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Apr-17-2008

Sallie Mae affirms outlook, warns of 'train wreck'

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CONTENTS:

The credit market crisis is spreading to student loans. (More...)
Some people who could have gotten the loan a year ago might not be able to now." (More...)
Lending officers have no qualifications to make academic judgments about loan applicants or the academic qualities of a school. (More...)
Because the federal government is less vulnerable to market fluctuations than private lenders, it can pick up the slack, Shireman figures. (More...)
Officials at GW are wary, but confident that students here will be able to find loans to cover the University's sky-high tuition. (More...)
I called up the local office and was transferred to the "top" local staffer who listened to my whole story including many lies we were told by Sallie Mae about the consolidation process. (More...)
Anecdotally, from a conversation overheard on the 1 uptown train a few months ago - some people were talking about a medical student who, after seven years of education, had managed to accrue. wait for it. $700,000 of debt. (More...)
With April in full swing, a rising generation of future college and graduate students is combing through financial aid awards and contemplating the five- and six-figure of student debt necessary to becoming marketable in the global economy. (More...)
Shares of SLM Corp. declined Wednesday morning after an analyst downgraded shares of the nation's largest student lender amid more signs that turmoil in the credit market is slipping into the student-loan market. (More...)
The Reston, Va., company, known as Sallie Mae, said tightened credit markets have "dramatically" increased the cost of funds. (More...)
Colleges can sometimes be convinced to sweeten the deal. (More...)
Interest starts accruing as soon as the loan is disbursed, at a fixed rate of 6.8%. (More...)
The new law increases the Pell Grant program to $4,800 next year and $5,400 by 2012. (More...)
In yesterday's report, Sallie Mae said it was "still in the preliminary phase of assessing all potential restructuring activities." (More...)

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The credit market crisis is spreading to student loans. Norton thought he was set when he deposited a $16,000 student-loan check to pay for summer classes and the fall semester. When he started to pay bills for classes, rent, and other expenses last week, his checks bounced. He was one of 500 students left in the lurch with the April 7 bankruptcy filing of The Education Resources Institute Inc., a Boston nonprofit that guarantees student loans. His ordeal is only the latest example of chaos in the college loan market. More than 50 firms have abandoned or cut back their federal or private student loan programs this year, unable to raise money in the financial markets. Citigroup, one of the largest private lenders, said it would stop lending at some schools and end its federal loan consolidations. While families used to secure student loans almost regardless of their credit history, "Those days are over," said Tony Erwin, director of financial aid services at Northeastern University in Boston and president of the Massachusetts Association of Student Financial Aid Administrators. As students and parents begin the process of applying for financial aid and loans for the upcoming school year, Erwin warned, loans are going to be harder to come by and more expensive: "It's going to be a problem. [1] Sallie Mae has said it will no longer offer consolidation loans for federal loans. State agencies in Iowa, Michigan, Montana and Pennsylvania have suspended their student loan programs. It's an election year. What does all this mean? Congressional hearings of course ! At 10 AM EDT, a hearing on the state of the student lending industry convened, and lawmakers and several proposals aimed shoring up the market are floating through Congress. I'm not so sure a little tightening in the industry is such a bad thing though. Student loans have become easy to get, allowing students to graduate from college with $50 thousand or more in debt, severely hurting their ability to get a good financial start in their adult lives. Fewer student loans may encourage kids to pursue lower-cost options for education, and that will be good for them long-term.[2] The bank will also stop issuing federal consolidation loans, or refinancing outstanding student debt into a single loan. Sallie Mae, the nation's biggest student lender, stopped issuing consolidation loans this month, and other lenders like CIT Group Inc. have shuttered their student-lending businesses altogether. Last year's College Cost Reduction Act, which cut subsidies to student lenders and forced them to shoulder a greater share of losses from defaults, has eaten into student lending profits, Citi said. That legislation was the reason a team of investors including Bank of America Corp. and JPMorgan Chase & Co. bailed out of a $25 billion deal to buy Sallie Mae.[3] NEW YORK -- Shares of student lenders were mostly down Wednesday after one was downgraded by an analyst and another said it would stop lending at some schools. The College Cost Reduction Act, passed into law in October, cut subsidies to student lenders and forced them to shoulder a greater share of the risk of students defaulting. Adding to their challenges, lower demand for asset-backed debt due to investors' dulled appetite for risk has made raising money to funds loans more expensive. "The combination of reduced government subsidies and elevated funding costs basically wipes out the margin on new (Federal Family Education Loan Program) loans," Morgan Stanley analyst Kenneth Posner wrote in a note to investors cutting his rating on SLM Corp., also known as Sallie Mae, to "Underweight" from "Equal Weight." SLM can retract borrower benefits such as origination fee waivers to make up some of the lost profit, but "it has no other ability to pass higher funding costs on to consumers since pricing is fixed by the government," Posner wrote.[4]

Demand among investors for student loans packaged into securities has plummeted, even though the majority of student loans are highly rated and carry a federal guarantee. Citigroup Inc. said its Student Loan Corp. subsidiary will temporarily stop issuing loans to students at schools where profits have not been satisfactory. These market conditions come just months after a new law reduced government subsidies for federally guaranteed loans, whose interest rates are capped at 6.8 percent. That situation has forced Sallie Mae _ the nation's largest student lender _ to lose money on every federally backed loan it makes, testing Wall Street's patience as more than 50 other companies have exited the market for those loans.[5] The federal consolidation loans, which can be used by graduates to combine several federal loans into one to secure lower interest rates and monthly payments, accounted for nearly 70 percent of Sallie Mae's government-backed student loans last year. John Remondi, the chief financial officer of Reston, Va. -based Sallie Mae, formally known as SLM Corp., is among those set to testify at Tuesday's hearing. In the House this week, Rep. Paul Kanjorski, D-Pa., proposed legislation designed to pump money temporarily into the student loan market. Kanjorksi's bill would permit the 12 regional banks that make up the Federal Home Loan Bank system to invest their surplus funds in securities backed by student loans and to accept such securities as collateral. The banks also would be able to make money available to the banks and thrifts in their regions for student loans. Another House bill, sponsored by Rep. George Miller, D-Calif., was unanimously adopted last Wednesday and sent to the House floor by the Education Committee, which he heads. It would give the Education Department temporary authority to buy up loans from student lenders to ensure their access to capital.[6]

Student loan provider Sallie Mae announced a first-quarter loss of $104 million yesterday, and business setbacks will force the company to charge federal aid application fees that had traditionally been waived starting next week, according to reports. Congressional subsidy cuts and "severe credit market deterioration" contributed to Sallie Mae's Friday decision to cut some of its student loan programs. The lender will suspend its federal consolidation loans, a move that should not affect most undergraduates, Sallie Mae spokeswoman Beth Guerard said. Sallie Mae's reported stock loss and a struggling student loan market are part of the reason one-third of top 100 student loan companies have shut down their student loan programs and more than 16 percent of Federal Family Education Loan Program funds have been displaced.[7] The largest student loans company in the U.S., Sallie Mae, declared yesterday that it has eliminated about nine per cent of its workforce over the last six months, or 1,000 jobs. Its announcement followed the decision in January to lay off 359 employees in an attempt to cut operating expenses by 20 per cent, the Washington Post reported. According to the newspaper, the cuts are part of the loan company's continuing effort to deal with the factors that have made it costlier for lenders to fund their business in recent months, including cuts in federal subsidies and volatility in the financial markets. Sallie Mae revealed that it made a loss of $103.8 million in the first quarter of this year, compared with a profit of $116.2 million during the same period in 2007.[8] Sallie Mae, the nation's largest student loan company, eliminated about 1,000 jobs over the past six months, representing about 9 percent of its workforce, the company said yesterday. The layoffs are part of Sallie Mae's continuing effort to cope with cuts in federal subsidies, the collapse of a planned sale of the company and an upheaval in the financial markets that has made it costlier for lenders to fund their business. "Under current conditions. loans can only be made at an economic loss," the company said in a news release announcing its financial results for the first three months of 2008.[9]

Demand for that kind of debt has plummeted, even though the majority of student loans are highly rated and carry a federal guarantee. With investors seeking safer places to put their cash, Sallie Mae and other lenders have faced a dried-up market for securities and more expensive financing for those transactions. These inhospitable market conditions come just months after a new law reduced government subsidies for federally guaranteed loans, whose interest rates are capped at 6.8 percent.[10] Lord said Sallie Mae's new loans for the most part would lose money. He said Sallie Mae was working with Congress and the Bush administration "to make solutions for lending viable. The effort has been very pleasantly bipartisan to this point." His remarks came hours ahead of an expected vote on the floor of the U.S. House of Representatives on a bill meant to help stabilize the student loan market, with legislation also pending in the Senate amid general White House support. Millions of young people will begin this month to lock in their financing before heading to college in the autumn, raising concerns among officials about loan availability. The legislation pending in Congress would let the Department of Education buy federally guaranteed student loans from lenders unable to sell them on the secondary market, where investors have retreated from securitized debt.[11] The student lending industry and investors are pressing Congress for help, and Democratic leaders say a potential crisis in access to money for education should be averted by government action in the way that the mortgage foreclosure disaster was not. Without government help, "we're looking at a material shortfall in access to student loans this year," John Remondi, the chief financial officer of Sallie Mae, the nation's largest student lender, testified at a Senate hearing Tuesday. Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, said at the hearing he would ask Treasury Secretary Henry Paulson to consider using a Treasury financing agency to pump cash into the student loan market so lenders will make new federally backed loans.[12]

Sallie Mae rose 84 cents, or 5.2 percent, to $17.10 at 9:48 a.m. New York time. The global credit crunch has raised student-loan makers' financing costs, and they're unable to raise the rates they charge for federally guaranteed loans. Those rates are locked in by the government. Sallie Mae said that new student loans can be made only at a loss and it's assessing how "best to balance its resources.'' At least 50 lenders have ceased writing some form of student loans as the cost of raising money in the asset-backed market has skyrocketed.[13] Lenders can also issue loans directly to students, without backing or subsidy from the government. While this business is still profitable - "private" lenders are able to charge higher interest rates on their loans - bad credit has cropped up in some private lenders' portfolios. Sallie Mae set aside $884 million to cover bad loans in its $163 billion portfolio in 2007, leading to a loss of $896 million for the year.[14] Sophomores can get $4,500, and juniors and seniors can take out $5,500. Congress is considering proposals to raise those ceilings. Separate from federal loans are private loans for which banks and other lenders can set higher interest rates and stricter terms because they, rather than the government, are assuming the risk of a default. With the credit markets slumping, these private loans are the ones likely to become more expensive. Lenders who continue to offer them will be pickier about who qualifies. Applicants for aid submit a federal form that describes their family finances. This information determines how much college expense students and parents can be expected to bear, and helps schools judge how much financial aid to offer to help make up any shortfall.[15] Interest rates on private loans are also on the rise. Another troubling trend: the growing number of schools participating in the government's direct loan program, in which students borrow directly from the U.S. Of 5,200 schools that rely on federal financial aid, 1,150 are in the program--50 more than just a couple months ago. These universities are moving out of the Federal Family Education Loan program, as the credit crunch sucks liquidity from firms providing loans.[16]

The drought in capital markets for student loans may affect the ability of financial institutions to offer federal and non-federal loans, but will likely hit private lenders like Sallie Mae - who rely on the capital market in order to secure loans - the hardest. Though private lenders that issue non-federal loans may tighten credit requirements or completely eliminate loan money given to students at "low-completion rate" schools, Student Financial Aid director Bill Schilling said he does not expect problems for Penn students.[17] Financial aid officials for the University of Arkansas system have heard as much from lenders and say there's no cause for concern. "We have been monitoring the situation closely and at this time, we don't anticipate that there will be a problem for students accessing loans," said Carlia Smith, associate vice president for student financial systems for the University of Arkansas system. That's despite the credit crisis and the College Cost Reduction and Access Act, passed in 2007, which shrank lenders' profit margins on student loans, Smith said. Many private lenders were expected to stop participating in the FFEL program because of the act, she said. The student loan business is still competitive and private lenders whose financing is not tied to credit markets likely will be willing to pick up the slack left by lenders who may not be able make loans because increasing volume will build economies of scale, she said. Other reasons lenders in Arkansas are likely to continue in the program include community expectations, strong relationships and commitments to schools and the prospect of gaining customers by establishing relationships with students, Nichoalds said. A desire to improve the education level of the people of Arkansas could also be a factor, he said.[18] Local college financial advisers, however, have begun cautioning students that private loans, which once made up the difference between the rising cost of higher education and government-guaranteed loans, and scholarships are drying up. They say many banks are getting out of the business altogether as gun-shy lenders burned by sub-prime mortgages are taking longer and harder looks at whom they'll lend money to. "We've had six or seven of the banks that our students borrowed from last year say they're no longer participating in the program," said Paul Doane, assistant director of financial aid at Grand Rapids Community College.[19] "What you can get in free money like scholarships hasn't kept pace with the cost of education, creating more demand for private student loans," said Dan Spetosky, with the West Michigan National College Fair Committee. "Those who qualify for free money will get more than last year, but that doesn't mean anything to middle-class people who don't qualify for Pell grants." Experts say students should shop for money the way they shop for any other commodity, checking out interest rates and other loan terms. They also advise looking for the best financial aid package when choosing a school.[19]

