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Educational Lending - US - April 2012

The U.S. student loan industry is heading toward a potential crisis. About a quarter of outstanding student loan borrowers are behind on their payments, according to both a recent research report by the Federal Reserve Bank of New York, as well as Mintel’s consumer survey for this report. At the same time, the amount of student loan debt is growing faster than any other consumer loan category. Longer term, the demographics of the U.S. population bode poorly for growth, as the population of 18- to 24-year-olds is expected to shrink, although the prevailing demographic trends may be positive from a credit quality perspective.

This report provides a comprehensive analysis of the U.S. educational loan industry with a particular spotlight on market and profit drivers, the competitive landscape, consumer behavior and attitudes, and the regulatory and legislative environment.

What you need to know:

  • How big is the student loan market?
  • What are the primary factors driving growth in the student loan business?
  • How do borrowers feel about taking on and servicing their student loan debt?
  • What challenges will student loan lenders face in 2012 and beyond?
  • What are some of the new innovations in the student loan industry?

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Table of contents

  1. Scope and Themes

      • What you need to know
        • Data sources
          • Consumer study data
            • Advertising creative
              • The following is a list of abbreviations used in this report.
                • Terms
                  • Companies mentioned in this report:
                  • Executive Summary

                    • Industry overview
                      • The consumer
                        • Marketing strategies and product innovations
                        • Insights and Opportunities

                            • Key points
                              • Lenders, educators should target older students as population ages
                                • Grad students make better, more satisfied customers
                                  • Hispanics are growing strongly, but need special attention
                                  • Inspire Insights

                                      • Trend: No Degree, No Problem
                                        • What we've seen
                                          • Industry application
                                            • Trend: Extend my Brand
                                              • What we've seen
                                                • Industry application
                                                • Market Size and Forecast

                                                  • Key points
                                                    • Student debt is fastest-growing consumer loan segment
                                                        • Figure 1: Total consumer debt outstanding by type of loan, Q4 2011
                                                        • Figure 2: Per capita consumer debt by type of loan, Q4 2011
                                                    • Competitive Context

                                                      • Key points
                                                        • Federal government now dominates the student loan market
                                                            • Figure 3: New student loans, Uncle Sam versus private lenders, 2007-08 and 2010-11
                                                            • Figure 4: Total cost of a college education, 2010-11 academic year
                                                          • Average cost of college drops in most recent year
                                                              • Figure 5: Average cost of a college education, 2007-11 academic years
                                                            • Grants & scholarships pay a larger share, but student debt holds steady
                                                              • Figure 6: How America pays for college, 2010 versus 2011
                                                            • About one third of families use student loans, mostly from the U.S.
                                                              • Figure 7: Funding sources for college, 2010-11 versus 2009-11
                                                          • Is There An Educational Loan Crisis?

                                                            • Key points
                                                              • Student loan borrowers are in crisis
                                                                • Student loans not dischargeable in bankruptcy
                                                                • Marketing Channels

                                                                  • Key points
                                                                    • Sallie Mae is one of few companies with a presence in social media
                                                                    • Market Drivers

                                                                      • Key points
                                                                        • College age population is expected to shrink in coming decades
                                                                          • Figure 8: U.S. population projections by age groups, by percent share of population, 2010-50
                                                                          • Figure 9: U.S. population projections by age groups, total numbers, 2010-50
                                                                        • Hispanics are likely to make up a larger share of student loan borrowers
                                                                          • Hispanics are an underserved niche, but lenders need to be cautious
                                                                          • Leading Companies

                                                                            • Key points
                                                                              • Sallie Mae
                                                                                • Discover
                                                                                  • Citigroup
                                                                                    • Wells Fargo
                                                                                      • J.P. Morgan Chase
                                                                                        • First Marblehead Corporation/Union Federal
                                                                                          • SunTrust
                                                                                            • U.S. Bancorp
                                                                                              • PNC Financial Services
                                                                                                • Citizens Financial Group/Charter One
                                                                                                • Brand Qualities

