Debunking Student Loan Headlines

Transcription

1 Debunking Student Loan Headlines Presented by Jillian Gajtka Saturday, June 11, :15 a.m.

2 Student Loan Debt 2

3 Recent Headlines 3

4 Headlines crisis bubble 4

5 Student Loan Jeopardy What percentage of the $1.19 Trillion in student loan debt do private loans account for? A. 5.2% B. 7.6% C. 11.8% D. 21.3% 5

6 Student Loan Jeopardy What percentage of the $1.19 Trillion in student loan debt do private loans account for? A. 5.2% B. 7.6% C. 11.8% D. 21.3% 6

7 Headline #1: Growth in Student Loan Debt $370B Total Student Loan Debt Q $1.19T Total Student Debt Q $1.19 Trillion in Outstanding Student Loans $91B (7.6%) is Private Student Loans $7.5B in private student loans originated in

8 Student Loan Jeopardy What is the average Cost of Attendance per year at a public out of state, 4 year college/university for ? A. $24,000 B. $28,500 C. $30,000 D. $38,500 8

9 Student Loan Jeopardy What is the average Cost of Attendance per year at a public out of state, 4 year college/university for ? A. $24,000 B. $28,500 C. $30,000 D. $38,500 Source: Collegeboard Trends in College Pricing 2015, Figure 1 trends college pricing final 508.pdf 9

10 Cost of Education $24M Indoor Football Practice Facility Confidential & Proprietary 10

11 Cost of Education Average Estimated Full Time Undergraduate Costs Academic Year 11

12 Member Challenge: Paying for College 12

13 MI Tuition & Fees for In State Students Michigan 4 year public institutions are still in the top 15% of the country for tuition/fees Source: The College Board, Annual Survey of Colleges pricing/figures tables/ state tuitionand fees public four year institutions state and five year percentage 13

14 MI Tuition & Fees for Out of State Students In the state of Michigan, public 4 year institutions are the 2 nd highest in the entire country Source: The College Board, Annual Survey of Colleges pricing/figures tables/ out statetuition and fees public four year institutions state and five year 14

15 The Cost of Education Cost of Attendance (COA) The cost for the student to attend school as if it were his/her job: Tuition School Fees Housing/Rent Books Food Transportation Miscellaneous Expenses 15

16 Headline #2: A Bubble & Skyrocketing Default Rates Though tuition rates have increased rapidly, the overall rate of return on college education has remained at around 14% 15% over the past decade In comparison, for the past 60 years stocks earned a return, on average, of 7% and bonds only 3% 16

17 BA/BS Degrees Increase Earnings The median earnings for young adults (ages 25 34) with a bachelor degree is more than 65% those with just a high school diploma ($50,000 vs $30,000). CFPB indicates that a college degree earner will, on average, earn approximately $1 million more over their career than someone with a high school diploma. Starting salaries are keeping pace with education debt loads. A student s salary is almost 2x their student debt. 17

18 Lower Unemployment Unemployment rate for individuals with at least a bachelor s degree has consistently been about ½ the unemployment rate for high school graduates. 18

19 Loan Performance 34% of the borrowers with under $5,000 defaulting on their student loans. Borrowers with over $100,000 defaulted at less than half the time than those carrying balances of $5,000 or less. Conclusion: You would rather graduate from college with $26,000 in debt than drop out with under $5,

20 Loan Performance ½ the delinquency and ¼ the losses of the private student lending marketplace 20

21 Loan Performance 21

22 Student Loan Jeopardy What percentage of students owe more than $100,000 in total student loan debt? A. 4% B. 7% C. 11% D. 13% 22

23 Student Loan Jeopardy What percentage of students owe more than $100,000 in total student loan debt? A. 4% B. 7% C. 11% D. 13% 23

24 Headline #3: Too Much Debt? Average student loan debt is still less than the average car. $33,560 * 40% owe less than $10,000. *Kelley Blue Book April

25 Too Much Debt? Are Student Loan Borrowers Good Consumers? Current look at 2005 consumers: The student loan group is well ahead of control group in auto and mortgage participation in Q % of population with an open auto trade 90% 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% % of consumers with auto trade % of population with an open mortgage 50% 45% 40% 35% 30% 25% 20% 15% 10% % of consumers with mortgage student loan group 2005 control group TransUnion Student Lending Study

