Report Information from ProQuest. March :01

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1 Report Information from ProQuest March :01

2 Table of Contents 1. Student-Loan Securities Stay Hot --- Investors' Hunger for Returns Is Driving Demand Even as More Borrowers Fall Behind on Payments March 2013 ii ProQuest

3 Document 1 of 1 Student-Loan Securities Stay Hot --- Investors' Hunger for Returns Is Driving Demand Even as More Borrowers Fall Behind on Payments Author: Simon, Ruth; Ensign, Rachel Louise; Yoon, Al Publication info: Wall Street Journal [New York, N.Y] 04 Mar 2013: C.1. ProQuest document link Abstract: According to a Thursday report by the Federal Reserve Bank of New York, 31% of people paying back student loans were at least 90 days late at the end of the fourth quarter, up from 24% in the fourth quarter of Federal and private student-loan borrowing totaled $966 billion at the end of the fourth quarter, up 11% from a year earlier and 51% since 2008, according to the Fed report, part of its quarterly analysis of household debt and credit. Links: Base URL to 360 Link: Full Text: Student loans are souring at a growing rate -- and investors can't seem to get enough. SLM Corp., the largest U.S. student lender, last week sold $1.1 billion of securities backed by private student loans. Demand for the riskiest bunch -- those that will lose money first if the loans go bad -- was 15 times greater than the supply, people familiar with the deal said. Meanwhile, SecondMarket Holdings Inc., a New York-based trading platform best known for private stock shares, said it would roll out on Monday a platform to allow lenders to issue student-loan securities directly to investors. "The catalyst for this new suite of services is investor demand," said Barry Silbert, founder and chief executive of SecondMarket. But while investors are piling into student loans, borrowers are falling behind on their payments at a faster clip. According to a Thursday report by the Federal Reserve Bank of New York, 31% of people paying back student loans were at least 90 days late at the end of the fourth quarter, up from 24% in the fourth quarter of The figures include federal student loans and those issued by private lenders. Investors' hunger for risky loans shows the lengths they are willing to go to generate returns in a period when interest rates are hovering near record lows. "It's a reach for yield," said Jeffrey Klingelhofer, a portfolio manager at Thornburg Investment Management, which didn't participate in the SLM offering. Private lenders such as SLM, known as Sallie Mae, make loans that aren't backed by the federal government. They lend based in part on borrowers' credit history, and have tightened their lending standards since the financial crisis. By contrast, the federal government, which makes more than 90% of student loans, doesn't check credit records for most student loans. Sallie Mae says 4.6% of its loans in repayment were more than 90 days past due in the fourth quarter, down from 4.9% in the fourth quarter of "Private education loans are underwritten to a family's willingness and ability to repay, and as a result delinquencies have been declining even while more loans have entered repayment," a Sallie Mae spokeswoman said. But comparing Sallie Mae's data with the Fed's is difficult. The Fed numbers exclude the roughly 44% of borrowers who don't have to make loan payments, typically because they are still in school or have been granted a loan deferral or forbearance. Sallie Mae's figures include borrowers who are still in school and make modest payments on their loans. Private loans tend to carry higher interest rates than federal ones. Distressed borrowers also typically have less flexible repayment options with these loans. Elliott Cultice, 30 years old, graduated in 2005 from the University of Southern California with a degree in business administration and roughly $60,000 in student-loan debt. Mr. Cultice, who now works as an accountant, said he finished repaying his federal student loans, which carried an interest rate of about 3%, in But he hasn't made a payment on his private loans, which initially carried a roughly 8% interest rate, in years. Repaying them "isn't very feasible unless something magical happens," he said. Investors had been slow to embrace student loans since the financial crisis, even as other asset-backed securities rallied. But investors have stepped up their search for yield since the Fed in September 04 March 2013 Page 1 of 3 ProQuest

4 announced its latest bond-buying program, aimed at lowering long-term rates. Yields on securities backed by student loans, which move in the opposite direction of prices, have been plunging. The average yield for floating-rate student-loan-backed securities stood at 1.48% on Thursday, down from 2.01% at the end of August, according to Barclays. That compares with roughly 0.75% for comparable Treasury securities. This year through February, dealers sold $5.6 billion of student-loan-backed securities, more than triple the figure for the same period in 2012, according to Asset-Backed Alert. The federal government doesn't bundle new student loans into securities, so investors don't bear the risk of defaults. Dean Maki, chief U.S. economist at Barclays PLC, said higher delinquencies likely would raise the cost of the student-loan program to the government. Federal and private student-loan borrowing totaled $966 billion at the end of the fourth quarter, up 11% from a year earlier and 51% since 2008, according to the Fed report, part of its quarterly analysis of household debt and credit. People under 30 are struggling the most. The delinquency rate jumped to 35% last quarter from 26% in 2008, according to the Fed report. Ethan Sjolander, 26, graduated in 2007 from Houghton College in Houghton, N.Y., with a degree in business administration and about $24,000 in student loans. Mr. Sjolander said he never missed a student-loan payment, but racked up about $11,000 in other debt in part by paying for food, car repairs and gasoline with his credit card. Mr. Sjolander, who now works as an administrative assistant, says his debts have forced him to delay plans to buy a nicer car, and put off going back to school for another degree. Subscribe to WSJ: Credit: By Ruth Simon, Rachel Louise Ensign and Al Yoon Subject: Student loans; Interest rates; Investments; Economic crisis; Federal Reserve monetary policy Location: United States--US People: Silbert, Barry Company/organization: Sallie Mae; ; Thornburg Investment Management; ; Federal Reserve Bank of New York; ; University of Southern California; ; Houghton College; Publication title: Wall Street Journal Pages: C.1 Publication year: 2013 Publication date: Mar 4, 2013 Year: 2013 Publisher: Dow Jones&Company Inc Place of publication: New York, N.Y. Country of publication: United States Journal subject: Business And Economics--Banking And Finance ISSN: Source type: Newspapers Language of publication: English Document type: News ProQuest document ID: Document URL: Copyright: (c) 2013 Dow Jones&Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission. 04 March 2013 Page 2 of 3 ProQuest

75% for comparable Treasury securities. This year through February, dealers sold $5.

Student Loans Know Your Options

Student Loans Know Your Options Sam Hewitt Director, Political & Grassroots Advocacy, GRPP Samuel J. Hewitt Sam Hewitt is the director of political and grassroots advocacy at the American Speech-Language-Hearing