                                                                                                  • Key points
                                                                                                    • Brand name means relatively little to student loan customers
                                                                                                      • Figure 10: Importance of factors in satisfaction with student loan originator and servicer, December 2011
                                                                                                    • Brand recognition is slightly more important to men than women
                                                                                                      • Figure 11: Importance of factors in satisfaction with student loan originator and servicer, by gender, December 2011
                                                                                                    • Brand name is more important to college-age respondents
                                                                                                      • Figure 12: Importance of factors in satisfaction with student loan originator and servicer, by age, December 2011
                                                                                                    • Higher income people less interested in brand recognition
                                                                                                      • Figure 13: Importance of factors in satisfaction with student loan originator and servicer, by household income, December 2011
                                                                                                    • Brand name less important to those with advanced degrees
                                                                                                      • Figure 14: Importance of factors in satisfaction with student loan originator and servicer, by education, December 2011
                                                                                                    • Brand name is more important among Hispanics, other races
                                                                                                      • Figure 15: Importance of factors in satisfaction with student loan originator and servicer, by race/Hispanic origin, December 2011
                                                                                                  • Innovation and Innovators

                                                                                                    • Key points
                                                                                                      • U.S. Bank offers incentives for good grades and graduating
                                                                                                        • Sallie Mae launches suites of insurance services for students
                                                                                                          • Discover offers new loans for graduate students
                                                                                                            • Discover donates $10 million to get financial education into schools
                                                                                                              • Sallie Mae offers mobile access for banking customers
                                                                                                              • Marketing Strategies

                                                                                                                • Key points
                                                                                                                  • Student loan lenders do very little marketing
                                                                                                                    • Figure 16: Student loan marketing pieces, January 2011-January 2012
                                                                                                                  • Representative direct and email advertising
                                                                                                                    • Figure 17: Sallie Mae email ad, December 2011
                                                                                                                    • Figure 18: Citibank email ad, January 2012
                                                                                                                    • Figure 19: Wells Fargo email ad, December 2011
                                                                                                                    • Figure 20: Sallie Mae email ad, December 2011
                                                                                                                    • Figure 21: Fastweb email ad, September 2011
                                                                                                                    • Figure 22: PrivateStudentLoans.com email ad, November 2011
                                                                                                                    • Figure 23: Alliant Credit Union direct mail ad, August 2011
                                                                                                                    • Figure 24: Discover/AAA direct mail ad, August 2011
                                                                                                                    • Figure 25: PNC email ad, August 2011
                                                                                                                    • Figure 26: Chase Select Private Student Loan direct mail ad, August 2011
                                                                                                                    • Figure 27: CharterOne direct mail ad, August 2011
                                                                                                                • The Consumer and Student Loans

                                                                                                                  • Key points
                                                                                                                    • About one in five respondents have some student debt
                                                                                                                        • Figure 28: Total amount owed on student loans, December 2011
                                                                                                                        • Figure 29: Total amount owed on student loans, by gender, December 2011
                                                                                                                      • Youngest group has the most loans
                                                                                                                          • Figure 30: Total amount owed on student loans, by age, December 2011
                                                                                                                        • Middle income households have the most debt
                                                                                                                          • Figure 31: Total amount owed on student loans, by household income, December 2011
                                                                                                                        • Blacks, Hispanics are more likely to have student loans
                                                                                                                          • Figure 32: Total amount owed on student loans, by race/Hispanic origin, December 2011
                                                                                                                        • Graduate students are the most indebted
                                                                                                                            • Figure 33: Total amount owed on student loans, by education, December 2011
                                                                                                                          • Full- and part-time workers have the most debt
                                                                                                                            • Figure 34: Total amount owed on student loans, by employment, December 2011
                                                                                                                        • The Consumer—How Big is The Burden of Monthly Payments?

