Student Loans and Capital Markets Thomas M. Graf Executive Director MEFA December 5, 2008.
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Student Loans and Capital Markets Thomas M. Graf Executive Director MEFA December 5, 2008
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Transcript of Student Loans and Capital Markets Thomas M. Graf Executive Director MEFA December 5, 2008.
Student Loans and Capital Markets
Thomas M. GrafExecutive Director
MEFA
December 5, 2008
Capital Markets
> Early Warning Signs
> Current Environment
> Continued Volatility
Capital MarketsEarly Warning Signs
> Unprecedented Disruption Began With Sub-Prime Mortgage Crisis> Headline risk evident
> Large bank write-downs
> Quality of underwriting concerns as performance shifts
> Investor confidence eroding
> Asset-Backed Securities Impact> Limited liquidity as financing channels begin to close> Increased funding costs for lenders and banks
Capital MarketsEarly Warning Signs
> Bond Insurers Under Pressure> Insured assets performance was deteriorating> Increased capitalization requirements to fulfill outstanding
policies> Bond investors outlook diverging from published actions
> Rating Agencies Scrutinized> Insurers on watch or negative outlook – downgrades were
on the horizon> Investors looking through insurance wrap to underlying
ratings
Capital MarketsEarly Warning Signs
> Education Lenders Exit the Market> Increased funding costs> Liquidity contraction by investors> Investors concerned that student loans will perform like sub-
prime mortgages
Capital MarketsCurrent Environment
13.718.4 15.1
14.5
22.0 18.6
37.0
58.060.5
73.6
86.2
70.0
30.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
($ in billions)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Student Loan Debt Issuance
Capital MarketsCurrent Environment
Education Loan Transactions
Source: Bank of America, The Student Loan Report 11/18/08
Capital MarketsCurrent Environment
Interest Rates
Source: Bank of America, The Student Loan Report 11/18/08
Capital MarketsContinued Volatility
Significant Impact on Families> Fewer education financing options> Tightened underwriting – FICO standards raised to improve
risk management> Borrower benefits eliminated from loan programs> Increased borrowing costs in capital markets> Reliance on home equity limited due to housing price
corrections> Stock market losses impact households net worth
Capital MarketsContinued Volatility
Pressure on College Campuses> Tightened operating budgets and fiscal policies> Impact on institutional financial aid> Shrinking endowments – losses likely to impact operating
budgets and financial aid> Maintain access to broadest socioeconomic demographic
Capital MarketsContinued Volatility
Federal Government Intervention> Continue commitment to ensure students have access to
federal loans> Ensuring Continued Access to Student Loans 2008 (ECASL)
> Term Asset-Backed Securities Loan Facility (TALF)
> Wait and see with new administration…
Capital MarketsContinued Volatility
Education Lenders Focus> Continued commitment to access capital markets to raise
proceeds for affordable education loans> MEFA’s response in challenging marketplace
> Spring 2008 – suspend FFELP participation
> Fall 2008 – successful transaction to fund private education loans