There's no question about it." Student loans have been among the easiest and cheapest loans to get - allowing millions of Americans to go to college as long as they promised to pay the bills after graduation. Given this year's challenging environment, many colleges are offering more assistance to students, such as more generous grants and direct government-backed loans with capped interest rates, such as Stafford loans. Many families, especially those paying for private schools, will find that's not enough. If a private college costs about $45,000 a year, a typical family will have to come up with at least $20,000 on their own, whether from loans or savings. One Raynham mother and human resources executive was so concerned about nailing down private loans for her two sons in college that she applied in March, earlier than usual. With $60,000 in tuition bills due this fall and her husband struggling with cancer, Lynne Tartaglia applied for $33,000 in loans from Massachusetts Educational Financing Authority, or MEFA. She received her approval on March 7.[1]

Start with Scholarships, Grants and Federal Loans before seeking other student loans. ScholarshipPoints.com is a great place to start -- you can earn points towards monthly $1,000 scholarships. -- Borrow responsibly, and don't borrow more than you can pay back. -- Work with your financial aid officers; they can often help if you just meet with them face-to-face. -- If you are falling short of the funds needed, consider community colleges and state colleges, which offer great programs at a fraction of the cost of private school.[20] The nonprofit entity said last week that disruptions in the bond market have so far rendered it unable to obtain financing to make loans to students and to participate in the secondary market, buying loans from other lenders. While many nonprofit and private lenders in other states have already declared they won't participate in the Federal Family Education Loan program, a cornerstone of the financial aid system, a number of lenders in Arkansas say they will continue to participate, according to the Student Loan Guarantee Foundation of Arkansas. "Other than ASLA at this point, because they can't get their funds, I'm not aware of any major lender that is still not going to make federal loans," said Ronnie Nichoalds, executive director of the foundation, which is the designated guarantor for Arkansas of the FFEL program. Coordinated by the U.S. Department of Education, the foundation and its peers nationwide are surveying lenders in their respective states that participate in the FFEL program to see how many will continue to offer the loans, which are 97 percent backed by the federal government.[18] "The student loan industry has been affected by the sub-prime situation because the banks can no longer sell the paper." Other experts note the Michigan Alternative Student Loan program, or MI-LOAN, was suspended indefinitely in February after investors no longer would buy bonds used to fund the program. They also cite a recent Wall Street Journal article stating some 30 lenders nationwide have stopped making private student loans. Private student loans are those made outside of specific government programs such as Perkins loans, which are guaranteed by the federal government. They almost always have higher interest rates, which recently have climbed to between 12 and 16 percent, experts say.[19] More than 55 lenders who originate 13% of college loans have stopped making loans in recent months. Financial firms say they are leaving the program because subsidy cuts enacted by Congress last year, combined with the credit crunch that has made it costlier for them to sell the loans to investors, have slashed the market's profitability. The departures come at a time when lenders are also tightening their standards for private student loans, a smaller but growing segment of the industry. This doesn't mean funding has dried up, however. The U.S. Department of Education has surveyed schools that could be affected by the exodus and all have found alternative options for their students.[21] Lenders are dropping out of the federal student loan program because of the continuing credit crunch on Wall Street. Congress has entered the fray as fears mount that conditions will worsen this summer when a flood of students apply for funding. "The ongoing turmoil in U.S. credit markets. could leave millions of students in a last-minute dash to secure the financial assistance they need to attend college this academic year," Sen. Christopher Dodd, D. -Conn, head of the Senate Banking Committee, said at a hearing Tuesday.[21]

"The hedge funds are into government intelligence," Kantrowitz said. "These are guys who read 10,000 pages of information in a single day." The implications for the student loan industry are dramatic, he said. "This legislation could make or break the industry." Generally, banks and loan originators bundle and sell student loans as securities on Wall Street, or sell them to someone who does. All told, it's an $85 billion industry. Since last summer, global markets for those securities have essentially shut down as a result of the broader market's credit crisis. Lenders can't sell securities to Wall Street, and they can't raise the capital they need to make new loans. That's had a disastrous effect on the industry: Kantrowitz says 57 education lenders have suspended their participation in federally guaranteed student loans, and 19 others have suspended their private student loan plans.[22]

NEW YORK (Associated Press) - Sallie Mae's top executives are engaging in "daily deliberations" about how long the company can continue to lose money on federally guaranteed student loans, while pressing officials in Washington to aid the troubled market, CEO Albert Lord said Thursday. Sallie Mae, formally SLM Corp., has been caught up in the credit market distress of recent months, losing $104 million in the first quarter, though Lord said in a conference call with analysts that the company will meet its full-year earnings target.[5] The company put aside $137.3 million during the first quarter to cover actual and expected losses on outstanding loans, which was less severe than the $574.2 million of loan losses the company identified in the fourth quarter of last year and the $150.3 million it set aside during the first quarter of last year. Historically, Sallie Mae and other student loan companies have raised money by packaging loans into securities and selling them to investors. Investors have grown wary of such securities, much as they have lost their appetite for those backed by mortgages.[9] A year ago, Sallie Mae recorded $367.3 million from sales of packaged student loans for investors. However it had no such sales in the latest quarter. The company said its "core earnings" net income, which exclude gains and losses from derivative instruments was $188 million, or 34 diluted earnings per share.[23] Sallie Mae, whose shares plunged 71 percent in the 12 months through yesterday, has been pounded by the collapse of a $60-a-share buyout bid for the company and investors' shunning of asset-backed debt, including bonds the company relies on to finance new student loans. "The business model is fundamentally broken until they can find out a way to fund the business at economical levels,'' Richard Hofmann, an analyst with CreditSights Inc. in New York, said in an interview.[13] Sallie Mae didn't have any first-quarter gains from packaging student loans for investors, compared with a $367.3 million infusion the year before. "The business model is fundamentally broken until they can find out a way to fund the business at economical levels,'' Richard Hofmann, an analyst with CreditSights Inc. in New York, said in an interview.[24]

The investment team claimed a new law - the College Cost Reduction Act - materially hurt Sallie Mae's business and gave the investors the right to bail out. The law cut subsidies to student lenders and forced them to accept a greater share of the risk of students missing payments on loans.[14] Kiplinger's has produced a new educational video on how to pay for college and borrow wisely if you need to. Entitled Borrow Smart, the 24-minute video was underwritten by Sallie Mae, the nation's largest student lender and Discover Student Loans, one of the few lenders that is expanding its student loan business at a time most are pulling back.[25]

In some cases, consolidation is now the more costly option for borrowers. Up until Friday, the advice for those still holding variable-rate student loans was to wait to consolidate until July 1 when they'd be able to lock in historically low interest rates. With fewer lenders offering consolidation loans - including Sallie Mae, eight of the top 10 students lenders have stopped offering these loans - these borrowers "are going to have a very difficult time finding a lender that will be willing to" consolidate loans, says Brett Lief, president of the National Council of Higher Education Loan Programs. If you're stuck in this bind, consider consolidating your loans with the government. (To get more information, visit this web site.)[26] Last October, Congress struck again. It passed the College Cost Reduction and Access Act, which cut the interest rate that students pay on federal student loans while also reducing the subsidies that lenders were receiving for consolidation loans and increasing the fees they were paying to the government in order to sell consolidation loans.[26]

"Increasing the Stafford loan limits is definitely a good idea since it makes students less dependent on private loans," said Sandy Baum, senior policy analyst for the College Board. "It's a different question whether the government should do more to subsidize the market, and one I don't know the answer to." Luke Swarthout of the U.S. Public Interest Research Group said lenders might abuse such measures. "It's reasonable and responsible for Congress to put some additional safeguards into place, but those safeguards should not create loopholes for abuse," he said. Regardless of the outcome in Congress, Small said he has confidence in GW's position. The default rates for GW students were typically less than one percent, and he noted that the University anticipated many of the current issues and revised its aid accordingly. "They know the students graduate and pay it off," Small said. "We think these strategies are still going to be okay, and we're reviewing them constantly." Small said he is worried about the roughly 5 percent of GW students whose low credit scores will make them ineligible for private loans.[27] University of Mississippi students may have trouble finding additional college funding from private student loans next fall. With increasing interest rates and tough credit checks decreasing students' approvals for funding, the private loan market will be helping fewer students this year.[28] The credit crunch plaguing the mortgage industry has affected college lending. Many lenders finance their operations by bundling student loans into securities, similar to the mortgage funding process. These days, investors are demanding an interest rate nearly 1.4 percentage points higher than they did a year ago to buy the student loan-backed securities, experts said.[21] Many lenders trying to contain risks have made it harder to qualify for college loans. Some private lenders have raised interest rates or stopped lending to students altogether, worried that the weakening economy means graduates will find it hard to get the jobs they'''ll need to pay the money back.[29]

Granted, like all problems and lending issues, it helps if you are in the right and have been paying your lender what the terms state. This strategy may work even if you are close to being handed off to a collection agency. As a little background: My wife had all of her student loans through Sallie Mae, affectionately referred to around our house as the devil. Several of these private loans which Ms. Mae was holding on to were pulling in 13.25% interest! We had included some of these loans in an initial federal consolidation which never worked out. Apparently the incoming fax line at Sallie Mae was hooked right up to a paper shredder because they never received our requests to consolidate.[30] Federal loans may be forgiven if a student was enrolled when the school closed and 'could not complete the program because of the closure,' according to the DOE Web site. Department officials also suggest that students contact the state licensing agency where the school was located if they need access to their academic records. Babyak adds that student loan borrowers should also contact their respective private loan holders for specific information about the prospect of private loan discharges. Sallie Mae ' one of the largest providers of private student loans in the country ' offers private career training loans for students enrolled in continuing education programs such as technical and trade school training. Students who have this type of loan and are affected by a school closure may contact Sallie Mae to set up an automatic, 90-day interest-free administrative forbearance, says Beth Guerard, a spokeswoman for Sallie Mae.[31]

"Our goal is to continue making an IU Bloomington education as affordable and accessible as possible for our students," Theobald said. "Recent changes in the student loan market make Direct Lending the lower cost alternative for Bloomington students and their parents. Direct Lending also provides our students and their parents with a secure source of funding as they plan for next year." Since the fall of 2004, all IU campuses have been using Sallie Mae as its preferred servicer of student loans under the Federal Family Education Loan Program (FFELP).[32] '''Significant legislative cuts and severe credit market deterioration have caused one-third of the top 100 student loan originators to exit the student loan program, displacing more than 16 percent of Federal Family Education Loan Program loan originations,''' said Beth Guerard, spokeswoman for Sallie Mae, in an e-mail.[33]

NEW YORK - SLM Corp, a student lender also known as Sallie Mae, reported a first quarter net loss as its income from the sale of student loans in tight credit markets disappeared. Get stories by e-mail on this topic.[23] Sallie Mae, the nation's largest student lender, has suffered from financial losses, a failed buyout and reshuffling of top management in the past year. In January, the company said it was becoming more selective about student loans, and would emphasize the importance of graduation to predict students' likelihood of repaying their debts.[10] ANALYST TAKE: Lehman Brothers analyst Bruce Harting expects Sallie Mae to set aside an additional $260 million and write off more loans in the first quarter. He also expects the company's "spread" - or how much more Sallie Mae collects on its portfolio than what it pays on its debt - to continue to be pressured. Raising money has become more expensive, while bad credit means the lender is not collecting as much in its portfolio. SHARE PERFORMANCE: Sallie Mae's stock lost 24 percent of its value in the first quarter to close March at $15.35.[14] On Wednesday brokerage Morgan Stanley downgraded Sallie Mae "Underweight" from "Equal Weight' citing the "double whammy impact" of the credit crisis and the new student-loan law. Analyst Kenneth Posner projected that Sallie Mae would need to raise $500 million later this year. On February 13, Friedman, Billings, Ramsey had upgraded the company's shares to 'Outperform' from 'Market Perform' and increased its price target by $2 to $25. Analyst Mathew Snowling said he believes that SLM would be the first one to benefit as and when the credit markets show improvement since its 83% of loan portfolio was already federally insured thereby releasing significant earnings leverage.[34]

Sallie Mae said it originated more than $8.7 billion in student loans during the first-quarter, up from $8 billion in the year-ago period 'Today's environment is the most difficult we have seen in our 35-year history of student lending,' said Albert Lord, chief executive, in a statement. 'It has become obvious that we can only meet the enormous student credit demands we are seeing at Sallie Mae if there is a near-term, system-wide liquidity solution.' The company's shares closed at $16.26.[35] WASHINGTON (Reuters) - Sallie Mae (SLM.N: Quote, Profile, Research ), the largest U.S. student loan company, on Thursday affirmed its 2008 profit forecast, but warned of a "train wreck" in the $85 billion education financing market without urgent government intervention.[11] In a report issued yesterday before Sallie Mae's earnings announcement, Morgan Stanley analysts Kenneth A. Posner and Andy Bernard warned that a recession could lead to higher loan losses. Leading Democrats have long favored having the government issue student loans directly rather than subsidizing private lenders such as Sallie Mae, the analysts wrote.[9]