                                                                                                                          • Key points
                                                                                                                              • Figure 35: Monthly payment for student loans, December 2011
                                                                                                                              • Figure 36: Monthly payment for student loans, by gender, December 2011
                                                                                                                            • Youngest respondents have lowest payments
                                                                                                                              • Figure 37: Monthly payment for student loans, by age, December 2011
                                                                                                                            • Highest earners have the biggest monthly payments
                                                                                                                              • Figure 38: Monthly payment for student loans, by household income, December 2011
                                                                                                                            • Graduate students have big monthly loan payments
                                                                                                                              • Figure 39: Monthly payment for student loans, by education, December 2011
                                                                                                                            • Hispanics, other races tend to have lower monthly payment loads
                                                                                                                                • Figure 40: Monthly payment for student loans, by race/Hispanic origin, December 2011
                                                                                                                            • The Consumer—Student Loan Providers

                                                                                                                              • Key points
                                                                                                                                  • Figure 41: Institution for origination of student loans, December 2011
                                                                                                                                  • Figure 42: Institution for origination of student loans, by gender, December 2011
                                                                                                                                • Sallie Mae is most popular lender among 25-34 age group
                                                                                                                                  • Figure 43: Institution for origination of student loans, by age, December 2011
                                                                                                                                • Middle-income group favors government loans
                                                                                                                                  • Figure 44: Institution of student loans, by household income, December 2011
                                                                                                                                • Sallie Mae is favored by other races/ethnicities
                                                                                                                                  • Figure 45: Institution of student loans, by race/Hispanic origin, December 2011
                                                                                                                                • Sallie Mae is most common loan servicer, followed by U.S. DoE
                                                                                                                                    • Figure 46: Current student loan servicer, December 2011
                                                                                                                                    • Figure 47: Current student loan servicer, by gender, December 2011
                                                                                                                                  • Sallie Mae is more likely to service loans for 25-34 age group
                                                                                                                                    • Figure 48: Current student loan servicer, by age, December 2011
                                                                                                                                  • A quarter of grad students pays their bills to other lenders
                                                                                                                                      • Figure 49: Current student loan servicer, by education, December 2011
                                                                                                                                  • The Consumer—Satisfaction with Originators and Lenders

                                                                                                                                    • Key points
                                                                                                                                        • Figure 50: Level of satisfaction with student loan originator and servicer, December 2011
                                                                                                                                        • Figure 51: Level of satisfaction with student loan originator and servicer, December 2011
                                                                                                                                      • Middle-income earners are most satisfied with their loan originators
                                                                                                                                        • Figure 52: Level of satisfaction with student loan originator and servicer, by household income, December 2011
                                                                                                                                      • Hispanics, other races rate lenders and servicers higher than other groups
                                                                                                                                        • Figure 53: Level of satisfaction with student loan originator and servicer, by race/Hispanic origin, December 2011
                                                                                                                                        • Figure 54: Level of satisfaction with student loan originator and servicer, by race/Hispanic origin, December 2011
                                                                                                                                      • The higher the degree, the higher the satisfaction level
                                                                                                                                        • Figure 55: Level of satisfaction with student loan originator and servicer, by education, December 2011
                                                                                                                                    • The Consumer—Many Are Worried They Can’t Pay Debt

                                                                                                                                      • Key points
                                                                                                                                        • 25% of student borrowers are behind on their payments
                                                                                                                                          • Figure 56: Percentage of respondents behind on student loan payments, December 2011
                                                                                                                                          • Figure 57: Percentage of respondents behind on student loan payments, by gender, December 2011
                                                                                                                                        • Older borrowers are just as likely to be delinquent as younger borrowers
                                                                                                                                          • Figure 58: Percentage of respondents behind on student loan payments, by age, December 2011
                                                                                                                                        • Likelihood of default drops with income, but is still quite high
                                                                                                                                          • Figure 59: Percentage of respondents behind on student loan payments, by household income, December 2011
                                                                                                                                        • 40% of Hispanic borrowers say they are late on payments
                                                                                                                                          • Figure 60: Percentage of respondents behind on student loan payments, by race/Hispanic origin, December 2011
                                                                                                                                        • Higher education correlates with better payment record
                                                                                                                                            • Figure 61: Percentage of respondents behind on student loan payments by education, December 2011
                                                                                                                                          • But having a job doesn’t necessarily mean you’re not in trouble
                                                                                                                                            • Figure 62: Percentage of respondents behind on student loan payments, by employment, December 2011
                                                                                                                                        • The Consumer—Attitudes About Student Debt

