As college financial aid offices grapple with a lightning-quick overhaul of the student loan market, Citigroup Inc. has continued to struggle finding a potential buyer for its educational lending assets run from Stamford.
The company”™s stated goal is to move the assets “as fast as we can.”
In the second quarter, the Obama administration ended the long-running Federal Family Education Loan (FFEL) program, under which government-backed loans were issued directly through banks like Citi”™s Student Loan Corp. unit in Stamford. The program was canceled under the Health Care and Education Reconciliation Act passed last March; students are now being channeled into the Direct Loan federal program under which the federal government originates loans itself, rather than relying on banks to do so.
President Obama had pressed for elimination of FFEL, saying the government”™s role as a middleman wasted more than $6 billion annually. Both Student Loan Corp. and the larger trade group America”™s Student Loan Providers had argued against the bill on grounds it would result in thousands of lost jobs and deterioration in service; as an alternative, they offered up a “student loan community proposal” that among other provisions would have allowed school and students to choose current loan originators while incorporating risk-sharing incentives intended to generate savings.
According to the most recent data published by America”™s Student Loan Providers, nearly 90 cents on every dollar in student loans in Connecticut had been issued under the FFEL program annually.
Student Loan Corp. has its headquarters in Stamford and is a subsidiary of New York City-based Citi. The unit entered 2010 with 250 employees, down from more than 350 the previous year and 560 two years ago.
In the second quarter, Student Loan Corp. announced net income of $20.8 million for the quarter, down from $25.3 million a year ago. The company attributed the decrease in net income in part due to its decision to defer planned loan sales to the U.S. Department of Education through the Loan Purchase Commitment Program until later in the year. Student Loan Corp.”™s allowance for loan losses $174 million as of June, up from $149 million last December.
Although the company”™s private education loans do not carry a federal government guarantee, nearly two-thirds of those loans are privately insured via policies purchased from subsidiaries of New York City-based American International Group Inc. and Arrowpoint Capital Corp. of Charlotte, N.C.
Citi and other companies are scrambling to make adjustments in the wake of the rapid-fire changes in the past year. So are schools, according to a recent survey by the National Association of Student Financial Aid Administrators.
As of July 22, 84 percent of U.S. schools had fully transitioned to the Direct Loan program, with 15 percent still working to do so, and 1 percent not planning to participate.
Student Loan Corp. says it has been moving the company away from the FFEL program since 2007 in favor of CitiAssist student loans, and that the changes to not impact its determination to offer competitively priced private loans for undergraduate, graduate, and professional students.
Still, in a conference call with investors last month Citi”™s chief financial officer included student loans in a group of assets the company hoped to divest.
“Our plan is to dispose these assets as quickly as we can in an economically rational fashion, so we”™re progressing and executing against that plan all the time,” said John Gerspach, chief financial officer of Citi. “As opportunities present themselves, we”™re disposing off these assets as fast as we can ”¦Â When you take a look at some of the larger businesses now that are still remaining in holdings ”“ Citi Financial, Retail Partner Cards, student loans ”“ those are sales or dispositions that the current lack of funding in the market make challenging.”
