Sunday, November 16, 2014

Investment Insights from Student Loan Data

Direct loans are low-interest loans for parents and students to help pay for the cost of post high-school education. Parent PLUS, available through the Direct Loan Program, lets parents borrow money to pay costs not already covered by a student's financial aid package.

The current PLUS interest rate is fixed at 7.21%. The Parent PLUS, combined with other student loans, should lower the student loan default rate. However, we should note that the financial responsibility rests Parent PLUS not on students, but on parents.

When a borrower fails to make their monthly payment at a scheduled point in time, a default occurs. The cohort default rate is the percentage of a school’s borrowers who enter into a repayment agreement on Direct Student Loans during a given fiscal year and default within the period.

Cohort default rates nearly tripled from 2007 to 2010. The US government is now focused on strengthening the Federal Direct PLUS Loan Program to stop the default rate increase.

While the Parent PLUS helps decrease the probability that a student will default on their loan, the program increases the financial burden on parents. Many middle-class parents have found it difficult to repay the PLUS loan. What’s worse, The U.S. Department of Education doesn't analyze or publish default rates for the Plus program in the same detail that it does for other federal education loans. But there are still some data we can reference, shown below (*click on picture to enlarge):


Here are some conclusions:

· PLUS Proprietary has the highest default rate in either graduate or undergraduate student loan.
· The effective default rate increase of Grad PLUS borrowers is 0.28% while the default rate for Parent PLUS 0.30%.
· There are many more Parent PLUS than Grad PLUS borrowers.
· The trend is that the default rate for Parent or Graduate PLUS programs will increase. I expect the default trend for the Parent PLUS program to decrease. Investment implications should be obvious.

Post by:

Creative Investment and NCS Intern Meng Guo, 2014 Master of Science in Finance, Carey Business School, Johns Hopkins University, Washington DC, United States. Edited by William Michael Cunningham.

Monday, June 9, 2014

Appeals Court Ruling in Citi Case Is a Gift to Big Banks

Anyone still waiting for justice with respect to the role that large banks played in the financial crisis had to be disappointed in a New York appeals court's ruling in a case involving a settlement agreement between Citigroup Global Markets and the Securities and Exchange Commission. Read more at:

http://www.americanbanker.com/bankthink/appeals-court-ruling-in-citi-case-is-a-gift-to-big-banks-1067939-1.html

Also see: http://www.prlog.org/11948760-william-michael-cunningham-files-revised-brief-in-sec-vs-citigroup-2nd-cir-ct-of-ap.html

Tuesday, June 3, 2014

LeVar Burton and Crowdfunding

We note with interest the recent Kickstarter campaign by LeVar Burton for Reading Rainbow. According to one news report, "Reading Rainbow, the PBS children’s program hosted by LeVar Burton that debuted in 1983 and went off the air in 2006,upset many with its departure. But Burton, who also executive produced the program, has managed to keep the project alive in some form or another in the time since. He launched the show as an app in 2012. And now his new venture is to take Reading Rainbow’s large digital library of books and videos to classrooms nationwide for free. But to do so Burton needs capital. So the Star Trek actor turned to Kickstarter to raise money. He launched his campaign last Wednesday to raise $1 million to launch his PBS children’s series online. Although Burton had allotted 35 days to raise the money, within 24 hours he had reached his goal."

Bravo! Why was this campaign so successful?  See: http://crowdfundingnow.blogspot.com/2014/06/levar-burton-shows-how-to-crowdfund.html

Monday, May 5, 2014

Mr. Gary Becker, 1930 - 2014

The photo at left is Mr. Gary Stanley Becker (December 2, 1930 – May 3, 2014). 

Mr. Becker was thesis adviser for my Master's degree in Economics at the University of Chicago. 

The photo was taken at the International Monetary Fund in Washington, DC on September 23, 2013

Thank you, Mr. Becker.