Executive Director of Student Financial Services Michael Reynolds said federal loans are direct loans where the money comes from the federal government and Stafford loans where the money comes from a bank. Guerard said while Sallie Mae will continue making Federal Stafford and PLUS loans, April 11, but they suspended participating in the federal consolidation loans, which only affects students who have graduated college and want to combine federal loans they have received.[33] Reynolds said there was a limit or set amount per year for each direct or Stafford loan. '''With the cost of education going up, these limits do not really cover the cost to attend college, especially if you are an out-of-state student paying three times instate,''' Reynolds said. Reynolds said there are two reasons why these companies are not making money and are therefore coming out of the business. '''In order to encourage banks to actually make these loans to students, the federal government pays them a subsidy, and what they did was they cut back on that,''' Reynolds said. '''Not only did you have that, but the market has gotten into a shape that they can not make money by borrowing money to make these loans.''' He said if people signed a master promissory note with one of the companies that no longer gives out federal loans, then they will have to select another company, and if a company does not give out federal loans any more, then it will affect whether they can be placed back on Auburn'''s list in the future.[33] As competition among students for the top jobs has grown, the unpaid internship has trickled down, and permeated a growing majority of professions, so as to become a virtual eligibility requirement for employment after graduation. Unpaid internships require that a student spend a summer, often away from home, working for no income whatsoever - placing a burden on the student to finance their vacation, while simultaneously loosing out on the opportunity to spend the time working for money to help pay their way through college. With the only option being to take a loan to pay for this, students are left with the unpalatable choice of graduating with even more debt (thereby restricting their employment opportunities as Destor points out), or graduating with no "experience" (thereby also restricting employment opportunities). The American Middle Class have an unerring belief in the power of education (college), and hard work (internships) to yield results - so it seems unlikely that the prospects of accruing debt will deter them. Ultimately the realities of debt upon graduation will force them to avoid careers in important sectors: Government, Teaching, Medicine, Small private business.[36]

Cawley is one of hundreds of students ' including many minorities ' across the country who have acquired student loan debt with the end goal of earning a much-desired credential. Cawley says she shouldn't have to pay for a credential she didn't receive. 'I'm paying on student loans, and I didn't get a certification or diploma or anything ' I'm sending them money for education purposes that I did not get, and I feel that it's fraud,' says Cawley. Patrick Dunn, a state-approving agent for private business and trade schools for the Delaware Department of Education, adds that about 100 students were unable to finish their studies or receive diplomas. He has been successful in guiding about a dozen students through the federal loan forgiveness process since the school closure.[31]

"Parents need to be aware of the situation unfolding and keep on top of it," said Mark Kantrowitz, publisher of the Web site finaid.org. "When they look for a lender, they need to make a list of several and not just one." In Minnesota, 72 percent of students who graduated in 2006 had to take out loans to pay for collage, and they graduated with an average debt of $23,375, according to the nonprofit group The Project on Student Debt. Students at the University of Minnesota and Gustavus Adolphus College have been spared because their schools participate in a direct loan program that leaves banks and loan companies out of the process. Other universities in Minnesota work with third-party lenders. Concordia College in Moorhead has seen two of its preferred lenders stop taking new loans.[37] Borrowers will have to pay the price. Former students who want to consolidate their loans can now only turn to the government and a small pool of lenders. Those heading to college are in an even more compromising position. Faced with the rising costs of college - the average cost of a four-year private college in 2007-08 was up by 5.9% from the previous year to $32,307; public college costs rose by 5.9% to $13,589 for in-state students and $24,044 for out of state students, a 5.4% increase, according to the College Board - and a string of lenders offering less financial support to incoming college students are faced with fewer options to help them afford college.[26] Press Photo/Lori Niedenfuer Cool Dave Brummel, Calvin College Financial Aid Counselor, talks Tuesday with Arick Davis, a junior at Creston High School, during the College Fair at DeVos Place. GRAND RAPIDS -- Braxton Holme is sure he's going to college next year, but experts say his chances of getting a private student loan to help pay for it may be evaporating in the current credit crunch.[19] Many lenders don'''t want to invest in student loans anymore because the money returns have decreased. While some lenders said they will continue to invest in FFELP, others have withdrawn. Two-thirds of students receive financial aid each year, Hanson said; it'''s how students manage to go to school these days.[38]

"If there's no government intervention and no thawing of the capital markets. there will be a mass exit of lenders from the student-loan programs," says Mark Kantrowitz, publisher of FinAid.org, an online source of student financial aid information. "Investor demand is much lower than the supply and that's causing a liquidity crisis in the student loan marketplace," he explains.[26] Investors aren't buying it. For the first time in 40 years, according to a report from Thomson Financial Services, no student loan bonds were purchased in the first quarter of 2008, leaving banks and other providers unable to raise the necessary money to issue their student debt.[16]

Lawmakers, meanwhile, have introduced bills that would allow federal officials to inject money into the market and purchase debt from lenders, among other measures. It would also raise the loan limits by $2,000 a year to reduce students' need for costlier private loans.[21] The quarterly loss was driven largely by $363 million of unrealized losses on derivatives, which are financial contracts used to hedge against risk. As a bellwether of how well consumers are managing their debt, Sallie Mae's quarterly report contained mixed signs. By various measures, delinquency rates improved on those Sallie Mae loans that are not federally subsidized. As a percentage of its private loans that borrowers are supposed be repaying, delinquencies fell to 7.4 percent as of March 31 from 8.3 percent at the end of last year, Sallie Mae reported.[9] The national default rate last year was 4.6 percent, while the University of Mississippi's was 1.6 percent, according to Knight. This means Ole Miss students nearly always pay back their private loans, and that rate will help future Ole Miss students to obtain loans. For the private loan market that has been growing faster than any other financial market in recent years, drastic changes seen this year are a warning. Both students and lenders must be aware of changes occurring in the market.[28] Private loans from Bank of America are insured by TERI. Knight assures that Ole Miss students will not be affected by the current financial status of TERI because Bank of America has only recently joined the list of the university's private lenders. It will not be funding students until the 2008-2009 school year, which leaves no students currently funded by or affected by the bank and its insurers.[28]

As tuition has risen, students have turned to private lenders who offer more expensive loans to make up for the shortfall. These loans have grown in total from $1.6 billion in 1996, to more than $17 billion this past year, according to the College Board. Despite the exponential growth, they are also particularly vulnerable to the financial market's current ailments.[27]

Before Sallie Mae's announcement, a student with a $10,000 loan would be excused of 1.5%, or $150, paid for by Sallie Mae. "This was the biggest, most valuable discount," says Kantrowitz. Students who are heading to college this fall should start shopping around for the remaining lenders, like J.P. Morgan Chase, who still offer to pay this fee.[26] '''Federal loan consolidation generates a negative return and, therefore, is no longer economically viable for any FFELP lender,''' Guerard said. Guerard said Sallie Mae will focus all its resources on college access for loans granted after May 2. She said this will not change any existing loans that Auburn students have or the PLUS loans for parents or Graduate PLUS loans for graduate students.[33] Sallie Mae, the nation's largest student lender, said it would stop offering consolidation loans for the lower-cost federal loans, saying that line of business had become unprofitable.[6] Sallie Mae federal aid applications fees will be about $35 for freshman, but can run up to a few hundred dollars for graduate students, according to an April 12 Washington Post article. Guerard said she does not think the consolidation loans Sallie Mae is cutting are attractive to students because they only have one rate. "It might sound like a bigger deal than it actually is, but not that many students are taking out consolidation loans," she said.[7] Consolidation had already become a bad idea for individuals holding onto federal student loans well before Sallie Mae's move. The main incentive behind consolidation was to take your variable rate loans and combine them into one with a fixed rate.[26]

Last week, Sallie Mae announced it was no longer offering refinancings that borrowers use to consolidate multiple student loans at a single interest rate.[9]

Sallie Mae has been pushing for the Treasury Department to aid the stricken market by buying student loan securities. The company's chief financial officer, John Remondi, warned senators Tuesday of a "shortfall in access to student loans this year."[10] Schumer, an influential lawmaker, is often attuned to Wall Street's concerns. Sallie Mae, formally SLM Corp., and the big financial institutions that bundle mortgages and student loans into securities and trade them wield hefty lobbying clout on Capitol Hill. They are urgently asking the government to step in to provide relief. It is not clear exactly what form the aid will take, and several proposals are being advanced in the Senate and House.[39] WASHINGTON ' Under pressure from industry, key senators on Tuesday assured Sallie Mae, Wall Street investors and college administrators that the government will help revive the distressed market for securities made from student loans.[39] Like much of the student lending industry, Sallie Mae has also been caught up in the credit market distress of recent months. Similar to residential mortgages, student loans are commonly packaged into securities and sold to investors.[10]

SLM, known as Sallie Mae, didn't have any first-quarter gains from arranging securities backed by student loans, compared with a $367.3 million infusion the year before.[13] WASHINGTON (AP) — Sallie Mae lost $104 million in the first quarter and fell short of Wall Street's expectations amid a severe disruption in the troubled student loan industry.[10]

"We think the market is underestimating the double whammy impact on earnings from reductions in government subsidies and disrupted capital markets," wrote Posner, who downgraded the stock to "Underweight" from "Equal Weight." Although Posner said Sallie Mae operates the leading student loan program in the industry and has a strong management team, he said it's unlikely the company will find a buyer in the near term.[40] JPMorgan said Sallie Mae continued to face challenges following the reduction in government subsidies in the wake of new lending-regulation legislation, as well as the rising losses on student loans amid the capital markets disruption.[41] Difficult market conditions and a new student-loan law that slashed billions of dollars in federal subsidies have already caused Reston, Va. -based Sallie Mae to scale back on making student loans.[40]

In the beginning of the year, Sallie Mae said it was becoming more selective about student loans. The company said it would emphasize the importance of graduation to ascertain whether the students are likely to repay their debts.[34] Josh Smith is currently the holder of student loan debt which had been confused for a home mortgage by experienced bankers. He has been to hell and back with Sallie Mae and thus learned a significant deal about the student loan industry.[30]

Citigroup will also stop issuing federal consolidation loans, which refinance outstanding student debt into a single loan, following Sallie Mae's decision last week to cease doing so.[10] Friday, Sallie Mae, the largest student lender in the country, said it was raising fees for processing loans. It will no longer do consolidation loans.[42]

Analysts said the government's latest student-loan initiatives exacerbate the problems in a business where lenders were being effectively compelled to resist participating in lending. JPM also said it worried SLM could be forced to raise more capital, further diluting its existing holders. Merrill Lynch said that, in the face of the continuing disruption in the student lending market, its 80%-owned Student Loan Corp. (STU) would back away from making loans to students at certain schools, and that it would no longer participate in the federal consolidation loan market.[41] If nothing else, Chase´s decision has spurred a need for a new form of government intervention in the student loan markets: to publish an annual listing of "deadbeat" schools. There would be only one criterion for this list: a below-average repayment rate for government-supported student loans. The federal government would make no judgment on the academic quality of the schools, nor their graduation and retention rates. This list would be made available to educators, parents, students and lenders so that each may make their own decisions.[43]

When I checked out comments on the Chronicle of Higher Education online, commentors speculated that the affected schools would be community colleges and for-profit colleges. They gave no reasons for their speculation, though I can offer one of my own: low graduation rates, meaning, that if students did not finish their education they were less likely to repay their student loans. I guess that government guarantees were not enough for Chase to continue lending to students at these schools. No surprise, they weren´t good enough for Citibank 30 years ago during the Chrysler bailout. I would understand the rationale of Chase´s decision better if I knew which schools were on their list. Without seeing the list, I have to wonder if they have something to hide, such as a lending methodology.[43] Secretary of Education Margaret Spellings has assured schools and borrowers that there are still plenty of lenders who will make student loans as well as the capacity to expand direct lending, where the government acts as lender of last resort. She should be concerned that Chase´s decision will have a ripple effect on other lenders.[43]

"The needs in Arkansas are a little different (than in other states) and I think there has been a solid effort by all involved, state government and the university systems, to move us forward," Nichoalds said. ASLA, which funded 186 million in student loans last year, still hasn't given up on lending to students next year and is working with Gov. Mike Beebe see how they may be able to do so.[18] Most student loans are guaranteed by the federal government through the Stafford and PLUS loan programs, which are limited. Last year, students received about $60 billion in such loans.[27] At a hearing on Tuesday, Sen. Christopher Dodd (D-Conn.) called on regulators to extend funds to student loan markets and warned against a possible "student loan credit crunch." Reforms proposed earlier this month by Sen. Edward Kennedy (D-Mass) and Rep. George Miller (D-Calif.) would increase the amount students could borrow under the Stafford loan program by $2,000 a year, let parents defer loan payments until students graduate and allow the Department of Education to buy student loans from brokers. This measure would help brokers issue loans even if they could not find buyers on the bond market, but would add billions of dollars in new expenses and risk to the federal budget.[27] As of April 4, 25 firms operating under the Federal Family Education Loan program have withdrawn or suspended new loan origination, taking about $6 billion with them, according to the Department of Education. "The markets are in disarray so much that they've thrown out the dog with the baby and the bathwater," says Brett Lief, president of the National Council of Higher Education Loan Programs, "These student loans are a good asset. Most of them are going to get a degree and better employment.[16]

Over the past few months, Thompson said banks have also begun to pull out of the Federal Family Education Loan Program, which partners private and public lenders to provide student loans.[44] Officials at the University of Central Arkansas in Conway are still preparing for the worst, however, UCA President Lu Hardin said Wednesday. "This loan crisis could have a dramatic impact on the ability of students to finance their college education," Hardin said. He said UCA is working harder to seek private scholarship money and is contacting local banks to see what's available in loans outside of the federal system. Certain lenders work with certain institutions, so theoretically, it's possible that students in the UA system would have access to lenders participating in the FFEL program, while students at UCA would not, Nichoalds said.[18]

Shireman notes that the U.S. Department of Education is working to increase the availability of that program, which only about a fifth of colleges use now. The rest invite other lenders to make federal loans to their students. He points to the government's promise to land federal loans for any students who somehow find themselves without an available lender.[15] '''The purpose of the survey is to ensure continued access to federal loans by monitoring any problems that institutions may be experiencing in accessing''' government-backed student loans, the department said. The Education Department is planning its survey at the same time it is taking steps to create a '''lender of last resort''' program, in what Ms. Spellings has described as the unlikely event that large numbers of students cannot find a willing lender.[45]

