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Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.© 2014 Sallie Mae Bank. All rights reserved. Kurt Hansen, Senior Director.

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Presentation on theme: "Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.© 2014 Sallie Mae Bank. All rights reserved. Kurt Hansen, Senior Director."— Presentation transcript:

1 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.© 2014 Sallie Mae Bank. All rights reserved. Kurt Hansen, Senior Director Partner Channel ECONOMIC OUTLOOK CONFERENCE The Dynamic Landscape of the Student Loan Market OCTOBER 8, 2014

2 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 2 ► How America Pays for College ► Market Intelligence ► Washington Update ► Sallie Mae Navient Split ► Corporate Central Student Loan Program Agenda

3 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.© 2014 Sallie Mae Bank. All rights reserved. Conducted by Ipsos Public Affairs HOW AMERICA PAYS FOR COLLEGE 2014 Sallie Mae’s National Study of College Students and Parents SEPTEMBER 2014

4 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 4 Study Objective ► Determine how American families are paying for college –Trend over time behaviors and attitudes related to the purchase and value of higher education Methodology ► Seventh annual survey and report ► Quantitative telephone interviews conducted April-May 2014 –800 undergraduates enrolled AY , ages –801 parents of undergraduates ► Composite of how the ‘typical’ family pays for college is a mathematical representation created in 2008 and applied consistently each year. –The composite illustrates the proportion of funding by category that pays for all college costs across all families. Background Research

5 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 5 ► Belief in the value of college is unwavering ► Families continue to make choices to control their costs ► Families are not ‘sharing’ responsibility for payment as much they think they should College is an investment Research

6 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 6 Values and attitudes toward attending college

7 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 7 Average annual amount paid for college, by school type, over time

8 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 8 ► 68% eliminated colleges due to cost at some point during the selection process ► 77% attend college in their home state –61% chose a school close to home to reduce transportation costs –54% live at home –Of those not living at home, 41% added a roommate ► 28% have accelerated their course work ► 66% of students reduced their personal spending Cost-saving choices Research

9 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 9 Shared responsibility: what families say, and what they do Research *includes gov’t/other financial aid

10 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 10 Parent economic worries Reesarch

11 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 11 How the typical family pays for college, funding source share Research

12 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 12 ► 21% of families reported using only out-of-pocket funds this year (parents, students, relatives)—no borrowing and no scholarships or grants ► 81% of families filed a FAFSA –Freshmen: 84% –Among those who did not file a FAFSA, 15% report applying for some type of financial aid ► 66% of families reported using some type of grant or scholarship –80% report receiving something from school –75% report receiving something from a non-profit –61% report receiving something from the state Role of financial aid Research

13 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 13 Proportion of families where the student borrowed AY Research

14 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 14 ► Northeast –More likely to plan –Spend the most –Highest rate of parents contributing to pay college costs ► South –Lowest 4-yr private college enrollment –Highest usage rate of scholarships/grants –Highest proportion of first-in-family ► Midwest –Highest rate of FAFSA filing –Students most likely to contribute to their own education both through borrowing and out-of- pocket ► West –Lowest rate of parent contributions –Lowest overall spending –Highest rate of enrollment in 2-yr public colleges Key differences in behavior by region of the country Research

15 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 15 Planning attitudes and behaviors differ by region Research

16 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 16 SallieMae.com/HowAmericaPays Research

17 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.© 2014 Sallie Mae Bank. All rights reserved. MARKET INTELLIGENCE

18 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► The high school graduation rate has increased annually since AY 06/07 ► 4% growth between AY 08/09 and AY 09/10 ► 2% growth between AY 09/10 and AY 10/11 ► 1% growth between AY 10/11 and AY 11/12 High School Graduation Rate Sources: Digest of Education Statistics 2013; Table 122

19 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. High School Graduates Who Enroll in College Sources: Digest of Education Statistics 2013; Table ► In AY 12/13, the number of high school graduates increased by 4%, however the number of those students who enrolled in college declined by 1%. ► The number of students enrolled in 4yr schools declined by 8% ► The number of students enrolled in 2yr schools increased by 16% 8% 16%