26 Too Much Debt? Are Student Loan Borrowers Good Consumers? Current look at 2009 consumers: The student loan group has passed the control group in auto and nearly matched them in mortgages in Q % % of consumers with auto trade 25% % of consumers with mortgage 60% % of population with an open auto trade 55% 50% 45% 40% 35% 30% 25% % of population with an open mortgage 20% 15% 10% 5% Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep student loan group 2009 control group TransUnion Student Lending Study

27 Too Much Debt? Are Student Loan Borrowers Good Consumers? 2012 New Loan Performance % of pop. w/ new loan 60+ DPD thru Dec % 20% 15% 10% 5% 0% % new bankcard consumers 60+ DPD 1% lower % of pop. w/ new loan 60+ DPD thru Dec % 12% 10% 8% 6% 4% 2% 0% % new auto consumers 60+ DPD 15% lower VantageScore 3.0 tier VantageScore 3.0 tier 2012 student loan group 2012 control group TransUnion Student Lending Study

28 Headline #4: Performance CU Student Choice Historical Differentiation in Underwriting: Capturing Co Borrowers Refined School Eligibility Conducting School Certification Disbursing Directly to the College/University Navient as of 6/30/14 28

29 Student Loan Jeopardy What is the latest Department of Education 3 year Student Loan Default Rate? A. 6.6% B. 9.8% C. 11.8% D. 13.7% 29

30 Student Loan Jeopardy What is the latest Department of Education 3 year Student Loan Default Rate? A. 6.6% B. 9.8% C. 11.8% D. 13.7% *In 2011, the federal default rate was at 13.7%, so it is trending downward 30

31 Positive Performance Declining Delinquency & Charge off Rates CU Student Choice 90+ DPD = 1.10% Gross Annualized CO = 0.55% (Q3 2014) Gross Annualized CO = 0.71% (Q3 2015) PSL Industry (Measure One) 90+ DPD = 2.12% Gross Annualized CO = 2.37% (Q3 2014) Gross Annualized CO = 2.23% (Q3 2015) Federal Student Loans Cohort Default Rate = 11.8%* *as of 2015 data Delinquency and Defaults are Decreasing 31

32 CU Student Choice Portfolio Performance Student Choice Portfolio Snapshot as of Q $1.78 Billion in Outstanding Balances 59.9% Loans in Repayment $171.1M Loans Paid in Full 0.50% Annualized Gross Charge off Rate 1.47% 60+ Delinquency Rate 0.82% 90+ Delinquency Rate 32

33 Strong Credit Union Performance $500 $750M Credit Union ROAA Model PSL Balances (as of 4/'14) $8,500,000 PSL Balances (as of 5/'13) $6,500,000 Average PSL Balances: $7,500,000 Weighted Margin: 3.00% (floor of 6.0%) 3.00% Weighted Index 3.25% Weighted COF Yield (Peer to Peer/5300) 0.75% 3rd Party Insurance* 0.50% Net Yield: 5.00% Gross Annual Interest Revenue $468,750 Net Annual Interest Revenue $375,000 # of Loans (as of 4/30/14) 425 Loan Costs (from remittances 5/'13 4/'14) $90,000 Origination costs = $30,000 $30,000 Mgmt Fee/Servicing/Other $60,000 Total: $90,000 Net Annual Total PSL Income: $285,000 Return on Average PSL Assets (ROAA) 3.80% Strong ROAA = 3.80% Steady Performance = 0.83% delinquency against loans in Repayment (NO CHARGE OFFs) Launched in 2009 Assets between $500M $700M Just over $12M in funded loans ~ 42% in full repayment 3.3% PIF Added over $2M up 29% YOY (from 2013 to 2014) *Amortized over conservative 10 year expected loan life 33

34 Headline #5: Booming Refi Market $211 billion is available for refinancing $121B Federal $90B Private Just $4B has been refinanced Source: Goldman Sachs The Future of Finance 3/2015 Marketplace Lenders Traditional Lenders Credit Unions 34