Robert Shireman, executive director of the Project on Student Debt in Berkeley, Calif., says, "There are good backstops in place to make sure that everyone who is eligible for a federal student loan can get a federal student loan." First he cites the direct-loan program, in which the government is the lender.[15]

The amount of federal government loans rose 137 percent from 1992 to 2002, to a total of $20.7 billion, according to the National Center for Education Statistics. "The average college student is going to make between $30,000 and $40,000 their first year.[46] _Increase from $23,000 to $31,000 the total amount of federal student loans that dependent students can receive to pay for college. The subprime mortgage crisis has shaken the market for student loans in recent months, just when students headed to college next year must begin to lock in their loans.[12] The major federal student loan program provides an estimated $50 billion in loans to 6.4 million students each academic year.[6] GAAP net interest income was $276 million for the 2008 first quarter, compared to $414 million in the first-quarter 2007. FFELP Stafford and Other Student Loans at the end of the first quarter were $464.476 million, while they were $450.76 million at the end of the same period last year.[34] The company also said it originated more than $8.7 billion in student loans during the first-quarter 2008, vs. $8 billion in the first quarter of last year.[47]

In the first quarter, $8.4 billion in securities backed by student loans were issued, down more than 60 percent from $21.7 billion a year earlier, according to the American Securitization Forum, an industry group.[10]

The most popular student loan is the federal Stafford loan, on which the interest rate is set at 6.8 percent (the rate will fall to 3.4 percent for the neediest students by the 2011-12 school year).[15] Lenders of private school loans not backed by the government are hiking interest rates. They might deny loans to students at community college and for-profit colleges as too risky, according to some experts.[42] The government sets the interest rate, currently 6.8%, and Stafford loans are not subject to credit checks. Most students take it for granted that they'll receive the financing. That might not be the case in the coming months as lenders' profits are increasingly squeezed.[21] In recent months, more than 50 lenders have ceased making loans, according to The Washington Post. Lenders are also raising credit score requirements and interest rates, becoming more selective about which students they loan to.[27]

Due to the bleak current state of the economy, credit markets have less than favorable sources from which major financial companies borrow money to lend to students. Interest and approval rates for private student loans parallel those of the current mortgage crisis.[28] Finance professor Richard Marston cautioned that a credit crunch could potentially create a bigger problem than anticipated. "I suspect many Penn families will find it difficult to get private loans for next year's tuition," he said. He added that though it would not be "impossible for a family that searches widely for funding" to get money for student loans, problems in the credit market will also have repercussions in the home equity market, posing a "serious financial problem for Penn's families."[17]

Some bankers blame Congress for cutting subsidies to the student loan industry last year. Others point to problems the lenders have selling their student loans to make money. "It's just not profitable" for some banks, said Richard Vonk, president of Key Bank Education Resources.[42] From student loans, Congress is likely to pivot to credit cards. Evidence of late payments in those areas is already being detected in the back offices of banks and credit unions, something some analysts say they have not seen in recent recessions. Combine that negative trend with the credit card industry's recent penchant for offering free money to virtually any man, woman and child whose address it could locate, then aggressively boosting interests rates on them later, and the news could get exponentially worse: massive credit defaults.[48] As if paying for college weren't enough of a nightmare these days, the roiled credit markets have made things worse. Now school officials, Congress and--most important--applicants are nervously waiting to see how much money for student loans will be available this summer.[16] Around the same time that the American economy started to see the declining results in the crunching credit markets, Congress passed the College Costs Reduction and Affordability Act in September of 2007. According to congressional websites, this act reduced the amount of funds that lenders and banks can receive to make loans to students.[28] Sen. Edward M. Kennedy (D-Mass.), chairman of the Senate Health, Education, Labor and Pensions Committee, said the government needs to "be certain we're doing everything we can to give students the strongest possible options for college loans, especially in today's troubled economy. "The ability of young Americans to pay the high cost of college should not be determined by the quarterly earnings of the bank," he declared.[48] There is clearly a bipartisan push in favor of government action in what is becoming a high-profile issue in an election year. Sen. Chris Dodd, D-Conn., the committee's chairman, said he would ask Treasury Secretary Henry Paulson to consider using a Treasury financing agency to put cash in the student market so lenders will make new federally backed loans. Legislation in the House and Senate would give the Education Department temporary authority to buy up loans from student lenders to ensure their access to capital. It is now the cusp of the period in which students headed to college next year must lock in their loans.[39] WASHINGTON -- A credit crunch affecting federally guaranteed student loans is pushing Congress to help shore up the stricken market. The House is voting Thursday on legislation that would give the Education Department temporary authority to buy loans from student lenders to ensure their access to capital.[12]

Morgan Stanley downgraded SLM, also known as Sallie Mae, and forecast lower earnings for the nation's largest student lender amid turmoil in the student loan market.[49] Sallie Mae has been pushing for the Treasury Department to aid the stricken market by purchasing securities backed by student loans. On Thursday's conference call, company executives said such assistance is urgently needed, particularly as students file loan applications early, given concern about the availability of funding.[5] Student loan provider Sallie Mae SLM on late Thursday said it swung to a first-quarter loss, due to writedowns to the value of derivative holdings amid the credit crunch.[47]

You're likely to pay the same consolidation rates you'd pay if you did so with Sallie Mae. Sallie Mae's decision to stop paying the 1.5% loan-origination fee on both subsidized and unsubsidized Stafford loans given to students after May 2 wipes away the most common discount offered to college students.[26] "Sallie Mae is a quasi-governmental organization. Its CEO is making a huge salary at public expense," he said. "He should be fired." Brazos Higher Education Service Corporation, Inc. suspended all of its consoliation loans in January, said company Executive Vice President Ellis Tredway. "Consolidation loans are unprofitable to any lenders in any environment, especially with what the Congress did," he said. Rutgers University senior Catherine Lopez said she planned to consolidate her undergraduate loans since before she started college in order to afford graduate school. "Now it seems that won't be possible because I would need a high-paying job in order to pay for all my undergraduate loans," she said.[7]

Washington Each time a student-loan company announces its withdrawal from the system of federally guaranteed student loans, the Education Department checks with the colleges using that lender to be sure their students have other loan options.[45] Legislation aimed at addressing the shrinking college loan pool flew through a House Education and Labor Committee last week without dissent. The sight of a democratic government responding so aggressively to its citizenship might be cause for pride, but it also should send up some caution flags. Times like this on Capitol Hill often lead to unintended consequences. Take the student loan legislation, which hits the House floor this week.[48] While university officials assure that Ole Miss will continue to uphold dependable financial services, the awareness of the problem cannot be denied. Just this past week, Sen. Edward Kennedy (D-Mass.) and the House of Representatives education committee introduced to Congress a student-loan bill, urging the U.S. government to financially back the weakened student loan market.[28]

To help make the confusing and stressful financial aid process easier, the Student Loan Network also delivers helpful resources, including the award-winning Financial Aid Podcast, a multitude of financial aid-related blogs, the monthly Financial Aid Newsletter, free eBooks, and valuable content. Each year, more than 5 million students, parents, and financial aid officers make the most of their education experience through our loan products and free resources.[20] QUINCY, MA -- 04/15/08 -- How will you pay for college in uncertain times? On April 9, the Student Loan Network hosted a live Round Table Conference with financial aid experts to answer that question and many more. Christopher Penn, producer of the Financial Aid Podcast and panel moderator, said, "I'm deeply impressed with the financial aid community leaders who participated in this discussion. They answered some of the toughest questions about financial aid.[20] Several college and university financial aid offices offer information about student loan consolidation.[50] The 17-year-old junior at City High School was among hundreds of high school students attending the fifth annual National College Fair in Grand Rapids on Tuesday. Holme hopes to study fashion design at Columbia College in Chicago, but he may need help covering tuition costs. "I'm going to have to look at different loans and things because it's an out-of-state college and pretty expensive," Holme said. "I'm hoping they can offer me everything I need to get through." Zach Stiemann, 17, East Grand Rapids High School junior: "It won't be all financial aid.[19] Students and parents should compare aid offers from different colleges, considering how much it would cost to attend each school. They should minimize loan debt, says Swarthout, to avoid hauling tens of thousands of dollars in debt into entry-level jobs. "The Stafford loan limit sent a signal on what is an appropriate borrowing limit for students," he says. Students who want to attend schools beyond their means should reconsider, maybe choosing a community college at first or a state school, Swarthout says.[15]

Six figure student loan debt is usually incurred by people who go to private universities. In state students who go to their state supported schools get much better deals. While I wouldn't dare to doubt that it happens, I have a hard time believing that anyone goes 6 figures into debt just to keep pace with global competition because it's likely that the student went to an expensive private university and could have cut spent half the money at a state school.[36] Nine of the 10 top loan consolidators have left the business since October and all are likely to drop out in the next few months, Kantrowitz said. "They're quite clearly in negative territory, so every time they make a loan, they're losing money.'' Student Loan said it "expects these changes to be temporary and will evaluate returning to these schools and offering federal consolidation loans as student loan market conditions improve.''[51] In the latest news affecting the sector, Student Loan Corp. also said Wednesday it will suspend lending at certain schools and exit the federal consolidation loan market.[40] Citigroup Inc.' s Student Loan Corp. said it will suspend lending at schools where the financial return is "unsatisfactory,'' and withdraw from the federal consolidation-loan market, at least for now.[51] Student Loan will stop lending on May 1 at schools where loans with lower balances and shorter interest-earning periods "result in unsatisfactory financial returns,'' the company said.[51]

Whether it involves help from parents, working while attending school, aid, taking out loans or all of the above, there are more than a few life lessons to be learned in navigating your way to a college degree. Those lessons could become even harder as a growing number of lenders tighten student-loan rules or even withdraw from offering them. This trend was bolstered again Wednesday when Citigroup announced it plans to stop lending money to students at certain U.S. schools.[52] The exiting lenders, which include college loan agencies in several states, account for around 13 percent of the federally backed student loan market, according to FinAid.org, a Web site focused on student lending.[12]

About 50 lenders, not 50% of the lenders that offer federal student loans, have stopped offering loans. Those 50 represent about 16-17 percent of the loans made in the past year.[2] Thompson said the Direct Loan Program, which is administered by the U.S. Department of Education, is not expected to be affected by turmoil in financial markets because it obtains funds to loan directly from the federal treasury. About 39 percent of the Bloomington campus' 30,394 undergraduate students this year received federally subsidized loans through private funding sources.[32] Student Loan Network is one of the nation's fastest growing providers of student loans and related information. For more than ten years, we have helped students and their families access federal and private student loans, scholarships and consolidation funding for undergraduate, graduate and continuing education.[20]

A Standby Loan Purchase Commitment is a loan agreement between a lending institution and a specific entity made within a certain period of time. This would increase funds for federal student loans and make them available for next year and years to come. Hanson reminded the senate of their opportunity and responsibility to UM students and said this was a chance for them to help the students. Vice President Tara Ness will collect any letters from senators and mail them to Congress.[38] The student lending industry and investors are pressing Congress for help, and Democratic leaders say a potential crisis in access to money for education should be averted by action in the way that the mortgage foreclosure disaster was not. "It is our obligation not to let a single person go" without being able to secure an education loan, Sen. Charles Schumer, D-N.Y., declared at a hearing by the Senate Banking Committee. It would be "unpardonable to let what happened in housing" occur with regard to student loans, he said.[39]

Now, some financial prognosticators see the struggling student loan market, hit by the same credit crunch that's battered Wall Street, as a potential moneymaker. According to several people familiar with the industry, as many as a dozen hedge funds -- those secretive and lightly regulated pools of billions of dollars in investment capital -- are watching intently to see if Congress cobbles together a rescue package that adds liquidity to the market for student-loan-backed securities. To do that, they're sending lobbyists to monitor student loan hearings such as the one on Tuesday, making calls on Capitol Hill and grilling experts to find out what Congress might do. Armed with that information, they can decide whether to start buying student loans from banks.[22]

In response to the national credit crisis, banks and private lenders across the country have been cutting or eliminating student loan programs, creating a shortage of available funds.[17] The combination of banks' limitations and many Americans' low credit scores may make private student loans difficult to come across in upcoming school years.[28]

At schools where students take out federal loans from banks or other financial institutions, financial aid staff monitor lenders constantly, O'Leary says. If some quit making such loans, "Any financial aid officer worth his salt should be able to find another lender," she says.[15] While around 8,000 undergraduate students are assisted by federal loans, only about 1,000 students depend on private loans, according to the university's office of financial aid.[28] Roberta Johnson, director of student financial aid at Iowa State University in Ames, says one must first distinguish between federal and private loans.[15]

Sandra Loerts, director of financial aid at Minnesota State University Mankato, said that about 1,200 students there had loans with TCF Financial, which stopped offering loans, and will have to find a new lender.[37]

The final list of available lenders should be on the Student Financial Services Web site around May 1. SFS will contact students whose current lenders have since discontinued their loan programs. These students will have to select new lenders for the coming academic year.[17] Ms. Spellings, the department secretary, has said the direct loan program could double the amount of new loans it makes to students, if necessary. Some commercial education companies have already taken steps to ensure that their students can find lenders, in some instances by preparing to make loans themselves. Problems are more likely for those seeking private loans, which do not have any government backing.[36] Start by logging on to www.nslds.ed.gov, the National Student Loan Data System Web site. Those with private loans can call or write lenders directly, contact the school that provided the loan, or refer to the old promissory notes.[46] Student Loan Corp., a lender 80 percent-owned by Citigroup Inc., said today that it was leaving the federal consolidation- business and wouldn't make loans to schools where students had low balances or there were short interest-earning periods.[24] Some lenders have quit offering federal student loans since Congress made that business less profitable last fall by reducing subsidies to lenders of the federally backed loans.[15]

