WEST ORANGE, N.J., Jan. 23 /PRNewswire-FirstCall/ -- Lincoln Educational Services Corporation (NASDAQ:LINC), a leading provider of career-oriented post secondary education, announced today that it received a termination letter for its tiered discount loan program provided by Sallie Mae, Inc. (SLM), effective February 18, 2008. It is our understanding that SLM has terminated its tiered discount program for all schools.
As discussed in our Form 10-Q for the quarter ended September 30, 2007, we entered into a tiered discount loan agreement with SLM on September 1, 2007 under which SLM agreed to provide up to $16 million of private loans to qualifying students that are non-recourse to us. Under the agreement, we were required to pay SLM discounts of up to 30% on all loans disbursed, depending on the credit score of each student participating in the program. The agreement also stated that SLM would defer funding for these students for 60 days.
For the year ended December 31, 2007, approximately 4.6% of our revenue on a cash basis was funded under SLM recourse, non-recourse and opportunity fund programs. However, as a result of the changes that SLM had made to its lending practices that led to the tiered program described above and in anticipation of changes in student financing, we had already taken steps to minimize the use of SLM funds to finance our students' education. Since September 1, 2007, we had only utilized approximately $500,000 of the funds available under SLM's tiered discount loan program.
We believe that SLM's decision to terminate its tiered discount loan program will have a minimal impact on the Company. Our current expectations are that these students will continue to have access to funding either through alternative lenders or through our own internal financing. We also believe that these risks are further mitigated due to: -- Increases in annual federal Title IV loan limits and PELL grants,
which for 2006 represented 80% of our revenue on a cash basis. -- Our internal financing is provided to students only after all other
funding resources have been exhausted; thus, by the time this funding
is available, students would have completed approximately two thirds
of their curriculum and are more likely to graduate. -- Funding for students who interrupt their education is typically
covered by Title IV funds. -- Our excellent collection history with our graduates. Historically,
91% of our graduates have repaid their balances in full. This is also
evidenced by our low default rate of 8.9%.
The College Cost Reduction & Access Act which was signed into law in September 2007 cut approximately $22 billion in subsidies to federal student lenders and guarantors as an offset to increases in federal financial aid. This resulted in significant changes to the terms that alternative lending providers were willing to make and resulted in the tiered discount loan programs. We have performed a thorough review of the costs associated with these programs and, in anticipation of additional changes, concluded that the cost of using the tiered discount loan program was too high and would lead to significant margin erosion over time.
"We analyzed the impact that the SLM tiered discount loan program would have had on our business and had already concluded that we would be better served by financing the gap between Title IV funds and tuition internally, while also examining other alternative loan sources," said Dave Carney, Chairman & Chief Executive Officer. "We have historically tracked the performance of our students over time and we are confident in our decision as the credit worthiness of our students has not changed, only their financing options. These changes to student financing options have not had any impact on our ability to sustain the enrollment momentum we achieved in the third quarter." About Lincoln Educational Services Corporation Lincoln Educational Services Corporation is a leading and diversified for- profit provider of career-oriented post-secondary education. Lincoln offers recent high school graduates and working adults degree and diploma programs in five principal areas of study: automotive technology, health sciences, skilled trades, business and information technology and hospitality services. Lincoln has provided the workforce with skilled technicians since its inception in 1946. Lincoln currently operates 34 campuses in 17 states under five brands: Lincoln College of Technology, Lincoln Technical Institute, Nashville Auto- Diesel College, Southwestern College and Euphoria Institute of Beauty Arts and Sciences. Lincoln had a combined average enrollment of approximately 18,185 students at September 30, 2007.
Statements in this news release concerning the future business, operating results and financial condition of the company are "forward-looking" statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based upon management's current expectations and are subject to a number of uncertainties that could cause actual performance and results to differ materially from the results discussed in the forward-looking statements. Factors that could affect the company's actual results include changes to federal and state educational funding, construction delays for new or expanding campuses, possible failure or inability to obtain regulatory consents and certifications for new or expanding campuses, potential increased competition, changes in demand for the programs offered by the company, increased investment in management and capital resources, the effectiveness of the company's recruiting, advertising and promotional efforts, changes to interest rates and low unemployment. Further information on these and other potential factors that could affect the company's financial results or condition may be found in the company's filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. DATASOURCE: Lincoln Educational Services Corporation CONTACT: Brad Edwards of Brainerd Communicators, Inc. for Lincoln Educational Services Corporation, +1-212-986-6667 Web site: http://www.lincolneducationalservices.com/
|