20 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Education Attainment Levels for Year Olds ► The percentage of the population that has received a high school diploma increased slightly in AY 11/12 but remained flat in AY 12/13 ► The percentage of the population that has received a bachelor’s degree increased slightly in AY 12/13 Sources: Digest of Education Statistics 2013; Table

21 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► There is a clear correlation between level of education and unemployment rate ► In 2013, the unemployment rate for individuals age who had only completed high school was 18%, whereas the unemployment rate for those with a bachelor’s degree was only 7% ► In 2013, the unemployment rate for individuals age who had only completed high school was 12%, whereas the unemployment rate for those with a bachelor’s degree was only 4% Unemployment Rates by Education Attainment Sources: Digest of Education Statistics 2013; Table

22 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► In Fall 2012, there was a slight increase (.73%) in overall postsecondary enrollment after a flat year prior. ► In Fall 2012, there was a slight increase in undergraduate enrollment (.96%), but a slight decrease in graduate enrollment (-.69%) Actual Graduate and Undergraduate Enrollment Through Fall 2012 IPEDS Fall Enrollment Survey (actuals through December 2012, released May 2013)

23 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► The overall increase in fall enrollment among degree-granting institutions was driven by both For-Profit enrollment (11% YOY) as well as Not-for-Profit 4 year schools (0.6% YoY). Not-for-Profit 2 year schools saw a decline (-2% YOY). ► The substantial year over year growth in enrollment seen in the last few academic years has begun to slow starting in AY 10/11 based on data from the Department of Education. Enrollment in Degree-Granting Institutions through AY 12/13 Source: IPEDS, Fall Enrollment Survey (actuals through December 2012, released 5/2013)

24 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► The largest dollar increases have occurred within NFP 4 year private institutions ($11k since AY 03/04) yet NFP 4 year public schools have seen the greatest percentage increase (111% since AY 02/03). ► The average year over year increase in published tuition and fees since AY 03/04 has been 7.3% among NFP 4 year schools, followed by public 2 year at 6.3% and private 4 year at 4.8%. Cost of Tuition Source: College Board 2013 – Trends in College Pricing *Tuition and fees weighted by full-time undergraduate enrollment, For Profit amounts not available prior to AY *Amount includes an enrollment weighted average including both in-state and out- of-state tuition amounts. *From AY 03/04 to AY 13/14, the average published tuition at private institutions has risen 59%, while those at public 4 year schools has risen 91% and 71% at 2 year schools. Slide last updated Oct 2013

25 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Three Year Federal Loan Default Rate by School Type Sources: Digest of Education Statistics 2013; Table ► The 3yr cohort default rate increased slightly in all segments with the exception of the for-profit sector, which declined

26 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► Following the above average increase in debt levels in AY , the last 2 academic years have seen lower increases to the amount that borrowers are accumulating ► The percentage of graduates that have borrowed has remained relatively consistent over the last 10 years, with an average of a 1% annual increase among public school graduates and a 0.3% annual increase at private schools Average Debt Levels – NFP 4 Year Source: College Board 2013 – Trends in Student Aid Slide last updated Oct 2013

27 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Graduation Rate for Four Year Institutions ► The 4 year graduation rate for the 05/06 start year is 32% at Public 4yr schools and 52% at Private 4 year schools ► The 6 year graduation rate for the 05/06 start year is 57% at Public 4yr schools and 65% at Private 4 year schools Sources: Digest of Education Statistics 2013; Table

28 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.t WASHINGTON UPDATE OCTOBER 8, 2014

29 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. “Crushing Student Debt” is Here to Stay (at least until November 4) As an Issue, Student Debt Checks Every Box Energizes Key Constituency o Students – prospective, current and former – are key & influence-able voting bloc Common experience is dislike of high college costs and having to repay loans, and “Sallie Mae” is a household name that represents the problem of high college costs in the minds of many o Mid-terms are about driving turnout, and young voters can make a difference Fits into the “Fair Shot for the Middle Class” Argument o Believable argument that student debt postpones purchase, retards economic recovery Pits Republicans Against Students, Aligns Them with Profit- Seekers o Purpose of last week’s hearings was to pit Republicans/Industry against sympathetic borrowers o Purpose of refinancing vote was to spur fundraising, provide rhetorical fodder, show Republican callousness Assists the Launch of Warren ‘16 o Young Democratic primary voters are predisposed to support the newer, more progressive candidate Student Loans & Election Year Politics

