loan checks were sent to the same addresses. And it says that in some of the applications, the applicants' names did not match Social Security numbers. Velling added that in at least one case, the Social Security number of a dead person was used.

He said the lenders' investigators became aware of the possible fraud but had trouble persuading federal agencies to take an official interest: "These companies are sitting on more fraud, but they can't get anybody to work them."

Velling said he happened to be working the Seattle FBI office on another case last fall when a call came in from a victim complaining that someone improperly had taken out a student loan in her name. The FBI asked Velling to lead the investigation. By teaming up with other federal and local investigators, as well as the fraud investigators employed by lenders, he says he found many other loan checks that went to the same home addresses or to people with similar-sounding names. "The applications were all done on the Internet. I don't know of one case where there was a face-to-face meeting," Velling added.

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July 1 Brings Record-Setting Drop in Student Loan Interest Rates

PHOENIX, AZ -- 07/02/08 -- Both new and current student loan borrowers of certain federal Stafford student loans saw two interest-rate drops go into effect yesterday that could save them significant amounts of money on these fixed- and variable-rate student loans. Borrowers with variable-rate Stafford loans saw the biggest rate drop -- three percentage points -- due to the general interest-rate cuts made by the Fed over the past year.

Borrowers holding both subsidized and unsubsidized variable-rate Stafford student loans -- those Stafford loans that were disbursed between July 1, 1998, and June 30, 2006 -- received their record-setting rate reduction when the interest rate on those student loans reset on July 1, as it does every year.

As a result of the rate cuts made by the Fed, borrowers with variable-rate Stafford loans that are in repayment or forbearance saw their interest rate drop from 7.22 percent to 4.21 percent. Borrowers with variable-rate Stafford student loans who are still in school, in their grace period, or in deferment saw the interest rate on their student loans go from 6.62 percent to 3.61 percent.

Borrowers with subsidized Stafford loans that were disbursed on or after July 1, 2006, also saw a reduction in their interest rate, albeit a much smaller one. The rate on these student loans, which was previously fixed at 6.8 percent, dropped to 6 percent yesterday and will continue to fall over the next four years for both new and current borrowers, eventually dropping to 3.4 percent in 2011.

This phased-in reduction to subsidized Stafford loan rates comes as part of the College Cost Reduction and Access Act of 2007, which also increased federal grant aid to needy students. The fixed rates on subsidized Stafford student loans will be incrementally reduced on July 1 each year until July 1, 2012, when interest rates are set to revert back to 6.8 percent, barring new legislation that keeps the rate reductions in place.

Unsubsidized Stafford student loans are unaffected by the legislation. Unsubsidized student loans are those in which borrowers are responsible for all interest that accrues, even if they are not currently required to make any payments on their student loan, as when they are in school at least half time or in an authorized period of deferment. With subsidized college loans, on the other hand, the government will pay any interest that accrues while borrowers are in school at least half time, in an authorized deferment period, or in the grace period they are granted after leaving school, before they must begin repayment on their college loan.

The interest rate on unsubsidized Stafford loans that were disbursed on or after July 1, 2006, remains fixed at 6.8 percent.

Yesterday's rate reductions also apply to federal consolidation loans, which allow borrowers to bundle all their eligible federal college loans -- both fixed-rate and variable, subsidized and unsubsidized -- into one single student loan with a fixed interest rate. Those who consolidate their Stafford student loans while in their six-month grace period could consolidate at a fixed rate as low as 3.61 percent.

"This is not only the biggest drop ever in the in the interest rates on variable loans," says Mark Kantrowitz, publisher of the financial aid website FinAid.org, "but the lowest rates in the history of the student loan program."

About NextStudent

NextStudent, Federal Lender Code 834051, is dedicated to helping students and their families find affordable ways to pay for college. NextStudent offers one-on-one education finance counseling and has a portfolio of highly competitive education finance products and services, including a free online scholarship search engine, private student loans, and information on parent loans, student loan consolidation programs, and college savings plans.

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Sallie Mae affirms commitment to provide federal student loan access to all students, all schools

Company ready to process applications for Stafford loans with new, increased loan limitsRESTON, Va., June 10, 2008
Sallie Mae, the nation’s leading saving- and paying-for-college company, today reiterated its commitment to fund every eligible federal student loan application received from every student at every school for the upcoming academic year.