Introduced in the mid-1980s, consolidation loans were once a great way for borrowers to streamline outstanding federal student loans and reduce interest payments. Lenders didn't like these loans because they made less of a profit off of them, says Kantrowitz.[26] Profit Resolve your problem with executive customer service for your lender. You may be surprised how much clout your local representative has with student loan lenders and the federal student aid ombudsman. Once you put these parties into play you'll likely find that the ball gets rolling much quicker with your current lender. This approach to resolution works best if you are in good standing with the involved lenders, stay tuned for more information on dealing with student loans.[30]

New federal legislation, the College Cost Reduction and Access Act, "materially'' cuts the profit margin earned on federal student loans, according to the company.[51] Lenders' costs have risen, reducing the profitability of student loans, the company said.[51]

In a weakening economy, studies suggest that rising tuitions, higher borrowing limits on government loans and an average drop in U.S. household income forces students to take out larger student loans. "When a student does not have the family resources to fund their education, loans can be an investment in the student's future," associate director of counseling Jeanette Kucera said. Tuition costs are rising faster than inflation -- they've grown more than 42 percent in the last five years.[46] Student loans are an invaluable method for helping cover the cost of a higher education. They can also pose a burden after college graduation.[50]

More than two-thirds of four-year college graduates leave with a degree and a substantial student loan, according to the National Center for Education Statistics. "Families that begin setting aside college money for their children are finding what they accounted for is no longer the norm," said Nicole McAninch, a career services adviser.[46] "The danger zone is accumulating so much debt, one is no longer able to sustain education, living conditions or repayment," McAninch said. Former Baylor student Nic Lowry from Flower Mound said he had to leave Baylor after his fourth year partly because he tapped out his student loans. "I just couldn't afford it anymore," he said.[46] Student loans issued by brokers have traditionally been resold to investors on bond markets, since brokers rarely have the funds to cover the loan themselves. The collapse of the market for home mortgages last year made such debt a pariah for investors, and student loans are the latest victim.[27] With investors balking at buying student debt, raising cash for the loans has become more difficult, Citi said. Many student lenders package their loans into bonds and sell them to investors.[3] April 17 (Bloomberg) -- SLM Corp., the largest U.S. student lender, recorded its third consecutive quarterly loss as gains from selling loans to investors dried up. The company said its new loans are unprofitable.[13] OVERVIEW: For the Reston, Va. -based student lender commonly known as Sallie Mae, the most significant event of the first quarter was the collapse of the company's proposed $25 billion sale to a team of investors including Bank of America Corp. and JPMorgan Chase & Co.[14] Sallie Mae (SLM.N: Quote, Profile, Research ), the nation's largest student lender, posted a first-quarter net loss of $132.8 million late on Wednesday compared with a profit of $107 million a year ago. Sallie Mae Chief Executive Albert Lord said in a statement: "It has become obvious that we can only meet the enormous student credit demands we are seeing at Sallie Mae if there is a near-term, system-wide liquidity solution." Other major student lenders include Citigroup Inc (C.N: Quote, Profile, Research ), Bank of America Corp (BAC.N: Quote, Profile, Research ) and JPMorgan Chase & Co (JPM.N: Quote, Profile, Research ).[53]

A year ago, Sallie Mae accepted a $25.3 billion buyout offer from J.C. Flowers & Co., Bank of America Corp. and JPMorgan Chase & Co. The deal fell apart after Congress passed, and President George W. Bush signed, a measure cutting subsidies to student- loan providers. Flowers withdrew its offer, saying the lower government backing would materially harm Sallie Mae's profitability.[24] Net interest income from loans was $276.4 million, compared with $413.8 million a year earlier. Morgan Stanley analyst Kenneth Posner yesterday lowered his rating of Sallie Mae to "underweight'' from "equal weight.''[13] Excluding $103 million in nonrecurring items, the core earnings amounted to 48 cents a share. Sameer Gokhale, an analyst with Keefe, Bruyette & Woods Inc. in New York, said Sallie Mae had a lower loan-loss provision than in the 2007 fourth quarter, better expense control and faster loan growth than he expected.[24]

Sallie Mae set aside $137.3 million for bad loans, down from $150.3 million a year before.[24]

Private funds contributed $5.3 million to University of Mississippi students for the 2007-2008 school year, as opposed to the $60 million in government-issued loans.[28] MEFA's executive director, Thomas Graf, declined to comment on Tartaglia's loans. Earlier this week MEFA said it would no longer offer federally guaranteed loans - loans that 14,700 Bay State students took advantage of in the 2007-2008 school year. Graf said he was "hopeful" that the 25-year-old nonprofit would be able to raise funds in the bond market to continue its private lending program.[1]

In Minnesota, three of every four 2006 graduates took out loans, with the average debt topping $23,000, according to the Star Tribune. If there is any good news in all this, it's that for now plenty of lending options remain for college students.[52] Representative George Miller, a California Democrat and chairman of the House education committee, has introduced a measure authorizing the U.S. Education Department to buy loans from lenders who need capital and to raise the annual amount college students can borrow by as much as $2,000. The House is scheduled to debate his proposal today.[13] WASHINGTON, April 16 (Reuters) - The White House said on Wednesday it supports major provisions of a bill expected to come to a vote on Thursday in the U.S. House of Representatives that aims to stabilize the troubled student loan market. "The administration is committed to ensuring that students and their parents have access to the federal student aid they need to pay for college this fall," said the Bush administration in a statement.[53] Worried about getting a student loan? Some financial aid experts say college applicants shouldn't fret about recent reports of a student loan crisis. They acknowledge that the atmosphere seems scary.[15] Aid packages typically mix grants, loans or work-study jobs. Eileen O'Leary, director of student financial services at Stonehill College in Easton, Mass., says financial aid officers work to help accepted students fund their education.[15]

The terms of private loans, like other consumer loans, vary depending on the credit histories of individual applicants and in some cases can top 20 percent. In the last several months, rates on those loans have risen by nearly one percentage point, according to research by Mark Kantrowitz, who publishes the financial aid Web site FinAid.org. Lenders have also tightened their standards, making it costlier for those with weak credit histories to obtain loans. These developments are making financing a college education-- an accomplishment that had already grown more difficult over the past decade (see item 1)--an even bigger challenge for middle-class families in the midst of a recession.[36] Despite the dismal look at the future of private loans, Knight assures that Ole Miss students and the university's financial aid services will not be affected. "We are not going to have students not be able to get funds this fall, or this summer, for that matter," says Knight.[28]

Unsubsidized Stafford loans. Any student who applies for federal financial aid can get one of these loans, regardless of need.[25]

To alleviate the crunch, Remondi said the Treasury Department's Federal Financing Bank should start purchasing the loans, as it is authorized to do. Not only would this inject liquidity into the market but the government's action would also help restore consumer and investor confidence. Dodd said Tuesday that he would ask Paulson and Federal Reserve Chairman Ben Bernanke to consider using the Federal Financing Bank or other tools to avert a student loan funding crisis.[21] The only lenders that have committed to do student loans are big banks, like JPMorgan Chase & Co., Citizens Bank, Wachovia Corp., and Bank of America Corp. Pekala said banks will more closely examine borrowers' credit ratings and charge higher rates than government-backed lenders.[1] The effects of the subprime mortgage meltdown have extended to the student loan market, with recent failures in the auction-rate securities market squeezing dozens of lenders out of federally-backed student loans and making other lenders choosier. An article in the Saturday New York Times explores the effect of this credit crunch on families.[36] Student loans are usually packaged into securities. Adding to its woes, the government recently introduced a new law that reduced government subsidies for federally guaranteed loans, with interest rates capped at 6.8%.[34] The new bill also cuts interest rates on subsidized student loans in half. To retire student loans quickly, graduates must first analyze the types of loans they have.[46] NEW PALTZ The mortgage crisis is spilling into the student loan market, potentially forcing students and families to pay higher interest rates or even get rejected for loans for the fall.[42]

Interest rates on federally guaranteed loans are capped at 6.8 percent, unlike private student loans -- whose rates are unregulated and can reach as high as 20 percent.[6] Core earnings exclude treatment for student loans bundled together as securities and derivatives, the complex financial instruments used as a hedge against interest rate swings.[10] Available to students with exceptional financial need, Perkins loans carry a fixed 5% interest rate.[25]

Students can fill any remaining gaps with private loans, which carry variable interest rates based on the borrower's credit rating.[25]

There's a very simple reason why Sallie Mae, like other lenders, walked away from consolidation loans: They aren't very profitable. Typically, these loans command interest rates that are 75 basis points lower than the rates offered on Stafford and Plus loans, explains Kantrowitz.[26] IN YET ANOTHER signal that the credit crisis continues to take its toll, Sallie Mae, the nation's largest student-loan lender, said it will stop offering federal consolidation loans and cease paying loan-origination fees on Stafford loans. The move echoes that of other top student-loan lenders who've been squeezed by both the credit crunch and a series of legislative moves that have left lenders to deal with shrinking profits.[26] Consolidation loans became too expensive for lenders. While Sallie Mae's decision to cease offering consolidation loans may seem like bad news for borrowers, it's actually not as grim as it appears.[26]

Then again, "The banks you might have gone to last fall might not be offering that loan or it might be more expensive." Worries grew when Sallie Mae (nyse: SLM - news - people ), the industry's largest lender, scaled back its services.[16] With the exception of Sallie Mae, who still depends on a line of credit to issue loans, the lenders will be major banks that have enough money to provide loans without dipping into the credit market.[28]

You're not alone in your confusion about student loans. In Sallie Mae's 2007 survey of parents of college-bound freshman, one-third of those interviewed said they needed basic information about loans and payment plans.[25] Boston University economic professor Lawrence Kotlikoff said Congress should require Sallie Mae to issue more reasonably priced loans to students, not less.[7] Sallie Mae placed federally guaranteed loans to IU students by drawing funds from private markets.[32] In the end we got all of the private loans away from Sallie Mae and saved close to $300 in monthly payments and countless more over the life of our loan.[30] The company made $4.8 billion in federal loan consolidations in 2006, the Web site said, following Sallie Mae at $20 billion and Lincoln, Neb. -based Nelnet Inc. at $4.9 billion.[51] Sallie Mae representatives said the loan cuts are not the company's decision, but it is simply "following the rules" set by the federal government.[7]

We tried again to consolidate my wife's private loans with Wells Fargo, who, just like our federal consolidator, never received a response from Sallie Mae.[30]

The Department of Education is looking for ways for federal agencies to make student loans directly rather than just guaranteeing loans made by private companies, which are scaling back. Any action from Washington probably won'''t come soon enough to affect the decisions families have to make this spring.[29] The Federal Family Education Loan Program (FFELP), a private-public partnership, provides 80 percent of student loans.[38] The National Center for Education Statistics reports that at least 66 percent of four-year college graduates leave with a substantial student loan.[52] Companies including College Loan Corp., CIT Group Inc., NorthStar Education Finance Inc., HSBC Bank USA, M&T; Bank and Zions Bancorp have stopped issuing federally guaranteed student loans in recent weeks.[6]

Student Loan Corp shares added 63 cents to $105, but fell as low as $103.51 earlier in the session. Other student lenders and related companies also declined.[4] The nation's largest student lender originated more than $8.7 billion in student loans during the first-quarter 2008, up from $8.0 billion in the year-ago period.[34]

Nearly 50 student lenders -- accounting for an estimated 12 percent of the federally backed student loan market -- have stopped making government guaranteed loans, either temporarily or permanently, in recent months.[6]

Students turn to private lenders who advertise quick money for school, often with stricter terms than government loans.[46] Penn Vice President of Government and Community Affairs Bill Andresen said that Penn's consistent repayment of loans and high graduation rate ensure that lenders will not disappear but added that if things continue to deteriorate, other schools may see a shortage. "With all the tumult in the market these days, it is a little unclear how things will work out," he said. "But it is highly unlikely that any Penn student in the fall that wants a loan will be unable to get one," he said.[17] How dare the government force financial sector companies to issue risky mortgage loans to people, develop subprime markets, issue credit cards who's rates go up, and I quote, "For any reason we can think of or at any time we think it", exploit students who have next to zero credit knowledge with loans and cards. I don't know how much a factor greed and exploitation played in all this but I bet it doesn't take a back seat to big brother.[48] Depending on the school, federal loans are provided either directly from the government or, more typically, by banks, credit unions and other financial institutions. All are considered federal loans because the government guarantees payment for any lenders providing them.[15] The housing data indicates that while a smaller number of home loans are being provided, the main losers are in the non-banking sector, which typically have had to charge higher rates than the Big Four banks. All lenders have faced higher borrowing costs as a result of recent financial turmoil, causing them to increase rates above and beyond those set by the Reserve Bank. The banks, because of their larger size and superior credit rating, are able to borrow from the markets at lower rates than the non-bank lenders. Aussie Home Loans founder and managing director John Symond said because his business relied more heavily on mortgage broking than home loan lending, he wasn't hit as hard as other non-bank lenders.[54]

Increased borrowing costs, cuts in government subsidies for loans and consolidations, and a lack of investor appetite for securities back by loan assets have made the business unprofitable. "It's not really a surprise that lenders are getting out,'' said Mark Kantrowitz, publisher of finaid.org, a Web site providing information on college finance.[51] Investors have avoided any asset-backed debt the company is offering. The lender said its loan provision for losses was $137 million, down from $574 million. This article is copyrighted by International Business Times.[23]