30 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► Bipartisan Student Loan Certainty Act, 2013  Installs a fixed interest rate structure (set yearly) for all new federal loans ► Bipartisan Budget Act of 2013  Reduced guarantor fees for loan rehabilitation of federal student loans ► President Obama’s Executive Orders  Orders Education to expands IBR to federal loans made before Oct and post Oct  New order to expand PAY-E to all federal borrowers by end of 2015 ► Student Loan Refinancing Major Election-Year “Message Bill” Recent Congressional/Policy Actions on Student Loans

31 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► House will remain in Republican control ► Senate is up for grabs  Number of D seats up this cycle helps Republicans  Dissatisfaction with President Obama and healthcare roll out helpful to Republicans  Ds are trying to drive public sentiment to help them, “Fair Shot” agenda ► Whoever wins, the gap between the parties in the Senate will likely narrow ► Expect continued political division, weakened Presidency, and run up to ……. 2016! Political Overview Fall 2014

32 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved House Math: Republicans Likely to Maintain Majority 218 Source: Cook Political Report, September 19, 2104

33 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Senate Math: Republicans Likely to Pick up Seats; Majority in Question Republicans need to win 5 of 9 toss-ups to win Senate majority

34 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. The Plan to “Save the Senate” The election-year agenda under discussion is a mix of initiatives designed to energize the Democratic base of women, students and blue-collar workers, and to attract independent voters. The aim is to highlight differences with the GOP and provide fodder for Democrats along the campaign trail — even though those measures stand little chance of winning approval in Congress… they plan to push manufacturing issues, college affordability measures, such as the refinancing of student loans, and a host of women’s issues, including proposals they dub as “paycheck fairness” and more liberal workplace-leave policies. “Obama’s Plan to Save the Senate” 1/15/2014

35 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► HEA Reauthorization “Discussion Drafts”  Both camps putting stakes in the ground for future debate ► Regulatory Oversight  Servicing (Co-signer issues, SCRA, late fees, etc.)  Debt collection ► “Refinancing” of Education Loans  Warren bill defeated, but not forgotten ► College Costs and Value  Gainful Employment, round 2 Higher Ed Finance: What’s Out There?

36 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► Continue fact-based campaign on role of private education lending in filling the gap to pay for college ► Promote legislative agenda to promote positive, incremental changes to help borrowers  Allow more flexibility for banks dealing with struggling private student loan borrowers  Private education loan rehabilitation legislation H.R. 2561, The FAIR Student Credit Act of 2013, is the private student loan rehabilitation bill that resulted from our recommendation  Co-signer issues ► Advocate for fair value accounting to assure that the government properly budgets for the full cost of federal student loans ► Improve the tone  Policymakers should encourage borrowers to work with their lender / servicer to stay on track Plan for Positive Engagement

37 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Taking the Opportunities to Make the Case

38 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Supporting the Case with Research, Data, and Useful Information ► Investing in information on how families save and pay for college ► Facts on $1.1 trillion in student loan debt ► Transparency in the private education loan market

39 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.t SALLIE MAE NAVIENT SPLIT OCTOBER 8, 2014

40 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Separation Details Company ► Remaining Company: Sallie Mae (consumer banking business) ► Spin-Off Company: Navient (loan management and servicing company) Transaction ► Tax-free spin-off of Navient to Sallie Mae shareholders ► 1:1 distribution ratio Exchange Details ► Sallie Mae: NASDAQ / “SLM” ► Navient: NASDAQ / “NAVI” Financial Details ► Debt and preferred — All existing secured and unsecured debt will be the obligation of Navient — Preferred securities will remain at Sallie Mae ► Shareholder distributions — Sallie Mae does not intend to pay a dividend on common stock for the foreseeable future — Sallie Mae will continue to pay preferred stock dividends Timing & Approvals ► When-Issued Trading: April 17, 2014 ► Record Date: April 22, 2014 ► Distribution Date: April 30, 2014 (post close) ► Regular Way Trading: May 1, 2014