                                                                                                                                          • Key points
                                                                                                                                              • Figure 63: Attitudes concerning student loans and current life situation, December 2011
                                                                                                                                              • Figure 64: Attitudes concerning student loans and current life situation, by gender, December 2011
                                                                                                                                            • Young more worried about paying loans, but think it’s worth the cost
                                                                                                                                                • Figure 65: Attitudes concerning student loans and current life situation, by age, December 2011
                                                                                                                                              • Having money doesn’t reduce worries about student debt
                                                                                                                                                  • Figure 66: Attitudes concerning student loans and current life situation, by household income, December 2011
                                                                                                                                                • Hispanics, other races more worried about their debt
                                                                                                                                                  • Figure 67: Attitudes concerning student loans and current life situation, by race/Hispanic origin, December 2011
                                                                                                                                                • Highly educated still worried about their student loans
                                                                                                                                                    • Figure 68: Attitudes concerning student loans and current life situation, by education, December 2011
                                                                                                                                                  • Having a job doesn’t reduce worries about paying loans
                                                                                                                                                      • Figure 69: Attitudes concerning student loans and current life situation, by employment, December 2011
                                                                                                                                                  • Appendix—Trade Associations

                                                                                                                                                    Companies Covered

                                                                                                                                                    • American Automobile Association (AAA)
                                                                                                                                                    • Apple, Inc
                                                                                                                                                    • Bank of America Corporation
                                                                                                                                                    • Bank One Corporation
                                                                                                                                                    • BB&T Corporation
                                                                                                                                                    • BlackRock, Inc.
                                                                                                                                                    • Chase Home Finance
                                                                                                                                                    • Citibank
                                                                                                                                                    • Citigroup Inc.
                                                                                                                                                    • Citizens Financial Group, Inc.
                                                                                                                                                    • Discover Financial Services Inc.
                                                                                                                                                    • Education Finance Council (EFC)
                                                                                                                                                    • Facebook, Inc.
                                                                                                                                                    • Federal Deposit Insurance Corporation
                                                                                                                                                    • Gap (USA)
                                                                                                                                                    • JPMorgan Chase & Co
                                                                                                                                                    • Mortgage Bankers Association (MBA)
                                                                                                                                                    • NatCity Investments Inc.
                                                                                                                                                    • National Association of Student Financial Aid Administrators (NASFAA)
                                                                                                                                                    • National Council of Higher Education Loan Programs (NCHELP)
                                                                                                                                                    • Navy Federal Credit Union
                                                                                                                                                    • Nelnet, Inc.
                                                                                                                                                    • Royal Bank of Canada
                                                                                                                                                    • Royal Bank of Scotland Group plc
                                                                                                                                                    • SLM Corporation
                                                                                                                                                    • SunTrust Banks Inc.
                                                                                                                                                    • The College Board
                                                                                                                                                    • The PNC Financial Services Group
                                                                                                                                                    • The Student Loan Corporation
                                                                                                                                                    • U.S. Bancorp
                                                                                                                                                    • U.S. Bureau of the Census
                                                                                                                                                    • U.S. Securities and Exchange Commission
                                                                                                                                                    • USAA
                                                                                                                                                    • Visa U.S.A. Inc.
                                                                                                                                                    • Wachovia Corporation
                                                                                                                                                    • Walmart Stores (USA)
                                                                                                                                                    • Washington Mutual Inc
                                                                                                                                                    • Wells Fargo & Company
                                                                                                                                                    • Wells Fargo Home Mortgage

                                                                                                                                                    Educational Lending - US - April 2012

                                                                                                                                                    £3,277.28 (Excl.Tax)