35 Booming Refi Market $211 billion is available for refinancing $121B Federal $90B Private Just $4B has been refinanced Source: Goldman Sachs The Future of Finance 3/2015 Credit Unions are not about a myopic focus on Super Prime rather, it is about helping a diverse population of members, the broader community, and employer groups in a holistic and helpful manner. 35

36 Refinance Member Profile Segmentation Profile Non Cosigned Cosigned Blended % of Applications 51% 49% 100% Avg. Borrower Age at Application Avg. Borrower Credit Score Avg. Borrower Monthly Income $5,727 $3,228 $4,487 Avg. Borrower Months at Employer Avg. Borrower Months Since Graduation Avg. Borrower % Home Owner 21% 11% 16% Avg. Cosigner Age at Application 54 Avg. Cosigner Credit Score 754 Avg. Cosigner Monthly Income $7,369 Avg. Cosigner Months at Employer 237 Avg. Decision Credit Score Avg. Decision DTI Ratio Avg. Loan Approved Amount $32,293 $49,431 $40,797 16% of all Refi borrowers are home owners thus sizeable future mortgage opportunities Refi borrowers with no cosigners: Tend to be 29 years old, graduated school 4+ years ago, have been employed 3+ years, make almost $70K per year, have reasonable credit scores of 720+, reasonably low DTI of 29, and take out ~$32K refi loan. Refi borrowers with cosigners: These borrowers tend to be younger and have slightly less employment, income, credit history and/or larger loan needs. As such, these borrowers choose to add a cosigner with strong credit (750+ credit score) and high income ($88K) to help secure larger refi loans ($49K). 36

37 Solution: Co Borrower Emphasis Source: MeasureOne Q Private Student Loan Performance Report 37

38 Solution: School Certification Source: MeasureOne Q Private Student Loan Performance Report 38

39 Solution: Financial Literacy CU branded version of igrad 39

40 Solution: Education & Engagement Member Seminars Our Strategic Partners Team conducted nearly 40 national seminars in 2015 attended by more than 1,000 members Open National Webinars Free national webinars to help college bound families on how to keep costs down and survive the first days of college and completing the FAFSA 1:1 Counseling Free individualized counseling service for families to schedule in depth consultations with our college planning expert 40

41 Solution: Education & Engagement Modern, millennial focused financial literacy 41

42 Solution: Education & Engagement Being the first in my family in America to attend college was a big accomplishment! Although, it was a joyful accomplishment, I was not as happy as I should have been because I knew college was not cheap. Joining Georgia s Own was probably one of the best decisions before college that I have ever made. Receiving a Georgia s Own Credit Union private student loan has helped me so much! Mira CU Student Choice Borrower Relationship Study credit unions 8,000 borrowers 58% avg. checking penetration 18% avg. credit card penetration 9% avg. auto loan penetration 6% avg. deposit penetration 42

43 Who We Are: Credit Union Student Choice By credit unions, for credit unions Credit Unions in full control Sustainable loan growth CU Industry Asset Class Expertise Results Snapshot: 65,000+ young adult members assisted $1.9B under management 245 CU programs Strong portfolio performance Strong value to members 43

44 Who We Are: Credit Union Student Choice Net Income Positive Since December 2010 Proven & Trusted 54% Marketshare based on Q Report $1.9B of $3.5B NO Reputation Risk Zero Venture capital financing No exit strategy Credit Union Philosophy Owned & Managed Board President Brian Ducharme President of MIT FCU 44

45 Who We Are: Our CU Partners 45

46 Risk Optimization Optimal Window Matching Risk/Return ESSENTIAL RISK MANAGEMENT FACTORS Loan Co Borrowers School Eligibility Credit Risk based Lending School Certification CU to School Disbursed Variable Interest Rate Note: Per federal law, student loans are generally difficult to discharge in bankruptcy. Must prove undue hardship which is high threshold and relatively uncommon. 46

47 Bringing It All Together Millennials offer a win win for credit unions: Member gains affordable financing to earn a degree Member has ability to leverage this degree for strong employment Credit Unions gain Members in Peak Borrowing Years Private student loans are high earning assets Performance is Strong! Introduces CU products and services to new members Places new loan balances on CU books 47

48 Any Questions? 48

49 Thank you Glad to be here! Jillian Gajtka Manager Strategic Partnerships 49