More Shakeout in Student Loan Industry

Two announcements this week signal the continued restructuring of the student loan industry, as more, formally profitable, companies in the private loan market succumb the new regulatory regime and market realities. 

Earlier this week, Citigroup announced the completion of the sale of their Student Loan Corporation affiliate to Discover Financial Services and SLM Corporation (“Sallie Mae”).  The three-way transaction involves the transfer of more than $40B in assets between the three companies, the bulk of which goes to Sallie Mae.

Also this week, CIT Group announced that they had completed negotiations to outsource their student loan servicing activities to Pennsylvania Higher Education Assistance Authority (PHEAA).  The transaction involves the transfer of servicing for approximately $7.4B in student loans currently serviced by Xpress Loan Servicing, a CIT affiliate.  PHEAA already services $1B of CIT’s student loans through its American Education Services (“AES”) affiliate.  These new CIT loans will also be serviced by AES.

Over the past decade, Citi’s Student Loan Corp had grown to become a leader in the education loan market.  CIT, while a relatively late entrant to student loans, nevertheless, seemed to be properly positioned to be successful in this asset class.  Of course this was all before the crescendo of new Federal regulations and the collapse of the credit and securitization markets put a “one-two punch” on the private market.

These two events reinforce the harsh reality that the road forward for private student loans continues to be a rocky one.

About markferraris
Managing Principal Orchard Street Partners LLC

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