Distress in the $330 billion market for auction-rate securities in recent months ' itself an offshoot of the subprime mortgage crisis ' has caused more than 50 lenders to stop making federally guaranteed student loans, either temporarily or permanently.[39] Delaware resident Kim Cawley had dreams of becoming a cardiovascular technician. In 2005, she enrolled in pharmacology classes at the Wilmington, Del., campus of the Harrison Career Institute. In its prime, HCI had more than a dozen campuses across the Delaware, New Jersey and Pennsylvania region. A host of financial problems and decreasing student enrollment forced the institute to close 13 of its campuses, including the one in Wilmington. Although the campus permanently shut its doors in 2007, Cawley says she's still being forced to repay about $10,000 in student loans.[31] Student Loan, which is 80 percent-owned by New York-based Citigroup, rose $5.97, or 6 percent, to $110.34 at 10:44 a.m. in New York Stock Exchange composite trading.[51]

The New York-based bank's Student Loan Corp. subsidiary on May 1 will stop issuing loans to students at schools where profits have not been satisfactory. Citi did not say how many schools fit this description.[3] Lord reiterated that point Wednesday, calling federal intervention the only way to "meet the enormous student credit demands we are seeing." More student loan fallout came Wednesday, as Citigroup Inc.' s said its Student Loan Corp. subsidiary on May 1 will temporarily stop issuing loans to students at schools where profits have not been satisfactory. Citi did not say how many schools fit this description.[10] The Citigroup Inc. subsidiary said starting May 1, it will stop issuing new loans to students at schools were profits have been "unsatisfactory," and would stop issuing federal consolidation loans.[4]

By 2010, the loans will not have any interest, Guerard said. Due to limited support from Congress, loan companies are forced to redirect their lending efforts toward students struggling to get into college, Guerard said. Cutting consolidation loans does not affect current students, only students who have already graduated and are looking to unify their payments with one loan.[7] SLM said it would stop offering low-cost consolidation loans to students and suspend lending at certain schools.[55]

Citigroup's Student Loan Corp. subsidiary said it will stop issuing certain types of loans and halted lending at some schools.[49] There have already been signs recently that the student loan lending business in general and SLM in particular have been suffering some strains.[55] Several state lending agencies, including Pennsylvania's, have stopped making student loans as well.[42]

Ron Kermani, a spokesman with New York state's Higher Education Services Corp., said the state will guarantee subsidized student loans.[42]

MINNEAPOLIS -- Nearly 50 businesses that provide loans to college students have stopped making the government-backed loans in recent months, saying they had to drop the programs because of the credit crunch and fallout from the subprime mortgage crisis. That means college students will have fewer options when it comes to borrowing money to pay for their education.[37] Unlike the Direct Loan Program, in which colleges allow students to borrow directly from the government, FFELP loans are funded by private financial institutions but backed by the government.[7] We will continue to closely monitor developments there, and should it again develop a competitive edge over the federal program, we will consider returning to private lenders." Both the federal Direct Loan and the privately funded FFELP programs are overseen by the U.S. Department of Education. Both provide what are generally known as Stafford Loans for students and PLUS loans for parents. Eligibility rules and loan amounts are identical under both programs, but repayment plans and loan fees differ somewhat.[32] BLOOMINGTON, Ind. -- Indiana University announced today (April 15) that beginning in the fall of 2008, its Bloomington campus will return to using the federal Direct Loan Program as its source for federally backed student loans.[32] Congress is considering various measures to strengthen federal student loan programs.[29]

The $85 billion student loan industry is in turmoil brought on largely by the mortgage market crisis. Concern has been growing in Congress about the availability of student loans this summer as many young people firm up their finances before heading to university in the autumn.[53] Last summer, assistance finally came about for future students when legislation passed a bill providing $20 billion to increase grant aid for low-income students and cut subsidies to student loan companies.[46] Rising capital costs and a federal law that cut subsidies to loan providers prompted the decision, Stamford, Conn. -based Student Loan said today in a statement.[51] Thompson said the administration kept students''' best interests in mind during the change from private to federal loan funding. '''We wanted to keep student costs as low as we could,''' he said.[44] Federal loan amounts are not increasing with tuition, and students are depending more on additional loans from private institutions to keep up with costs.[28]

Some proposed solutions to ensure students continue to receive federal loans are for the Federal Reserve, Federal Financing Bank or Federal Home Loan Bank to provide money or to increase usage of direct loans.[38] The last thing prospective borrowers need to hear is that a money center bank is "redlining" by providing more favorable loan terms to students who attend some schools over others. The very next things prospective borrowers should do, if their college-bound student is sincerely interested in a "redlined" school, is to look at other schools or cease doing any business with that bank.[43] Today JP Morgan/Chase Manhattan, the bank that recently worked with the Fed to acquire the former Bear Stearns investment bank, announced that they will not be making student loans to entering or continuing students enrolled at schools that have a poor repayment rate. Their spokesperson refused to mention the schools that would be affected by the announcement.[43] Student Loan joined a list of lenders, led by SLM Corp., in tightening loan criteria and exiting the consolidation market, which allows borrowers to combine several loans into a single one charging a lower rate.[51] Some private lenders have stopped making student loans, but you still have thousands of others to choose from.[25] Some lenders have stopped making student loans, but don't worry, there is plenty of money available.[25] Student Loan Corp., a subsidiary of Citibank, said it too was getting out of the business of consolidating federally backed student loans, joining a wave of other lenders.[9] More than 50 student lenders have stopped making federally guaranteed student loans, either temporarily or permanently.[12] "We don't have weeks or months to resolve the solution. They need a solution today." The House is due to vote Thursday on legislation that would give the Education Department temporary authority to buy loans from student lenders to ensure their access to capital.[5] About 20 percent of students getting loans at St. John's, St. Ben's and Bethel University will need new lenders. "It certainly isn't the end of the world," Loerts said.[37]

"If doomsday hits. if every lender gets out, the foundation is obligated to work with the Education Department," which would act as a lender of last resort and distribute loans to students through the guarantee foundation using money from the U.S. Treasury, Nichoalds said. "That would be if everybody got out, and that's just not going to happen," in Arkansas, he said. Although the survey is in its early stages, the foundation has already heard back from 12 to 18 lenders who say they will continue making federally backed loans, Nichoalds said.[18] Since Feb. 29, more than 130 schools have applied to join the education department's Direct Loan Program, which allows students to borrow directly from the government.[21] The House legislation would provide government guarantees for some loans, allow deferred payments by parents and permit government programs to offer larger loans so students don't have to turn to the higher-priced private sector. The Senate is also moving fast on its own version of the bill.[48]

The federal Direct Loan Program will allow students to borrow at a rate of a half percent, Thompson said.[44] While senators like Charles Schumer or Christopher Dodd urge Congress to pump cash into the market to keep the loans flowing, I would venture to guess that the market would keep on chugging away, no matter what. My concern is that students may secure loans at rates they will have a hard time repaying, come graduation, which will ultimately extend this credit crisis for years to come.[56] Isn't it time you started reaping the benefits of your local congressman's clout? Not yet ready to ask for a letter of recommendation for West Point? Have no fear because if you are the bearer of student loans and your loan company is shafting you, your congressman may be the key to a happy ending.[30]

One method for recent grads to deal with student loans borrowed during the college years is through loan consolidation.[50] The subprime mortgage crisis, which tore through the financial markets over the last year, has reached student loans.[27] Outside the Senate Banking Committee room Tuesday morning, the financial services lobbyists began lining up early for a hearing on an issue that rarely lures them out of their posh K Street offices: student loans.[22] "Lots of parents are very nervous about it," said Karen Busanovich, a Woburn financial planner who specializes in student loans.[1]

With investors avoiding credit risk, the student loan bond market has shriveled.[3] The subprime mortgage crisis domino that hit the credit market has shaken the student loan business as well.[6] State agencies in Pennsylvania, Michigan, Montana and Texas are also bailing out of the student loan business.[22] LITTLE ROCK - College students in Arkansas will have greater access to federally backed student loans than students in many other states this fall even if the Arkansas Student Loan Authority is unable to make loans, officials said Wednesday.[18]

Caroline Rosser, a student loan specialist at Bancorpsouth in Oxford, Miss., agrees. "Private loans are going to be in big trouble; they won't be able to provide as much money to borrowers," says Rosser.[28] Nationwide, more than 30 lenders, including some of the largest ones, have dropped out of the federally subsidized student loan market.[42] Already, more than 50 student lenders have exited the market, either temporarily or permanently, citing subsidy cuts to government-guaranteed loans that have made lending unprofitable.[56] SLM Corp. swung to a first-quarter loss and warned it can't make profitable loans at this time, prompting the nation's largest student lender to assess its operation and call for a "system-wide liquidity solution."[57]

Legislators fear that without government intervention, the student-loan industry may suffer a disaster similar to the current mortgage-foreclosure mess. They contend that loan supply will fall short of demand. That imbalance may hold true in the case of providers of government-guaranteed loans, but there's a whole other source of education funding out there: private lenders. Private lenders make loans at much higher rates than their federally-guaranteed counterparts -- sometimes even three times higher.[56] A growing percentage of loans--24% last year, up from only 6% a decade ago--comes from private and state lenders, the rest from various federal loan programs. Those private lenders are getting tight.[16] Lenders simply see too little profit and too much risk in even offering federally backed loans. Clearly, the nation's real-estate situation and foreclosure crisis played a role, and some lenders also blame a change in federal law last year that cut into their profits.[52]

In early 2006, lenders further soured on loan consolidation. That year, the Deficit Reduction Act lowered borrowers' interest rates, thereby reducing the amount of money lenders could make off of these loans even more.[26] Consumer groups worry that the need to generate more loans could lead to a return of the high interest rates and predatory practices in the private sector that Congress sought to rein in with new legislation just a year ago.[48] Some federally backed loans are capped at a 6.8 percent interest rate, while private loans can go into the double digits. The fact that interest rates, broadly, have dropped this year may offset some pain for borrowers.[1]

Since July 1, 2006, all federal loans have been disbursed with a fixed interest rate, thereby stripping away the most cost-saving feature of consolidation.[26]

Luke Swarthout, higher education advocate at the U.S. Public Interest Research Group in Washington, says federal loans complement other financial aid.[15]

Teri is still in the process of contacting students; it said it will make good on the bounced checks and cover any fees or interest penalties students incurred as a result. Norton said the money had finally been restored in his bank account. "It was complete confusion. I just can't believe this happened," he said. Boston College's financial aid director, Bernard Pekala, said he's concerned about upheaval for families in the upcoming school year.[1] Hanson assured the ASUM senate that Montana'''s funding for next year is OK. There is $175 million for students in the fall. If this financial aid problem continues into the 2009-2010 academic year, UM might not have any money for students, Hanson said. Congress has to fix this problem, Hanson said. Not one solution will solve it, but a call or letter from the senators and Hanson will help encourage Congress to consider a solution, he said.[38]

Net interest income was $276.4 million for the 2008 first quarter, compared with $413.8 million in the first quarter of 2007. The Reston, Va. -based educational finance company said its provision for loan losses was $137 million versus $150 million last year.[35] The number of loans for owner-occupied housing fell 5.9% in February, to 63,817 - the biggest slide since January 2004 and the first dip since October. The value of total housing finance fell 7.1% in February to $21.5 billion, its lowest level since March last year.[54]

Some people who could have gotten the loan a year ago might not be able to now." Although Rosser doesn't know details of specific instances of Ole Miss students losing loans due to economic status, she does know it has happened. The university has approached her about taking "second looks" at students and families who have fallen on hard times with the mortgage crisis. [28] The state of the economy and reduced federal government subsidies are causing loan companies to change the loans they give to students and their parents.[33] Morgan Stanley today downgraded SLM to Underweight from Overweight, citing the impact on earnings from reduced government subsidies and disrupted capital markets. Morgan Stanley believes the market is underestimating these challenges, and the firm expects losses from student loans to increase further.[55]

Senator Chris Dodd recently asked the Fed and the Treasury to inject new capital into the student loan market.[55] McAninch said in general, student loan debt is considered good debt. "As long as you keep up with your payments schedule, loans shouldn't cripple you," she said.[46] Growing student loan debt might make financially riskier career paths like public service and entrepreneurship less attractive for many, an outcome with negative consequences for everyone.[36]

On issues from housing to student loans to credit cards, lawmakers are hurrying to the little guy's side. It's not just the Democrats.[48] The credit crunch has a lot of people concerned that student loans will be difficult to come by.[2]

Because of limitations in funding, many institutions no longer find student loan markets profitable.[28] Uses question and answer format to provides information about student loan consolidation.[50] Congress wants to know if the credit-market squeeze on student loans could make them more expensive and harder for college-bound students to get.[6] Last Monday, the nation's largest insurer of student loans filed for bankruptcy court protection.[28] Today, the House is set to consider one student loan relief bill, and other measures are pending, as well.[22] SLM CFO John Remondi recently told a Senate committee that demand for student loans is beginning to overtake supply. "The gap between available loans and the demand for them could manifest itself as early as May," he said.[55] The market for student loans that have been packaged and sold as securities dried up after last September.[1] "I don't always think that the media is doing a good job of explaining between the two, when the headline says there's a student loan crisis."[15] "There will probably be a mass exit in the next three to 12 months," said Mark Kantrowitz, publisher of FinAid.org, an online student loan resource.[21] Student Loan is the third-largest consolidator of federally backed loans, according to finaid.org.[51] Student Loan, based in Stamford, Connecticut, said it expects the departures to be temporary.[24] If you have specific loan questions or requests for additional student loan topics please leave a comment below.[30]