41 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Strategic Separation Into Two Distinct Businesses Transaction Entity Remaining CompanySpin-Off Company Strategic Focus Consumer banking including leading private education loan franchise Leading education loan management, servicing and asset recovery company Key Businesses ► Largest Private Education Loan Originator ► Private Education Loan Servicing ► Deposits ► Upromise Rewards ► Insurance Services ► FFELP Loan Portfolio ► Non-Bank Private Education Loan Portfolio ► Largest Education Loan Servicer (FFELP, ED, private) ► Contingency Collections ► Guarantor Servicing ► Student Assistance and Outreach Solutions Pro Forma Financial Statistics As of 12/31/2013 ($ billions) Assets FFELP Loans Private Loans Deposits Secured Debt Unsecured Debt Preferred Equity Tangible Common Equity $11.3 $1.4 $6.5 $9.0 $ – $0.6 $1.2 Assets FFELP Loans Private Loans Deposits Secured Debt Unsecured Debt Preferred Stock Tangible Common Equity $148.4 $103.2 $31.0 $ – $120.5 $18.3 $ – $3.5 Leadership Ray Quinlan Chairman and CEO Steve McGarry Chief Financial Officer Jack Remondi Chief Executive Officer Somsak Chivavibul Chief Financial Officer

42 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. ► #1 saving, planning and paying for education company with 40-years of leadership in the education lending market ► Top ranked brand: 6 out of 10 consumers of education finance recognize the Sallie Mae brand ► Industry leading market share in private education lending; 50% market share for 2012 / 2013 AY ► Over 2,400 actively managed university relationships across the U.S. ► Complementary consumer product offerings ► Over one million long-term engaged customers across the Sallie Mae brands The Sallie Mae Brand

43 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Attractive Customer Base Top tier institutions ► 82% of customers from non-profit 4 year institutions ► 11% of customers from for profit 4 year institutions Strong credit history ► 78% of customers have FICOs >700 ► Average FICO of 746 at origination Co-signer involvement ► 90% of borrowers have co-signers Attractive demographics ► Average unemployment rate of 4.4% for individuals with some college vs. 10.4% for individuals with no college ► Average income of $63,000 for individuals with some college vs. $29,000 for individuals with no college High serialization rates ► 40.8% of private education loan borrowers are repeat customers, obtaining loans in the following academic year

44 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. Significant Private Education Loan Growth ($ in millions) ’10 – ’13 CAGR: 12.9% Previous Year Loan Balance Net Loan Growth $5,172 $5,508 $6,563 Private Education Loans Originations$2,236$2,699$3,305$3,762 % Outstanding49%52%60%57% Loan Sales 1 $1,820$1,897$2,639$2,411 % of Originations 81%70%80%64% ¹ Loan sales to affiliates.

45 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved.t CORPORATE CENTRAL STUDENT LOAN PROGRAM OCTOBER 8, 2014

46 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 46 ► Off balance sheet private student loan program ► Provides referral income to your CU ► Turn-key set-up ► Prevents members from seeking PSLs from your competitors ► Branded marketing support at no charge ► Minimal: –IT requirements –Marketing investment –Vendor management oversight Corporate Central & Sallie Mae Private Student Loan Program

47 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. 47 Contact Information Corporate Central Credit Union Contacts: John Hickey Vice President – Investments (414) Gail Kearney Director – Member Solutions (414) Sallie Mae Contact Kurt Hansen Senior Director, Partner Channel Sales (847)

48 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. QUESTIONS?

49 Confidential and proprietary information © 2014 Sallie Mae, Inc. All rights reserved. The information contained in this presentation is not comprehensive, is subject to constant change, and therefore should serve only as general, background information for further investigation and study related to the subject matter and the specific factual circumstances being considered or evaluated. Nothing in this presentation constitutes or is designed to constitute legal advice.


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