FMD Launches New Private Student Loan Consolidation Product with SunTrust Bank
On August 2, 2012, FMD (FMD) announced the launch of a of new private student loan consolidation product with SunTrust Bank that will allow students to refinance their existing private student loans into one new loan at a fixed or variable interest rate with a single payment, and the potential to reduce their current monthly payment and interest rate. The program runs for two years and has a similar structure to those that exist for other SunTrust loan programs based upon the Monogram platform.
FMD will perform loan processing services, program support and portfolio management services, program administration services, and production support services for which it will earn a fee. In addition, FMD will provide credit enhancement through funding a participation account to serve as a first-loss protection for defaulted loans.
The agreement prohibits FMD from launching any consolidation programs offering both fixed and variable terms within the same application session. FMD is able to launch additional consolidation programs; however for the first 14 months, any such program cannot be priced lower than the SunTrust product nor can it be marketed in any of SunTrust’s footprint states.
Additionally, SunTrust agrees not to promote this program to borrowers that have loans owned by one of the National Collegiate Student Loan Trusts, nor will FMD purchase lists or customer data of borrowers that have a loan owned by SunTrust.
Initial program size has not yet been disclosed by FMD, but we believe that growth potential looks promising. That said, we are not changing our EPS estimates at this time, but will wait to learn more about this new program when FMD announces fourth quarter and full-year results after market close on August 14, 2012.
In other news, the Consumer Financial Protection Bureau (:CFPB) recently announced findings on the private student loan (PSL) industry. Significant recommendations that affect PSL lenders include:
- Improved disclosure regarding the availability of federal student loans
- Enhanced cooperation between lenders and higher education institutions to prevent overborrowing by students
- Creating a database for private student loans similar to the National Student Loan Data System (:NSLDS) for federal student loans to aid borrowers in understanding their total debt obligations
- Permitting dischargeability of private student loan debt in bankruptcy to borrowers who are experiencing financial distress
Regarding dischargeability, we’re not sure if this would have a significant impact on the PSL industry as more than 80% of private student loans currently underwritten are cosigned by high-quality guarantors having strong credit profiles (FICO scores of 750 or better).
Founded in 1991, The First Marblehead Corporation (FMD), headquartered in Boston, Massachusetts, focused on creating private, nongovernment-sponsored, education loan programs. The company had its initial public offering on the NYSE in October 2003. First Marblehead currently has more than 200 employees. Through a fully integrated suite of services, the company offers outsourcing capabilities to national and regional financial institutions (banks-to-mutual institutions) and educational institutions (colleges and universities), with respect to the design and implementation of private education loan programs for undergraduates and graduates.
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