Federal loans, like Stafford and PLUS loans, help nearly two-thirds of undergraduate students across the nation, according to recent polls for the College Board.[28] If a teach-out is not possible, students may file a 'closed school discharge' and submit a discharge application to the DOE to absolve any outstanding federal loans, Babyak says.[31]

More than three in four families who borrow money rely on the federal program, which includes Stafford loans that students take out and PLUS loans for which parents apply.[21] Lenders drop out of federal college loan program, but money is still available.[21] The bill sponsored by California Reps. George Miller, the Democratic chairman of the House Education and Labor Committee, and Howard McKeon, the panel's senior Republican, also would let the education secretary advance federal money to designated companies that would operate as "lenders of last resort" if they run out of capital to make new federally backed loans.[12] Most recently, the credit market catastrophe has left some lenders without the money to make new loans.[15]

"The private loan (credit) tests are going to be much tougher now," said Daniel Sistarenik, director of financial aid at SUNY New Paltz.[42] For the fastest growing market in financial lending, recent news of the Education Resources Institute Inc., or TERI, is not promising for private loan markets.[28]

More than 1,500 colleges are enrolled in the program; that's about a quarter of the number participating in the Federal Family Education Loan Program. Financial institutions provide the funds for the government-backed loans in the latter program.[21] Companies including College Loan Corp., CIT Group Inc., NorthStar Education Finance Inc., HSBC Bank USA, M&T; Bank and Zions Bancorp have recently stopped issuing federally guaranteed loans. In all, 50 lenders representing 12% of the market have stopped making these loans.[2] Amid all that, don't kid yourself about the importance of loans to today's college students.[52]

SLM, known as Sallie Mae and based in Reston, Va., said in an April 11 letter to colleges and universities that it was leaving the consolidation business because it "generates a negative return and therefore, is no longer economically viable'' for any provider of federally backed loans.[51] Last week, Sallie Mae said it would stop making consolidation loans, which allow college graduates to combine several loans into one.[24]

"Right now every loan we make today, we're making at a loss," testified John Remondi, chief financial officer at Sallie Mae, the nation's largest lender. "Every lender is in this same set of circumstances.[21]

This fall, students on the IU-Bloomington campus will be borrowing directly from the federal treasury instead of Sallie Mae, a private lender, said Roger Thompson, vice provost for enrollment management.[44] Sallie Mae, the largest operating private lender reported $1 billion in profits last year alone.[46] SAN FRANCISCO, Apr. 16, 2008 (Thomson Financial delivered by Newstex) -- SLM Corp., commonly known as Sallie Mae (NYSE:SLM), late Wednesday reported first-quarter adjusted income of $188 million, or 34 cents a share, versus adjusted earnings of $251 million, or 57 cents a share, last year.[35] Sallie Mae, said late Wednesday it lost $104 million, or 28 cents a share, in the first quarter. That compares with a profit of $116 million, or 26 cents per share, a year earlier.[5] On a GAAP basis, Sallie Mae reported a first-quarter 2008 net loss of $104 million or $0.28 per share, compared to net income of $116 million or $0.26 per share in the 2007 first quarter.[34]

Sallie Mae recorded a first-quarter net loss of $103.8 million, or 28 cents a share, compared with net income of $116.2 million, or 26 cents, a year earlier, the company said in a statement yesterday.[13] Sallie Mae's shares, which have dropped from a peak of $58 per share last summer, fell $1.18 on Wednesday, or 6.8 percent, to close at $16.26. In after-hours trading, they rose 39 cents, or 2.4 percent, to $16.65. The results were better than anticipated, said Sameer Gokhale, an analyst with Keefe, Bruyette & Woods Inc. "Expectations were already fairly low, given all the concerns that investors had about the company," he said Wednesday evening.[10] Shares of SLM, commonly known as Sallie Mae, slipped 82 cents, or 4.7 percent, to $16.62. Morgan Stanley analyst Kenneth A. Posner expects Sallie Mae to cut its outlook when it reports first-quarter results after Wednesday's market close.[40]

Morgan Stanley analyst Kenneth Posner downgraded Sallie Mae on Wednesday citing the "double whammy impact" of the credit crisis and the new student-loan law. He projected that Sallie Mae would need to raise $500 million later this year.[10] SLM, known as Sallie Mae, recorded a first-quarter net loss of $103.8 million, or 28 cents a share, compared with net income of $116.2 million, or 26 cents a share, a year earlier.[24] The investment team last year offered to buy Sallie Mae for $60 per share.[14]

Sallie Mae was chosen as IU'''s primary lender four years ago because students weren'''t charged a processing fee, Thompson said.[44] "Today's environment is the most difficult we have seen in our 35-year history of student lending," CEO Albert Lord said in a company statement. "It has become obvious that we can only meet the enormous student credit demands we are seeing at Sallie Mae if there is a near-term, system-wide liquidity solution."[47] Sallie Mae's results don't hit the tape until after the close of trading, but investors assaying the rock-strewn landscape that student lending has become aren't waiting for confirmation of their pessimism.[41] Students will still have to fill out a FAFSA form, Thompson said. The only difference will be that they will be borrowing money directly through the Department of Treasury rather than through a lending institution such as Sallie Mae.[44]

Sallie Mae's research also shows that about 24% of students use credit cards to pay for college tuition. That's expensive.[25] 'We run a report to estimate the initial number of borrowers who may have been affected based on average lengths of study and disbursement dates,' says Guerard. She adds that Sallie Mae officials also advise students to contact the DOE directly to find out information about their state's tuition recovery fund or bond. 'As the regulator of licensed schools in its state, the state's department of education often has recovery funds that may be used to assist students,' she says.[31] HCI officials could not be reached for comment. In the event of a school closure, officials at the U.S. Department of Education say that they first work with the respective state agency that licensed the school or institution to provide what is called a 'teach-out' program. As part of this program, the closing institution and the state arrange for students to use any federal money they receive to continue their education at a neighboring institution.[31] NEW YORK (Associated Press) - Shares of for-profit education companies opened mixed Wednesday, despite a downgrade of SLM Corp. and news that Citigroup will stop lending money to students at certain schools.[49] NEW YORK -- Citigroup will stop lending money to students at certain schools because a new law and turmoil in the bond market have choked the profitability of student lending, the bank said Wednesday.[3]

Lending officers have no qualifications to make academic judgments about loan applicants or the academic qualities of a school. If university administrators fear the growing importance of media rankings, I can only imagine their fears if lenders determine the schools that will be their "haves" and "have nots." [43] One of Ole Miss' lenders in question is Bank of America, one the five private loan lenders affiliated with the university.[28]

The slowing economy has many parents in worse financial shape than in the recent past. Some have lost jobs or houses, or seen their credit ratings drop. And home equity lines - a source of college borrowings for as many as a third of parents, estimates James Boyle, president of College Parents of America - also are going to be less reliable this year. Not only have home values fallen, but banks are less eager to extend these loans.[1] The median college loan payment for a recent graduate amounted to 6.9 percent of a graduate's monthly salary, only slightly more than the 6.7 percent reported in 1994. Education and humanities majors reported they paid more of their salaries, 7.5 percent to 7.7 percent, while business majors paid out 5.6 percent on average last year.[46] Last year, students borrowed $77 billion to pay for higher education, according to a report from the College Board.[16] The industry also is still reeling from cuts made last year in subsidies paid to federally guaranteed student lenders, which followed months of scandal involving conflicts of interest and kickbacks among lenders and college officials.[53] Chief Executive Al Lord told analysts on a conference call: "We've been predicting something of a train wreck" in mid-2008 without prompt changes in a market hit by fallout from the subprime mortgage crisis and cuts last year in federal subsidies to student lenders.[11]

Because the federal government is less vulnerable to market fluctuations than private lenders, it can pick up the slack, Shireman figures. "There is no reason for students to worry about the availability of federal loans," he says. "They should get ready for college." [15] Posner wrote that Democrats are likely to favor the federal government's direct lending program, which doles out aid directly to students, rather than through the private sector. For the student lending industry, he wrote, "the situation could get worse if Democrats gain the presidency."[10]

The American Association of University Professors gave him about 60 percent of the vote. The ads suggest to foreign viewers that if they study in New Zealand, they will escape the scrutiny of their parents and "go far." The legislation could cause some for-profit colleges to lose their eligibility for federal student aid, the Bush administration said.[45]

About 39 percent of IU-Bloomington students will be affected by the change, according to an IU press release. MacIntyre said, students shouldn'''t notice a change in how they obtain loans. '''It will probably be exactly the same in terms of how money is applied for and accessed,''' MacIntyre said.[44] "I'd feel a lot better if I got something in writing saying 'your loans are all set,' " Tartaglia said. "Until they do that, we'll be waiting." Norton, the UMass student whose Teri loan vanished, was in the dark for nine days, asking his brother for a temporary loan. Teri spokeswoman Beth Bresnahan called the glitch "regrettable," explaining that the group's Chapter 11 bankruptcy reorganization had frozen its assets, including money earmarked for checks already in the mail.[1] Every time government has gotten involved, we the people have suffered. The mortgage crises was because Government creted those risky loans, then forced banks to use them in high risk areas and force Investment Banks to repackage them and resell them to others to spread the risk. All in the name of DIVERSITY and ANTI-RACISM. But the MSM do they report about the true cause. no, that's not sexy or in line with their goals. so it is the big bad Bankers that stole the money form the these people.[48] Ummm, the lenders created the risky mortgage types, not the government. When they began to package and sell their mortgages to investors the emphasis on making good loans became an emphasis on making loans and to heck with the risks. That in a nutshell is the credit crises. We need more regulation of these businesses. Left to their own devices, greed will always win out over caution.[48] According to CNN, that would bolster investor confidence and put money into the programs, which could inspire lenders to get or at least, stay involved in offering loans.[52]

About 50 lenders have stopped making federal loans. There are roughly 2,000 lenders in the federal loan program and those that remain will fill the demand, she says.[15] Because of the government backing, Johnson says, "there should not be a challenge in the federal loan program."[15] Without the subsidies, issuing loans under federal government programs has become less profitable, if profitable at all.[14]

Chief Financial Officer John Remondi told the U.S. Senate Banking Committee yesterday that education-loan demand "will significantly outstrip supply,'' perhaps as soon as next month. He called on the federal government to make money available for loans.[24]

The question is, did you get what you paid for?' says Allen. She adds that students should do some advance research and make sure that the schools they are interested in attending are not experiencing any kind of financial crisis. Kim Cawley's husband, Timothy, notes that his wife was denied a loan discharge by two separate loan providers, but the couple is still contesting that decision. He adds, 'We don't mind paying for something she received, but when you don't receive anything for something you paid for ' there's a problem.[31] Rosengren acknowledged the turmoil in the sector. "There are serious disruptions occurring," he said. He said he believes efforts in Washington to make more federal backing available for loans will ultimately help students and families.[1] Private and alternative, non-government loan sources currently fund a small portion of Ole Miss students.[28] Private education loans rose to $443.52 million from $338.42 million.[34] Sallie reported a $137 million GAAP provision for loan losses, down from the preceding quarter's $574 million and the year-ago quarter's $150 million.[47]

Posner said the cuts in government subsidies and the higher cost of financing new loans created a "double whammy impact on earnings.'' He set a price target of $13.[24] "Without too much exaggeration, some types of college loans will be more difficult and more expensive to get," said Brett Lief, the president of the National Council of Higher Education Loan Programs. "Therefore the cost of college will probably increase in the process."[37] The legislation cleared the committee last week on a unanimous vote. A similar measure is pending in the Senate. _Give parent borrowers more time _ up to six months after children graduate _ to begin repaying the federally guaranteed loans known as PLUS loans that allow them to borrow up to the full cost of attendance, including room and board and books. _Temporarily classify as an emergency circumstance delinquencies on home mortgages of up to 180 days, enabling parents in that situation who have a negative credit history, and would therefore be ineligible, to take out PLUS loans for their children's education.[12]

Officials at GW are wary, but confident that students here will be able to find loans to cover the University's sky-high tuition. [27] Congress is also doing what it can to ensure that federal loan money does not dry up. Andresen, who represents the University before Congress and the Bush administration, said that "there is clearly a bi-partisan commitment in Congress so that this doesn't become an insurmountable problem." "I get a strong sense from listening to members on both sides of Congress that they are committed to figuring out some way to fix it," he added.[17] Senator Edward M. Kennedy has introduced a bill that would increase federal aid and improve some federal loan programs.[1] Currently, many banks eliminate origination fees for federal loans or provide interest-rate reductions or rebates for graduates who make timely payments. "If those days aren't over, they're certainly numbered," Lief said.[37]

A spokesman for Wizard home loans said despite the company not having access to low-cost retail deposits, it provided lower rates than the banks to stay competitive. "Wizard's funding model is completely different to traditional non-bank lenders such as RAMS," he said. "Wizard loans are funded on balance sheet, which leaves us significantly less exposed than those lenders who rely on securitisation."[54] Banks financed almost 90% of all home loans by value in February, which is the highest rate in 13 years.[54] AUSTRALIANS frightened by higher interest rates avoided taking on home loans last month, with housing finance falling to its lowest level in four years.[54] Loans disbursed for the 2008-09 academic year carry a fixed 6% interest rate.[25]

