Default student loan consolidation

BEING big doesn't always mean having the highest profile. All Student Loan is a prime example.

The non-profit, officially named Access to Loans for Learning Student Loan Corp., is the largest charitable organization in Los Angeles County, as measured by its 2003 assets of $850 million. Yet few outside of higher education know it even exists.

The Los Angeles-based institution was the fifth-largest originator of higher education loans in California in 2003, grabbing 5 percent of the market, behind a handful of large players such as Sallie Mae and Bank of America.

In this school year, All Student Loan is expected to originate $170 million in loans to students in school, plus another $90 million in consolidation loans for students who have already graduated.

"Despite our size in the non-profit world, in the banking world we are a fairly small player," said Chief Executive Christopher Chapman.

All Student Loan's assets have grown as it holds more student loans on its books, rather than selling them off to a third party. Its loan portfolio grew to more than $1 billion this year, representing 70,000 borrowers, from less than $100 million in 1995.

The low-interest student loans are guaranteed by the federal government. Students seeking a Stafford loan will pay no more than 3.37 percent, a rate that can be lowered to 1.13 percent for borrowers who keep up with their payments. (Formerly known as "Guaranteed Student Loans" and renamed in honor of former Sen. Robert Stafford, these are low-interest loans sponsored by the federal government for students enrolled at least halftime.)

If students default, All Student Loan can receive up to 98 cents back on the dollar. It keeps its default rate below the industry average of 6 percent by focusing on four-year colleges, considered the high end of the market.

All Student Loan raises funds by issuing tax-exempt bonds that are backed by repayments from borrowers. It got its start in 1980, along with 40 similar agencies, when interest rates were sky high and banks had little interest in loaning money to students. In response, the federal government created the non-profits to operate in the secondary market, buying student loans from banks in order to encourage them to issue more.

Six years ago, All Student Loan made the jump into the retail sector, issuing a little over $10.5 million in student, parent and consolidation loans. Today the retail market accounts for 90 percent of its business, and it competes largely against for-profit lenders. The company's non-profit status allows it to undercut its competitors by offering lower interest rates, Chapman said.

Despite its asset base, All Student Loan has only about 45 employees at its West Los Angeles offices, and farms out its loan servicing operations to a third party.