NEW YORK (MainStreet) Banks and other investors with private student loans can be expected to sell off these assets as their value declines and more attractive alternatives surface, according to an analysis by Fitch Ratings released earlier this week.
Fitch, a New York and London-based debt rating agency, noted that Wells Fargo has moved its $9.7 billion FFELP loan portfolio into the held-for-sale category, an accounting move that anticipates the sale or disposal of long lived assets. NelNet, the National Education Loan Network based in Lincoln, Nebraska, bought $3.6 billion in FFELP loans from CIT Group in April.
FFELP, the Federal Family Education Loan Program, was ended by the 2010 Health Care and Education Reconciliation Act or HCERAwhich also ended the federal government's role as guarantor of federal loans made by private lenders. Since 2010, new federal student loans have been made through the Department of Education's Direct Student Loan program.
"We believe the announcement from Wells Fargo combined with CIT's portfolio sale last April may signal that banks are more willing to sell these assets," Brendan Sheehy, director of financial institutions at Fitch. He also noted that "banks tend to view these portfolios as non-core, non-strategic assets given that they are in runoff" as a result 2010 Health Care and Education Reconciliation Act.
Sheehy also noted that "new capital requirements have prompted banks to take a second look at how they allocate capital across their business lines. FFELP loans are low-yielding assets. With loan demand improving in other high-yielding asset classes, we believe banks may decide that they could more efficiently manage their capital by selling their FFELP portfolios and reallocating the capital toward other businesses."
Other lenders with big FFELP portfolios include the Brazos Group, PNC, Access Group, SunTrust, Bank of America, Northstar Guarantee, US Bank and JP Morgan Chase, which announced its exit as an originator of student loans last year.