“Some lenders have ceased lending to certain school types, such as two-year and proprietary institutions. We want students at those schools to know that we will lend to all students at all schools who need a federal loan to pay for college, just as we have for the last 35 years,” said C.E. Andrews, president, Sallie Mae.
Source: salliemae.com

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Budget 2008: Student loan borrowers keep propping up loan program

With yesterday’s budget, the federal Conservatives have now put their own stamp on student aid in Canada by tweaking the Canada Student Loans Program (CSLP), sinking the Millennium Scholarship Foundation (MSF), and injecting millions into a restructured loan program. The only problem is, the money will be going right back into the very Ministry that has already proven itself to be inefficient and unresponsive to the needs of students.

In addition to the over $300 million in cash the CSLP will receive after the MSF dies, another $100 million will now be earmarked for an as yet undefined “modernization” strategy. Here, voters might ask this question: after dozens of meetings with post-secondary groups, and thousands of e-mails from Canadians across the country, why is it that the feds are still unable to define exactly what is wrong with the student loan program? In any event, insiders say that this is really a slush fund aimed at those provinces which still haven’t signed on to integrated loan programs — many still have concerns about how much flexibility they will lose if such agreements are signed with the federal government.

Equally concerning is the government’s new eligibility system for loans, which will see millions more in grants going to middle-income students, with fewer dollars flowing to lower-income students.

This is not exactly what the CSLP was envisioned to do, but in a seemingly unending election cycle, more cash for future Conservative voters and their parents just makes good political sense — or should we say, cents!

Another key initiative will be more than $20 million in cash for a shiny new CSLP website — which will largely do what the old one did: tell you what your sky-high balance is, how much interest you owe, and when your next payment is due.

Meanwhile, borrowers looking for a more responsive student loan system, complete with an Ombudsperson Office, can forget it. Even though the United States established one in 1998, Canadians will have to continue to rely on the Member of Parliament for escalated student loan disputes. This is a bitter pill for stakeholders, since an Ombudsperson would have been one of the easiest and least expensive initiatives the Conservatives could have implemented — making the system more transparent and accountable.

Those who will continue to escape accountability, however, include the dozen or more ruthless collection agencies commissioned to recoup millions in interest and principle on defaulted student loans — indeed, no new regulations are planned in the budget to address the activities of these frequently unscrupulous agencies, seeking to extract a few more dimes from borrowers.

But where will all the cash come from for all these new and expensive initiatives? After all, the Finance Minister himself has said these are difficult economic times.

Well, it will come in large part from struggling borrowers in repayment.

Currently, well over $300 million in interest is drained from the pockets of cash-strapped borrowers each year — about the same amount being dolled out by the now defunct Millennium Scholarship Foundation. In a true twist of fate, borrowers who graduate from post-secondary school and end up in low paying jobs also end up paying the most interest — often extending their repayment periods by several years just to stave off default.

And this isn’t pocket change we are talking about either. Consider this: a borrower with a loan of $40,000 dollars, paid back over ten years, can expect to pay over $18,000.00 in interest. If the budget had cut the interest rate by 2.5 per cent, it could have saved this borrower as much as $6,000 in interest. In turn, this borrower’s savings could have been invested in the Canadian economy, purchasing goods and services, or put towards the borrower’s principle loan balance.

Please forgive borrowers, too, for not jumping on the government’s new tax-free savings accounts — as studies already show they are saving less in RRSP contributions precisely because of mounting student loan debt.

Quite simply, student loan borrowers are a lucrative revenue source for the feds, and just like any other tax on the poor, the system appears willing to continue gouging Canadians for years to come.

So the next time you meet a student loan borrower paying 8.25 per cent in interest or more on their loan, thank them for subsidizing the existing loan system — they are doing it whether they can afford it or not.

Budget 2008: Student loan borrowers keep propping up loan program
By Julian Benedict

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Pres. Bush’s FY09 budget makes some student loan changes

Here’s a brief outline of some changes in the proposed Fiscal Year ‘09 budget:

Increase Pell Grant for 2009-2010 school year to $4,310
Eliminate the Perkins Loan
Limit public sector loan forgiveness to loans originated on or after July 1, 2009
a 50-percent tax credit for the first $2,000 that moderate- and low-income parents invest per year in 529 tuition-savings accounts
$70 million to train teachers to teach Advanced Placement and/or International Baccalaureate courses as well as expand lower-income students’ access to these courses

This is just a small selection of what the President proposed - now comes the political wrangling to determine what actually happens
some student loan changes.

