People Capital: Weekly Briefing

People Capital Weekly Briefing

June 8, 2009

News and insight from the world of higher education, student loans and peer-to-peer lending. To learn more about People Capital and how it is revolutionizing education finance please visit us on the web at www.people2capital.com and learn more about how credit risk assessments, based on a student's Human Capital Score™ underpin a cutting-edge peer-to-peer lending platform.

News about People Capital

We are pleased to announce the addition of two new members to our Advisory Board Ivar Eilertsen and Greg Webster.

Ivar Eilertsen is the CEO and Founding Partner of Harbor Capital Technologies. He has has more than 25 years of global experience in the financial industry. Prior to starting Harbor Capital Technologies, Ivar was Executive in Residence at a $20Bn private equity fund. He was a Managing Director and Senior Vice President at Thomson Financial (now Thomson-Reuters). He worked for a number of years at ADP Brokerage Services Group (now Broadridge) in various senior executive roles. He was a founding partner of Axess Information Services in Oslo, Norway.

Greg Webster is the CEO of Fund.com where he presides over corporate strategy, business development and acquisitions. He brings over 20 years of management experience throughout the financial services, brokerage and insurance industries. Greg was the President and CEO of HSBC Brokerage (USA) Inc., where he was responsible for approximately $32.5 billion of client assets. Before joining HSBC, he led the Guardian Life Insurance Company in the formation and SEC Registration of a newly formed broker/dealer, Park Avenue Securities, LLC. Prior to Park Avenue, he was the COO for NYLIFE Securities, Inc., a subsidiary of New York Life Insurance Company, where he managed the wealth management proposition for approximately 8,000 Registered Representatives nationally.

Industry News and Trends

Listed below is a weekly compilation of Industry updates. The major highlights indicate that:

Bailed out Banks are lending less
DRBS research indicates deterioration in Performance of Private Student Loan ABS (39 private student loan trusts) in Q1 2009
Students and families continue to experience financial distress while paying for college. Additionally, college students should factor prospects and debt when they select their major
The peer-to-peer lending market has been exploiting the opportunity that opacity creates. Borrowers and lenders warm up to P2P lending because they strive to become as transparent as possible
Report Analyzes Direct Loan Savings Estimates being presented by Obama Administration

Bailed Out Banks Lending Less (CNNMoney)
Banks that took billions of dollars in taxpayer aid clamped down on credit during the month of March, according to a Treasury Department report published Monday, CNNMoney reports. In its first broad-based view of lending activity of the 500 financial institutions that received money under the agency's Capital Purchase Program, the Treasury said the total amount of loans outstanding contracted by 0.8% in March to $5.24 trillion from $5.28 trillion in February. The report, which included everyone from smaller community banks to major national banks like Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), revealed that banks pulled back the most on new business loans. The amount of commercial loans outstanding fell 1.2% to $2.35 trillion. The amount of consumer loans, including residential mortgages, student loans and credit card lines, fell by less than half that amount, declining 0.5% in March to $2.88 trillion in March.

(Read more)

DRBS Research Shows Continued Deterioration in Performance of Private Student Loan ABS In 1Q 2009 (Student Lending Analytics)

SLA recently reviewed the research reports stacking up in their inboxes. Listed below are the highlights from a report from DBRS which tracks the performance of 39 private student loan trusts.

Quarterly gross defaults and delinquencies reached new highs with newer vintages showing accelerated deterioration:
Lenders seem to be granting fewer forbearances
Delinquencies and defaults hit new highs in the 1Q.

(Read more)

Recession Offers Hard Lessons In Paying For College (NPR)

Emmanuel Garcia sometimes shakes his head in amazement: He made it to college and just finished his first year at Shippensburg University in Pennsylvania. It wasn't easy navigating his way through student loans amid a worldwide financial crisis - as well as a private family crisis, NPR reports. Emmanuel's classmate Marlo Johnson wasn't quite so lucky. Despite having a scholarship to a private university, she couldn't come up with the money to pay for tuition, housing and books. She spent the year working for minimum wage and took a few courses at a community college. Emmanuel and Marlo were among the thousands of graduating seniors who were broadsided by the economic crisis. The two Harrisburg, Pa., teenagers with big dreams and no money both say they learned a lot about the real world in the past year.

(Read more)

College Students Should Factor Prospects, Debt When They Select Major (The News Tribune)
Many economists expect the unemployment rate to stay above 8 percent into 2012, before beginning to improve. Even after that, the expectation is unemployment could remain elevated for years, perhaps around 6 percent, rather than the less-than 5 percent level before the recession. So majors and job selection will be important, especially for students who take on considerable debt, The News Tribune reports. Clearly, even under good job conditions, students should not take on more debt than they can expect to pay off effectively in the type of career they are planning. And parents cannot afford to pay so much for college that they endanger their retirement years. Sandy Baum, an analyst with the College Board, suggests students try to keep college loan payments at no more than 8 percent of their expected gross income.

(Read more)

Peer to Peer Revolving Credit (P2PBanking.com)
It always seemed to me that traditional banks tend to make most of their money on the backs of people that pay penalties for small errors rather than just charging for capital as their business model might otherwise suggest. Credit card companies seem to be doing the same thing, jacking rates to the maximum allowable limit if their customer goes late on a payment. All of this makes it look like the traditional banks and credit card companies are making money by being deliberately opaque, hiding their true cash cow of fees in fine print.
The peer to peer lending market has been exploiting the opportunity this opacity creates. Who would have thought these peer to peer lending sites had a chance against traditional banks? But borrowers and lenders warm up to them because they strive to become as transparent as possible.
(Read more)

Report Analyzes Direct Loan Savings Estimates (Madison Education Group LLC/NCHELP Daily Briefing)

A new report by the Madison Education Group, LC titled "Direct Loan Savings Estimates - Implications for Federal Student Financial Aid," analyzes the Administration's claim that moving to a 100 percent direct lending system for federal student loans would save the government approximately $94 billion over 10 years. The Administration has used this assumption to justify the elimination of the FFEL Program.

The report concludes that the historical performance of direct lending presents a significant challenge to the assumption that it will produce considerable savings because projected future earnings from the direct loan program have never materialized. In fact, states the report, rather than saving the $94 billion projected over 10 years, direct lending is more likely to produce net adjusted costs of $139 billion. Given recent changes in the FFEL Program, it is now more likely that a switch to 100 percent FFELP would product more real savings in terms of government cash flow than a switch to 100 percent direct lending. The report states that on pure
cash basis of accounting, direct lending has already cost over $31 billion more than expected in the past nine years.

Please note the report is not available on-line, so we have provided the highlights mentioned above for informational purposes.

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The People Capital Team
Info@people2capital.com