Shares of student lenders jumped Wednesday after an analyst suggested that the industry may not immediately be pushed out of the federal loan origination business, a prospect many had feared for months.
"Although still an uphill battle, the survival of the FFELP program, we believe, is a real possibility," FBR Capital Markets analyst Matt Snowling wrote in a note to investors, referring to the Federal Family Education Loan Program, which allows private lenders to originate government-backed loans for college students. The Obama administration had proposed a plan to bypass the lenders in favor of direct lending, allowing the companies only to service the loans but not originate them.
According to Snowling, the health-care debate has delayed congressional action on the lending legislation. Because schools and students need clarity by the time the new lending season gets under way this winter, the government could be forced to reauthorize the current rules and try again for an overhaul next year. Snowling said legislation to extend the current law could be introduced in both houses as early as Wednesday.
If there is such a delay, Snowling said, a lender-backed alternative to Obama's proposal would look more attractive the next time the debate comes to a head.
A delay "gives Congress ample time to fully consider how best to reform the student loan program," said Martha Holler, a spokeswoman for SLM Corp. (SLM), the largest private originator of federal loans. SLM, commonly known as Sallie Mae, originated $6.9 billion of federal student loans in the third quarter of this year.
Shares of Sallie Mae were recently trading up 6.1% at $11.40. Nelnet Inc. (NNI), another major federal lender, rose 2.2% to $17.42. First Marblehead Corp. (FMD), which securitizes student loans, was trading up 4.8% at $2.20.
While stocks are responding positively to Snowling's note, the continuation of FFELP isn't a sure thing. The House of Representatives already passed a sweeping student loan reform bill in September approving many of the changes the Obama administration encouraged, and Snowling noted that the Senate is still three to five votes short of approving the lender-backed proposal were a vote to go forward.
The lenders' stocks were further buoyed because Sallie Mae sold $839 million in student loan-backed securities Tuesday on the open market, without the assistance of the Term Asset-Backed Securities Loan Facility (TALF). The sale was a sign that investors once again have a taste for the securities, as risk premiums, or spreads, have tightened enough to make the option affordable for Sallie Mae. The most recent deal sold at 75 basis points over one month London interbank offered rate, or Libor.
Sallie Mae's Holler said the deal was "perhaps the best-priced consolidation deal in some time."
"Although still an uphill battle, the survival of the FFELP program, we believe, is a real possibility," FBR Capital Markets analyst Matt Snowling wrote in a note to investors, referring to the Federal Family Education Loan Program, which allows private lenders to originate government-backed loans for college students. The Obama administration had proposed a plan to bypass the lenders in favor of direct lending, allowing the companies only to service the loans but not originate them.
According to Snowling, the health-care debate has delayed congressional action on the lending legislation. Because schools and students need clarity by the time the new lending season gets under way this winter, the government could be forced to reauthorize the current rules and try again for an overhaul next year. Snowling said legislation to extend the current law could be introduced in both houses as early as Wednesday.
If there is such a delay, Snowling said, a lender-backed alternative to Obama's proposal would look more attractive the next time the debate comes to a head.
A delay "gives Congress ample time to fully consider how best to reform the student loan program," said Martha Holler, a spokeswoman for SLM Corp. (SLM), the largest private originator of federal loans. SLM, commonly known as Sallie Mae, originated $6.9 billion of federal student loans in the third quarter of this year.
Shares of Sallie Mae were recently trading up 6.1% at $11.40. Nelnet Inc. (NNI), another major federal lender, rose 2.2% to $17.42. First Marblehead Corp. (FMD), which securitizes student loans, was trading up 4.8% at $2.20.
While stocks are responding positively to Snowling's note, the continuation of FFELP isn't a sure thing. The House of Representatives already passed a sweeping student loan reform bill in September approving many of the changes the Obama administration encouraged, and Snowling noted that the Senate is still three to five votes short of approving the lender-backed proposal were a vote to go forward.
The lenders' stocks were further buoyed because Sallie Mae sold $839 million in student loan-backed securities Tuesday on the open market, without the assistance of the Term Asset-Backed Securities Loan Facility (TALF). The sale was a sign that investors once again have a taste for the securities, as risk premiums, or spreads, have tightened enough to make the option affordable for Sallie Mae. The most recent deal sold at 75 basis points over one month London interbank offered rate, or Libor.
Sallie Mae's Holler said the deal was "perhaps the best-priced consolidation deal in some time."