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citibank student loans:Ch 7 Student Loan Question

Question:
If a person was a co-maker in a student loan ( not the student ) and they filed for Chapter 7, included the student loan debt and recieved a discharge, is the "student" still 100% liable for the loan

Answer:
You guys and this student loan stuff need to clarify the type of student loan. These so called private credit based education loans as they are called are nothing more than a commercial consumer loan that is dischargeable. - Yes. Moreover, unless the court discharged the student loan in a separate - proceeding to determine the dischargeability of the student loan the Maker - is also still liable. The basic discharge does not reach the student loan - obligation. - You guys and this student loan stuff need to clarify the type of student - loan. These so called private credit based education loans as they are - called are nothing more than a commercial consumer loan that is - dischargeable. I try to be fairly complete in my replies, but in this instance I didn't see anything that would lead me to believe that the OP's question was related to anything but a "student loan." How could you tell the OP was asking about a loan not covered by 523(a)(8)? (a)

discharge under section 727, 1141, 1228(a), 1228(b), or

1328(b) of this title does not discharge an individual debtor from

any debt - *** (8)

for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless - Because there needs to be a clarification on just exactly what constitutes a student loan. They are not all the same. In Iowa for example it is written right into the law that credit based private student loans are a consumer loan. I don't know what kind of loan is being discussed here either but they shouldn't be painted with the broad brush that ALL student loans are not dischargeable. Wells Fargo tried that with me and lost in two venues because they were these credit based private education loans. Bankruptcy court and state court both refused their claims.This was one of those citi-ist student loans by citibank, the college was - a private college .any change there? Although the rules may vary a bit depending upon where you reside, you'd at least need to know whether a governmental or nonprofit agency was instrumental to the availability of the loan in question. To illustrate: Northwest Bank is/was a for-profit entity, but its involvement in student loan funding is/was part of a complex multiparty agreement that included at least partial funding from nonprofit institutions. In the 9th Circuit, this partial nonprofit funding was held to be sufficient to bring Law Access program loans under the exception from discharged articulated in 11 U.S.C. 523(a)(8).

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CitiAssist ® Loan :Student loan

private CitiAssist® Loan can help cover unexpected student expenses – from tuition to books. You make no payments while you are in school and you can get competitive interest rates:¹

• Low variable interest rates .

• Interest rate reductions of up to 0.75%

• Fees as low as 0.00%

• A creditworthy co-signer can improve the likelihood of approval and potentially lower your interest rate

Best of all, we work with your school to help you borrow only what you need so your payments are more manageable later.

Apply online today! It's quick and easy, and you get a credit response in three minutes or less.²

To learn more, call 1-800-STUDENT, Monday through Friday from
8:00 a.m. to 11:00 p.m.




¹For CitiAssist Loans, the interest rate and fees charged are based on the applicants' credit scores. Interest rate reductions of up to 0.75% include a 0.50% interest rate reduction when the first 48 consecutive monthly payments are posted to your account by the due date and a 0.25% interest rate reduction when a borrower enrolls in our auto-debit payment program and agrees to only receive electronic statements. Co-signers may be released from a loan if the borrower has made the first 24 consecutive monthly payments by the due date, is creditworthy and is a U.S. citizen or permanent resident at the time the release is requested. To retain the borrower benefits and avoid late fees you must make and have your payments posted to your account no later than the scheduled due date. Any payment posted after the due date will result in the termination of such benefit. Interest rate reductions do not apply during periods of deferment and/or forbearance and automatically terminate for payments returned for insufficient funds, or upon loan delinquency or default.

You may apply for a loan on your own. However, if you do not have an established credit history you may apply with a qualified co-signer to potentially receive a lower interest rate. The interest rate and fees charged are based on the applicants' credit scores. International borrowers must always apply with a U.S. citizen or permanent resident co-signer.

We reserve the right to modify or discontinue benefit programs at any time without notice. Any termination or modification of the program will
not affect the terms of loans previously made. Specific terms and conditions apply, visit studentloan.com or call us at 1-800-967-2400.

²Borrowers may apply online at any time. The three-minute credit response is for applications submitted Monday to Friday from
7:00 a.m. to 11:00 p.m. E.T. Additional documentation and data verification may be requested for loan approval.

Private student loans are originated by Citibank, N.A. and assigned to The Student Loan Corporation.
CitiAssist ® Loan
form
The Student Loan Corporation

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Student Loan Worries Overblown: ESI Is A Buy

Education stocks have been hammered over the last few months. I’ve looked into many stocks in the industry, but this article focuses primarily on ITT Educational Services (ESI) as I like it’s current valuation relative to its primary competitors Apollo Group (University of Phoenix) and Devry (DV), both of which are looking more and more attractive each day as well.

