Private student loan company executives downplayed the prospective risks to their business models from various proposals by Democratic presidential campaigns that would overhaul the U.S. higher education finance system.
The 2020 presidential election remains more than a year away, but with some leading Democratic candidates talking up initiatives to make public colleges tuition-free and to implement far-reaching student loan debt forgiveness programs, questions about related risks and uncertainties are not likely to dissipate.
During the Sept. 12 Democratic presidential debate, for example, Sen. Elizabeth Warren, D-Mass., referenced her proposal to "cancel student loan debt for 95% of the folks who've got it." Sen. Bernie Sanders, D-Vt., went a step further by stating "we are going to cancel all student debt in this country." He has also proposed reviving his College for All Act to eliminate tuition and fees at four-year public colleges and certain other institutions.
"We don't see any risks in that business where we sit right now," said Discover Financial Services President and CEO Roger Hochschild when asked during a recent investor conference about the prospects for his company if Democrats were to control both houses of Congress and the White House.
Sallie Mae Chairman and CEO Raymond Quinlan, also speaking at an investor conference, conceded that perceptions related to the political proposals can place the industry in "a tough competitive position," but he said those concerns have kept aggressive, well-funded competitors from entering the student loan business.
"Politics has a high degree of emotion [and] a high degree of attention and focus," Quinlan said in recalling the market's initial reaction to the election of President Donald Trump in 2016. "But the impact on us ... over the last five years has been approximately zero."
Hochschild echoed those sentiments, saying that "one of the things we've seen, even from this administration, is that regulatory policy doesn't change that much."
Even to the extent governmental policy has encroached on higher education finance, as it has at the state level in recent years, Quinlan said that the impact to his company has been "marginal," reinforcing his confidence that the private student loan industry can continue to grow at an annual rate of between 3% and 5%.
He highlighted as a case study New York's Excelsior Scholarship, which Gov. Andrew Cuomo pitched in January 2017 as a first-in-the-nation program to make State University of New York and City University of New York two- and four-year colleges tuition-free for qualifying middle-class families and individuals.
Sallie Mae initially modeled for some impact to its loan volumes due to the program, but Quinlan said that it has proven "immaterial" to date.
"There are 18 states that have programs that are parallel to [the Excelsior Scholarship] one way or another," he said. "We're already living with all of those. When we overlay any of the political pieces that we hear and we look at things that are going to impact us, we find out that it is a lot like this Excelsior program."
As an originator and holder of private student loans, Sallie Mae seeks to bridge the gap between the total cost of attendance and what is available to students in the form of federal funding, family contributions and grants. The company supports policies that focus taxpayer assistance on those who could not achieve a higher education without it. Quinlan noted that the various political proposals have some form of associated means-testing.
"Our customers come from stable, middle-income households," he said. "They are the people ... who have on average 747 FICOs. That is our target customer. That is not the target for free college."
His comments came prior to the Sept. 18 news that New Mexico planned to make public colleges and universities tuition-free to state residents regardless of their income.
Navient Corp., where loans originated under the Federal Family Education Loan Program account for a majority of the company's education portfolio, has issued a series of recommendations to improve student loan program success. They include expanding the resources available to help families make informed borrowing decisions, improving the college completion rate, simplifying the government's existing menu of repayment plans, helping borrowers pay off their loans early, and encouraging more engagement between borrowers and servicers.
"There's not a single solution that benefits all borrowers in this process," said President and CEO John Remondi in response to a question at a recent conference.
As it pertains to private student loans where there is a contract between a lender and the borrower, Hochschild said that it is unclear whether the federal government has the ability to repay in that scenario. And, he added, "the appetite in the general public for paying back someone's $200,000 of law school debt may not be entirely there."
Regardless of the outcome, Hochschild said, "as long as it's a level playing field, we need to find a way to compete."