The for profit education industry is highly regulated by the Department of Education. They impose strict requirements on recruiting, marketing, educational offerings, ability to add new institutes, and the financial condition of the company (must maintain certain financial ratios, debt levels, etc.). All this aside, the primary industry risk these days is all about student financial aid, the primary vessel all of these companies thrive and rely on. Without it, their businesses would not be the same. The uncertainty that exists appears to only concern the private lending sector (for the time being). Federal aid should continue without any major impact. This has all come about from Sallie Mae's (largest private lender, no longer government sponsored) announcement last January that it is terminating its lending arrangements with many of the companies (if not all of them) within the industry.

Approximately 63% of ESI's revenues come from Federal student financial aid programs (Title IV programs --- comprised primarily of Federal Family Education Loan Program (FFEL) loans but also in part by work-study programs and pell grants). These revenues should be safe. Remaining revenues come primarily from private loans (~29%, historically all from Sallie Mae), and the rest from student/family savings, scholarships, etc. In order to remain eligible to participate in the Title IV programs, companies must not earn greater than 90% of their revenues from the programs. So, ESI is well within the buffer zone and gave guidance on their 4th quarter conference call that they expect this percentage to stay around the same levels in 2008. In addition, the default rates on federal student loans must remain below 25% to remain eligible. Three consecutive years with rates above 25%, or one year with default rates above 40% would cause ESI to lose eligibility to participate in the program (at least temporarily). The range of default rates on federal loans among the various campuses have increased from 4.5 - 10.2% in 2003 to 5.5 - 12.9% in 2006. No major cause for concern here...still well below 25%.



In January 2007, Sallie Mae announced it was changing its private lending strategy and was effectively terminating its lending agreements with ESI in late February. So, from above, that places 29% of ESI's revenues at risk if students cannot find alternative sources of financing. In an 8-K filed late Friday after the close, ESI revised it's earnings guidance to the downside for 2008 to a range of $4.10-4.60 from $4.50-4.60, and stated that Sallie May has disclosed that 16.7% of the loans made in 2007 are now being classified as, you guessed it, subprime loans. So, that translates to 4.9% of the company's top-line that is relying on sub-prime borrowers to pay back. ESI announced in January that it has made arrangements with 3 major financial institutions (BAC, Chase, Citi) to provide loans to students that traditionally would have received loans through Sallie Mae. The 8-K also states that one of these three lenders has already begun making loans to students, but that it does not have any data yet as to how many of the students applying for these loans are actually qualifying for the loans. The lenders have no contractual obligation to lend money, but at the same time ESI will not have to pay for the underwriting or share any of the default risk on the loans that are made (the Sallie Mae agreement that was just terminated DID share default risk, so this is actually an improvement in my mind). It will however, in all likelihood, have to extend it's own loans to students that have traditionally and historically been able to acquire financing but no longer can in the current credit environment (so when students don't qualify for loans by BAC, Chase, or Citi, the company itself will now provide the financing). They stated this on their 4th quarter conference call, when they mentioned they expect they will have to "fill the gap" between loans that their students could have historically obtained but can no longer do so through traditional methods. They stated that they have 20+ years of solid data reflecting student loan default rates, who quality candidates are, who they are likely to retain, who is most likely to succeed, and who the most likely candidates are to be able to pay back their loans. They did not provide guidance on what they think this gap will be. I think this fact that bodes very well for ESI --- they probably know better than the banks themselves (and who trusts the banks' judgments these days) how to determine who the risky candidates are and so it theoretically shouldn't matter what is going on in the credit markets (and trust me, there IS still a market for these loans) if they truly are willing to "fill the gap". They themselves will pick up the slack and hopefully allow business to continue as usual. True, they will now be taking on some credit risk, but it does not mean in any way that it will be sub-prime credit risk. If the banks are too scared or not willing to take on more student loan exposure for some external reason, the company will step up and do so itself (if and when their own stringent lending requirements are still met). That said, I would bet the banks still approve the majority of these loans to qualified candidates. In the end, it is a risk weighing game and would you rather loan money to a student with a short but decent credit history who is trying to better themselves (and who will probably get a job out of the deal and be able to pay you back), or loan money to someone with equal credit trying to buy a house they probably can't afford and that will probably be worth less next year than it currently is today.



So, what has happened in the last two months? All of the stocks in the industry have taken a beating and ESI itself has lost nearly 50% of its market value. I agree that these stocks should be valued lower than they were 3 months ago in light of this new development...but 50% is pushing it. Fundamentals still appear to be very strong almost across the board for most companies in the industry. They all have their own differentiating factors and unique situations, but all-in-all business still seems to be pretty good. Underlying industry trends and the long-term outlook for continued growth in the for-profit education space still appears intact. These companies continue to grow their businesses and most are generating steady and increasing cash flows / earnings streams.



Other Items To Note:

* ESI had 5,000,000 shares remaining on its authorized buyback as of Dec 31st, 2007. Should help support the stock. From Jan 31st to Feb 15th of this year, ESI bought 810,000 shares back at an average price of $84.51. They obviously think the shares are cheap.



* A director purchased 1000 shares at the $83 level on Jan 31st. He bought 500 shares this time last year at $76 and 700 shares in May of 2006 at $65, so I don't read too much into this.



* ESI's student enrollment rates increased by 5%, 9%, and 13% in 2005, 2006, and 2007 respectively. They have also been able to increase tuition rates by about 5% annually it appears.



* ESI is presenting at a Credit Suisse conference on Monday. They plan to highlight their current perspective regarding the on-going availability of private student loans. With the revised guidance to the downside after hours on Friday, we may see more selling on Monday. Or maybe 4.9% revenue risk is less than the street was expecting and we rally...but I doubt it. In light of my above rationale and the valuation I describe below, Monday could be a great time to initiate a position in ESI if the shares gap lower. I'd probably advise waiting until Tuesday or Wednesday though to see if the shares can bottom and find some support as the selling subsides. Catching a falling knife can be difficult and bloody, so start small and realize that this may not be a trade you can flip for a profit anytime soon.



* A larger and perhaps more popular competitor, Apollo Group (APOL - University of Phoenix), reported last Thursday that it hasn't seen and does not expect to see any changes on the Title IV loan side. On the private loan side, it has started to see some tightening of lending standards, but so far students have been able to find the loans that they need. Apollo trades at 23.9X trailing 12 month earnings and has a 5 yr projected growth rate of 15% according to yahoo finance, putting its PEG ratio around 1.6.



* An argument can be made that this one of the more recession proof industries in the consumer services sector. Higher unemployment and/or lower wages could cause more people to decide to go back to school for a bit until the job market improves. It's sort of a stretch, but worth noting.



Relative Valuation:

ESI closed at $58.47, or 15.8X trailing twelve month earnings per share of $3.71, at the low end of its historical range. Analysts expect 2008 earnings of $4.54, and have five year projected growth rates that vary between 16 and 19% (19.3% according to yahoo finance). So let's use $4.30 for 2008 earnings, and a growth rate of 16%. Industry average multiples are around 20X currently, but historically have easily supported 23-25X earnings and have traded much higher than that at times as well. So a conservative estimate of 20X 2008 earnings of $4.30 would put the shares at $86, or 47% above current levels. Analyst price targets currently range between $100 and $120/share. At current levels of $58, we are trading at 13.5X 2008 earnings which is ridiculously low. At a 16% five yr growth rate, the current PEG is right at 1.0. Industry averages are around 1.5.



Absolute Valuation:

This is a good industry for free cash flow valuation because most of the companies within it do not pay dividends and they generate positive and consistent free cash flows on an annual basis (quarterly results can be impacted by seasonal enrollment trends). I'm not real big on complicated valuation models because tweaking one or two inputs in even a slight way can yield very different results. So, below is a graph with various long-term free cash flow growth rates based upon a basic single stage FCF model. If the firm only grows at 3% indefinitely, in-line with the overall economy, the shares would be valued at roughly $63. This assumes a capex to depreciation ratio of about 1.5 (historically levels are closer to 2.0). If capex were to eventually slow to a 1:1 ratio in order to just maintain the business, the value would jump to roughly $68 at a 3% terminal growth rate. If you assume elevated growth relative to the economy for several years, for which I think a strong argument could be made, and use a terminal growth rate of 4% or 5%, today's present value would be $81 or $105/share, respectively. So, take this for what you will, but understand that the shares currently trade at levels towards the extreme low end of probable long-term valuations. Most analysts would probably use a terminal growth rate of 4% for a company like this...the valuation would be $81 based on that assumption.




Summary:

Most competitors appear to be in decent shape as well, but ESI is currently the most undervalued based upon my analysis. It's obvious that I think the shares have been discounted way too much for the actual risk posed to the business. This isn't some black box bank with hard to value assets...it is a fairly transparent and easy to understand organic growth story. The business landscape is indeed changing, but it is not going to go away anytime soon. The technical picture is ugly, so I am simply going to ignore it --- this is a long-term investment and I expect it to take time to recover. I will be adding on further weakness and re-evaluating as the year progresses and as we continue to learn more about how the lending situation is playing out. My bet is that business will fare much better than the street is currently pricing in. The shares are likely to trade sideways or to the downside until some of the uncertainty around the private lending situation is cleared up, but I think the current levels offer a good risk/reward if you take a long-term view. My 12 month price target is $85 based upon both valuation methods, which I feel are fairly conservative.

Disclosure: Long ESI and will be adding below $58.

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Bush signs student loan bill

The President signed the bill this afternoon. Here are some aspects that might affect you:

Stafford Loans:

Changes apply to loans disbursed on or after July 1, 2008
It raises annual borrowing limit for unsubsidized Stafford loans for dependent undergraduate students (or students whose parents can’t obtain federal parent loans because of poor credit) by $2,000 to $6,000 for 1st year& 2nd year, and to $7,000 for 3rd, 4th and beyond.

It increases the aggregate amount an undergraduate dependent student may borrow under the unsubsidized Stafford loan program to $31,000.
It increases the annual borrowing limit for unsubsidized Stafford loans for independent undergraduate first and second year students (or students whose parents can’t obtain federal parent loans because of poor credit) by $2,000 to $6,000
It increases the maximum annual amount for undergraduate independent students who have completed two years of study also by $2000 to $7000.
It increases the aggregate amount of unsubsidized Stafford loans for an undergraduate independent student to $57,500.
It provides for a period of deferment until 6 months after the child on a PLUS loan drops below half time or graduates.
There are several other provisions I won’t get into here, such as Lender-of-Last-Resort and creating an artificial secondary market for student loans at the taxpayers’ expense.

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Student Loan

The rising costs of college tuition have made it almost a necessity to apply for a student loan today. Students not only have tuition costs, but the cost of books, meals, gas, cell phones, recreation, etc. The variety of student loans enables students to take care of their varying college expenses. A student loan however, is a loan that must be repaid under specified circumstances.

A Direct Student Loan is a loan with a schedule of repayment six to nine months after the student has completed school. The Direct Student Loan is distributed through the school the student is attending, which enables the interest rates to be much lower than a Guaranteed Student Loan.

Guaranteed Student Loans, also known as Stafford Loans have a low interest rate. A student can apply for a subsidized or unsubsidized student loan. A subsidized loan means the government pays the interest for you while you are in school. The subsidized student loan is based on the students financial need. An unsubsidized student loan means you will be charged interest while you are attending school. The principal must start being paid after you have finished school. Both types of student loans need to start repayment six months after the student has finished college.

Federal Parent Loans or PLUS loans as they are known is a student loan not contingent on your income, but lenders do consider personal credit history. Parents or guardians who have a dependent child enrolled in college at least part-time are eligible for the PLUS loan. The interest rate is 9% or less.

Virtually any school or program will allow you to utilize the Direct Student loan, Guaranteed Student loan or PLUS loan. It is very important to thoroughly research all available options for funding long-term education. Your future is tied to your funding, which is your student loan.


By John Williams

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Student Loan Scandal Dissipates in Congress

By: Gaurav Bhola, MSM, Managing Editor


As the student loan scandal of 2007 fades into oblivion, students and their families are still not any closer to getting the comprehensive reforms Congress and the regulators promised. Last year, an investigation led by New York Attorney General Andrew Cuomo into the college loan practices of private loan lenders and universities finally brought into the spotlight this diabolical coalition. A New York Times expose lead to Cuomo’s inquiry which revealed that some schools were receiving bribes from lenders in return for steering students to their loan programs.


The investigation revealed financial aid officials and other college officers receiving direct kickbacks from certain lenders in the form of trips, stock options, lunches, and so on.


However, the New Year has been dominated by other headlines; the student loan “scandal” seems forgotten. Meanwhile, Cuomo has moved on to greener pastures. And Congress’s impetus has also cooled, even though some action had been taken by them for example ending the government subsidies given to private school lenders.


Still, college and university loan lenders are not out of trouble yet. The U.S. Department of Education is beginning with administrative inquiries and enforcement actions that will become prominent in 2008. In the latter half of 2007, Congress and the General Accountability Office, amplified their oversight of the schools and the private lenders, as the Federal Student Aid (FSA) office sent official letters to 921 colleges whose school loan volume was mostly, if not completely, with one private lender.


The letters were serious in tone and message, intending to remind universities that their actions had to take into account only students’ interests and mustn’t violate the Higher Education Act of 1965 and its amended regulations. Out of the original 921 colleges, 55 colleges and 23 lenders received notification requesting documents and information that may show documentation of improper allurements and inducements of financial aid officials. It is likely that there will be some enforcement action by the Education Department in 2008.


But the U.S. Congress has more power to bring about change than a federal government department. For example, last year Congress passed an amended version of the Student Loan Sunshine Act. by a vote of 414-3, the bill would force colleges and loan lenders to follow stringent codes of conduct; provide full disclosure of school-lender alliances; ban lender gifts to financial aid officers; and protect students from perpetual marketing practices.


The current state of the economy has shifted the focus in Congress from the student loan industry discrepancies. The government is concentrating instead on the credit crunch, housing and mortgage markets. The remedy of the college loan industry is an afterthought, no longer on their radar. While, Congress shows apathy towards the students and their families, certain private loan lenders and colleges rejoice in the legislature’s disinterest.

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Reap Some Rewards: Get a Scholarship

Most high school graduates think that scholarships are reserved for superstar football quarterbacks or academic wunderkinds. Fortunately, for the 99.9 percent of high school graduates who don't fall into those two categories, there are hundreds of different scholarships available. Even if you don't finish first in the race for grants, there are student loan options that can help overcome tuition hurdles.

More scholarships than you can shake a syllabus at
The volume of scholarship opportunities has boomed in recent years. There are new scholarships based on a variety of categories, including:


Academics. (Generally given to students with high Grade Point Averages and excellent standardized test scores.)


Athletics. (Not only traditional sports like football and basketball, but less popular endeavors like golf, crew, and track can score you some aid.)


Financial need. (Based on a student's finances. Can help low-income grads to attend prestigious universities.)


Demographics. (Local organizations award hometown heroes grants on a yearly basis.)

Other options include scholarships based on military service, the arts, and various occupations. Do some surfing on the Internet. You'll be surprised at how many different types are available, including scholarships for left-handed students and the Klingon Language Institute scholarships. Don't be afraid to boldly research where no man (or woman) has gone before.

Create a fallback plan
If none of these scholarship programs work out, there are plenty of student loan packages available to you. A student can choose government programs, such as the Stafford Loans (given to students) and the PLUS Loans (for parents). There are also private student loans, which compete with government loans in terms of rate, but generally involve less paper work.

The early bird catches the worm when it comes to scholarships; so if college looms, it's best for a student to start a scholarship search early. Check with local lenders regarding the best time to apply for a student loan. Consider both options, and you'll have passed this crash course in financing a college education. Besides, it never hurts to have a bird's eye view of your financial options.

By: MortgageLoan.com

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U.S. ready for emergency student loan advances

The U.S. Education Department will be ready to process emergency advances for student loans by June 1, the Wall Street Journal said on Monday, citing a letter to be sent Monday to state agencies that would enforce the program.

Under the plan, the Education Department would temporarily be allowed to pump liquidity into the sluggish secondary market for federally guaranteed student loan debt.


The move comes under a student loan market stabilization plan that is aimed at helping lenders who have warned of a potential loan shortage in coming months as millions of students seek financial aid for college.

The plan, expected to be signed into law, is also meant to let the Education Department funnel capital for loans to state guaranty agencies under a "lender of last resort" program for students and for colleges if they faced loan shortages from other sources.

Education Department officials were not available immediately for comment.
U.S. ready for emergency student loan advances: report

(Reporting by Aarthi Sivaraman; Editing by Quentin Bryar)


NEW YORK (Reuters)

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Student loan plan goes to Bush

WASHINGTON (Reuters) - The Bush administration will get broad price-setting powers under a student loan market stabilization plan given final approval on Thursday by the U.S. Congress, lifting the stock prices of student loan providers.

The House of Representatives voted 388-21 to approve the bipartisan legislation that next goes to President George W. Bush, who is expected to sign it into law.

Bush said he was pleased Congress had quickly passed the measure he says could potentially help millions of students.

"By granting the Department of Education greater authority to purchase Federal student loans, today's action should ease the anxiety many students may feel about their ability to finance their education this fall," Bush said in a statement.

The plan is aimed at helping lenders such as Sallie Mae get through a rough patch in the capital markets.

Hit hard by subprime mortgage crisis fallout, lenders have warned of a potential loan shortage in coming months as millions of students seek financial aid for college.

Under the plan, the U.S. Education Department would temporarily be allowed to pump liquidity into the sluggish secondary market for federally guaranteed student loan debt.

That would assist lenders, such as Sallie Mae, which depend on that market to raise new capital to make new loans.


The bill would also let the Education Department funnel capital for loans to state guaranty agencies under a "lender of last resort" program for students and for colleges if they faced loan shortages from other sources.

Some college financial aid experts are concerned about the leeway the administration will get under the plan.

"This is an industry that has taken the taxpayers to the cleaners for years," said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

Robert Shireman, executive director of the Project on Student Debt, a financial aid research and advocacy group, was more charitable about the widely supported plan.

"I don't see what Congress has done as a bailout. I see it as securing backstops we already have in existence," he said.

How the Education Department carries out the plan will largely determine whether or not it begins to look like a bailout for the $85 billion student loan industry, he said.

SALLIE MAE SHARES RISE

Sallie Mae shares closed up 7.8 percent. More diversified lenders also rose. In broadly bullish New York Stock Exchange trading, Bank of America Corp rose 4.9 percent; Citigroup Inc, 4.2 percent and JPMorgan Chase & Co 3.4 percent.

Sallie Mae Chief Financial Officer Jack Remondi told Reuters in an interview the legislation "gives the department pretty broad authority to do different things."

"It could involve everything from buying perhaps participation interest in loans to actually buying whole loans. They will have to decide which direction," he added.

In a related matter, Federal Reserve Chairman Ben Bernanke told Senate Banking Committee Chairman Christopher Dodd that Congress might want to revisit the issue of government subsidies paid to student loan providers.

Bernanke's April 25 letter to Dodd, a Connecticut Democrat, was made public on Thursday. In it, Bernanke said recent student loan market problems stem from many causes, including cuts made last year by Congress in lender subsidies.

"Congress may well wish to revisit the question" of whether setting hard subsidy levels for loan providers is the best approach, Bernanke said, suggesting a more flexible policy in which subsidies could adjust according to market conditions.

Student loan plan goes to Bush
Thu May 1, 2008 7:53pm EDT
By Kevin Drawbaugh and Rachelle Younglai



(Editing by Andre Grenon, Phil Berlowitz)

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Student Loan Corporations

A student loan corporation is a complete financial aid services company that manages loan applications of students and client accounts. There are also a number of student loan corporations that act as civic services and are a part of the state funded loan programs. Example of a student loan corporation would be the Kentucky Higher Education Student Loan Corporation which is a non profit student loan processing service works for the Kentucky State government.

Like other educational loan services, these student loan corporations give students advice on saving for a college education, choosing and applying for the right kind of student loan. They also give detailed and comprehensive information on repaying the loan and at times give options on how to apply for debt consolidation loans.

The Student Loan Corporation is a subsidiary of Citibank and is one of the leading educational lending institutions in the country. They manage the loan accounts of millions of students and thousands of educational institutions. At present, Citibank, in conjunction with the Student Loan Corporation, has joined forces with Yahoo to offer students an online Student Resource Center.

Any student loan corporation handles the business end of college funding. It is an enormous undertaking for each bank, college and university to manage their student loans. The technological demands of such an undertaking have increased the need to outsource data management and critical account services. The business of student loans is a specialized branch of the banking industry. Therefore, most private banks have also become involved in the student loan business.
By Nigel Kerry

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Student Loan Consolidation Is Great Money Management Which Save Money and Time With a Loan

Finished College and you need to reduce your student loans? Student Loan Consolidation is a great way to manage your money after you have completed school. With current history low interest rates your student loan consolidation couldn’t come at a better time. You can combine federal and private loans under a single low monthly payment. Student Loan Consolidation Is Great Money Management which save money and time with the loan consolidation.


With your student loan consolidation you can save money and pay federal and private student loans off at the same time. With interest rates at record lows you can benefit with low monthly payments. After graduation consolidation loans can help reduce the stress of repaying by putting all your student loan all under one easy monthly payment. Everyone saves time and money with a loan consolidation.

Making the right step to reducing your student loan can make your future alot easier by going with a consolidation loan. Take the time to benefit from a student loan consolidation. Student Loan Consolidation is great Money Management which save money and time with a loan consolidation The stress can all be reduced with a loan consolidation and you will save money monthly with a lower payment overall. Apply for your consolidation loan today!!

By Ken Bissonette and Deidre Bissonette

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