The sharp fall in home loans follows a spate of economic data showing that interest rates are biting, and strengthens analysts' views that rates will stay on hold despite higher inflation numbers expected next week.[54]

I called up the local office and was transferred to the "top" local staffer who listened to my whole story including many lies we were told by Sallie Mae about the consolidation process. After expressing his astonishment he took down my info and shipped me out some forms to allow Jim Jordan to act on my behalf and a questionnaire about our loans and experience. [30] In the current market, Sallie Mae said, "loans can only be made at an economic loss."[10] We quickly began working with Wells Fargo to get our loans consolidated and anytime we ran into trouble our Sallie Mae caseworker would work directly with Wells Fargo to figure it out.[30]

Sallie Mae recently informed the University that, starting in the fall, students would be charged a minimum processing fee of 1 percent or more.[44] Sallie Mae was chosen from among eight prospective companies on the basis of best overall package of borrower benefits for students. Thompson said one of the major benefits enjoyed by IU students was that Sallie Mae charged them no processing fees.[32]

Sallie Mae declined $1.27, or 7.3 percent, to $16.17 at 4 p.m. in New York Stock Exchange composite trading, before the release of the first-quarter financial report.[24] The company's stock finished Monday's trading at $18.01. In lieu of the deal, Sallie Mae established a $31.3 billion credit line with its banks, but the damage was done.[14] A team of investors including Bank of America Corp. and JPMorgan Chase & Co. proposed a $25 billion bid for Sallie Mae, but the deal collapsed.[40]

For the fourth quarter, Sallie Mae reported a net loss of $1.6 billion or $3.98 per share, compared to net income of $18 million or $0.02 per share in the year-ago period.[34] Sallie Mae's profit on a "core" basis was 34 cents a share in the first three months of the year.[10] The company, formally SLM Corp., said Wednesday it lost 28 cents a share in the first quarter. That compares with a profit of $116 million, or 26 cents per share, a year earlier.[10] The Reston, Virginia-based company reported 'core earnings' net income of $188 million or $0.34 per share for the first quarter.[34]

The company had losses of $272.8 million on derivatives and hedging in the first quarter, compared with $357 million a year earlier.[24]

Anecdotally, from a conversation overheard on the 1 uptown train a few months ago - some people were talking about a medical student who, after seven years of education, had managed to accrue. wait for it. $700,000 of debt. [36] I have a hard time believing that anyone goes 6 figures into debt just to keep pace with global competition because it's likely that the student went to an expensive private university and could have cut spent half the money at a state school.[36] A couple of responses - the first very briefly on the private/public dichotomy. Given that private schools will have larger endowments - usually proportionate to their higher fees - it can often end up being the case that the sum of money a family will have to pay for tuition will be the same, regardless of whether they send their children to college at the local in-state university, or at an out-of-state private university. The second on debt forgiveness. I agree that it's hard to determine who exactly should be deemed eligible - but I should point out that once the decision to forgive debt is made, it should be done fairly.[36]

With April in full swing, a rising generation of future college and graduate students is combing through financial aid awards and contemplating the five- and six-figure of student debt necessary to becoming marketable in the global economy. [36] Over 8,400 MSU students received some form of federal financial aid for the 2006-07 academic year.[58] Across the nation, financial aid for the 2008-2009 academic year has encountered serious problems, causing a decrease in available financial aid for students.[38]

While no schools or students have reported problems accessing aid yet, potential shortfalls have sent Congress and financial aid offices scrambling to ensure students will be able to find financing.[27] Even the most financially challenged can draw on financial aid or loans or find a low-cost school. At least that'''s what the experts have always said.[29] One school requiring a somewhat higher family contribution may actually be more generous than a competitor that has a lower family contribution but emphasizes loans rather than grants. The College Board has a good calculator for comparing aid packages on its Web site. Double-check your aid application, looking for any errors that might have made your finances seem stronger than they are.[29]

Now the credit crisis that began a year ago with the subprime mortgage meltdown has spread to the college loan industry.[29] The average housing loan fell by $3900 to $230,000, down 6% from the highs reached in June last year.[54] '''As a result, loan demand will significantly exceed lender supply for the upcoming academic year.'''[33] It´s difficult to say if other lenders will fill the void to offer loans, offer tougher terms or refuse to take the same risk with Chase´s targeted schools.[43] The House will take up a measure sponsored by Rep. George Miller (D-Calif.) to give the Education Department authority to buy loans from lenders.[22]

Each time, Education Secretary Margaret Spellings has assured colleges, there'''s been no indication that students wouldn'''t be able to find another lender.[45] NEW YORK (CNNMoney.com) -- Paying for college is rarely easy, but this year parents and students could have a tougher time securing the necessary financing.[21]

Pennington said the school is trying to educate students on making wise financial choices. "We've created a number of programs this year on financial planning and financial management," she said.[58] College costs continue to rise faster than household incomes. ''Although you may have seen news stories in the past few months about colleges that have dramatically improved their financial aid programs, this is largely confined to elite schools with huge endowments.[29] "The crisis with the mortgages has spilled over into the student lending markets," says Dewey Knight, associate director of financial aid at the University of Mississippi.[28] While wealthy students simply can write a check and low-income students still will qualify for financial aid, the crunch is on the middle class, whose families earn too much to qualify for help but not enough to pay for an education out-of-pocket.[19]

Shares of SLM Corp. declined Wednesday morning after an analyst downgraded shares of the nation's largest student lender amid more signs that turmoil in the credit market is slipping into the student-loan market. [40] Sandler O'Neill & Partners analyst Michael Taiano estimates 40 lenders have exited the government-backed student lending business.[14] "We are continuing to see signs that some major private lenders may be forced to cut back on the amount of funding available for lending in the upcoming months," Thompson said. "We want to be sure that our students are protected from this situation."[32]

"Competition among lenders in the private sector served our students well for several years," Thompson said.[32]

Experts say the next three months to a year will be critical as students seek help and lenders must decide.[52]

Tartaglia was nervous. Loan agreement in hand, she contacted MEFA again. An e-mail she received in response said that Tartaglia had applied too early and that the rates and terms she was promised were not valid for the coming year. She hopes they will honor her signed document.[1] The government fixed the Parent PLUS loan rate at 8.5 percent and 6.8 percent for Stafford loans, which will drop to 6 percent July 1.[7] The percentage of private loans in a status called "forbearance" rose to 16.4 percent as of March 31 from 13.9 percent as of Dec. 31. When borrowers put their loans in forbearance, they temporarily suspend making payments but must pay more over the long run.[9] "I think the private loan end of the market is going to be much rougher than for loans backed by the government," said Frederick Joutz, a GW professor of economics.[27]

"Private loans are changing," Small said. "They're not going to give easy loans anymore." These problems have also drawn the attention of Congress.[27]

Some of the companys income is generated through securitized loans. However risk aversion from investors during the current credit crisis has kept the company from selling its securities.[23] April 16 (Bloomberg) -- SLM Corp., the largest U.S. student- loan provider, recorded its third consecutive quarterly deficit as gains from selling loans to investors dried up. The company said its new loans are unprofitable.[24]

"Under current conditions. loans can only be made at an economic loss," the company said in a press release. In related news, the US' fourth largest bank, Wachovia Corporation, announced plans to cut 12 per cent of jobs in its markets and investment banking operations earlier this week.[8]

Figures from the Bureau of Statistics also show that the Big Four banks are the winners, with the sharp decline in home loans mainly happening in lending by non-bank mortgage providers.[54]

State agencies in Iowa, Michigan, Montana and Pennsylvania have suspended college loan programs.[6] "How willing are you to continue making loans that are unprofitable with the uncertainty that's facing us in Washington?" asked Bradley Ball, an analyst with Citigroup in a conference call with Wall Street analyst. Lord said "we feel a special obligation to make sure that this program operates without a serious hiccup," but added that "we are literally in daily deliberations about how much further we can go." He urged investors to "give us a little breathing space in the coming days to try to sort this through."[5]

Hanson said the simplest way to establish cash flow is to require the Secretary of Education or other federal agencies to make Standby Loan Purchase Commitments available to FFELP participants.[38] "Under current conditions, however, loans can only be made at an economic loss," the company said in a released statement. "Reflecting this environment, the company is assessing how best to balance its resources and its mission to provide access for higher education.[23]

Concern is where more than 75 percent of your income is going towards things you have to pay, like credit cards or loans. Then they have to their sell houses and cars," McAninch said.[46] Subsidized Stafford loans. Like Perkins loans, these loans are based on financial need.[25] "Where is that money going to come from?" Small said. "That's the dilemma we're faced with." He said, "I'm not trying to panic them, but these students need to sit down with a financial counselor so they know all of their options and understand how this is going to affect them."[27] McAninch said students who borrow more than $50,000 are in the danger zone. These are students, she said, that usually come from a low-income background and don't know how to manage money or debt.[46] At stake is a $60 billion source of federally-backed funding for college and graduate students.[21] Kennedy said the government needs to 'be certain we're doing everything we can to give students the strongest possible options for college loans."[48] Borrowing money in order to make money has become a popular trend among college students.[46] If a college student wants to take an interest in a career, and work towards getting a job, then that should be rewarded. It is simply that the current system is discriminatory.[36] Again, the feds pay the interest until repayment begins, six months after the student leaves school.[25] Dunn says that the Delaware Department of Education was able to offer a teach-out program, and at least 30 HCI students were able to enroll in another local trade school and finish medical-related studies. 'The objective is to always try to help the students complete their education,' says Stephanie Babyak, an Education Department spokeswoman.[31] Many dissatisfied and frustrated students are seeking legal action. Dr. Anita L. Allen, Henry R. Silverman Professor of Law and Professor of Philosophy at the University of Pennsylvania, says students in this kind of situation may not have any legal recourse since it is possible to continue a credential-granting program at another school.[31]

"Thus far, we have not encountered any situation in which an eligible school did not have access to federal student loans," says Larry Warder, the acting COO. Comforting.[16]

The Bush administration said yesterday that any government intervention should be temporary and that it higher lending limits for students.[13] Lending institutions will only consider the most financially stable students. "These people have less money to lend," says Knight, "and they're going to be more careful about who they lend it to.[28] "Today's environment is the most difficult we have seen in our 35-year history of student lending," Albert L. Lord, the Reston, Va-based company's chief executive, said in a statement.[10]

The Reston, Va., company, known as Sallie Mae, said tightened credit markets have "dramatically" increased the cost of funds. [57] The company has plunged 71 percent in 12 months. Morgan Stanley analyst Kenneth Posner today lowered his rating of Sallie Mae to "underweight'' from "equal weight.''[24]

Sallie Mae said in a letter to colleges and universities that the market is "no longer economically viable.''[24]

"If there is no government intervention or a thawing of the capital markets, by the end of the 2008-09 academic year, I expect there will only be 15 to 25 lenders." Both colleges and the government are getting ready if more lenders pull out.[21] A law enacted last year cut the subsidy that the federal government provides lenders, reducing the margin by as much as 3/4 of a percentage point.[21] Government would be doing all parties: educators, lenders and borrowers an important service. The federal government has every right to use such a list as a means to collect their money.[43]

Thanks to the abandoment of base regulations to protect consumers and the ordinary, unsexy and less risky financial system, people who did play by the rules, didn't live on debt or buy into the rah-rah new credit-based economy are also being punished and suffering along with the ones who did. Lawmakers, policymakers are paid by lobbyists, voters cannot hope to compete with these powerhouses and we now see the results in no uncertain terms. Its permeated every segment of our government from the FDA, SEC, TSA. no agency left untouched or unmanipulated. Simple greed and power mongering trump the national interest or its people. I have little confidence our 'leaders' will respond as it isn't in their interest, instead they will respond to their friends the lobbyists and those who have fattened their portfolios. All we will see are public tongue lashings to relieve their guilt.[48] Instead we should use federal dollars to make the state university, college and community college systems either free or near free. That's where we're failing. As future careers go, I'm just not sure it's the government's place to say what career is and isn't so vital to society that debt should be forgiven.[36] "Home equity has been a good source in the past. Now they're saying, I don't have the equity in my home that I once had." The chief of the Federal Reserve Bank of Boston, Eric S. Rosengren, said in an interview that no one expected the turmoil in the credit markets to last this long. It started last summer in subprime mortgages, and by February had spread to most debt markets, including auction-rate securities, where many nonprofits, like MEFA, borrow funds.[1]

Colleges can sometimes be convinced to sweeten the deal. Because they are no longer allowed to consult one another to compare offers to specific students, they'''ve had to become more flexible about making counteroffers to beat competitors. [29] Some employers offer assistance in finding and paying for rented accommodation. Universities should follow suit, and be ready to keep their dorms open through the summer. Again, if all this is still difficult for employers to afford, then there should be an expansion of short programs that give students some experience in a chosen field, without sacrificing months of earning potential.[36] Perhaps there needs to be a compromise which allows the range of positions to be expanded - rather than diminished - while also providing a fair deal for students. If a living wage requirement were instituted, then perhaps some (or all) companies could be eligible for a tax break in return? And for those who need to be away from home in order to undertake summer work, accommodation should be more readily available.[36]

Interest starts accruing as soon as the loan is disbursed, at a fixed rate of 6.8%. [25] Home loan finance plummets - Business - BrisbaneTimes - brisbanetimes.com.au Welcome to The Brisbane Times.[54]

The corporations and some with their "planned bankruptcy" concept have taught America a lesson. Since many corps. have a planned bankruptcy as parts of business plans, since we won't get out of Iraq etc.many people refuse to pay their student loans! Many people have learned from the corporations not to pay your bills.[22] Whirlpool (WHR) has been laboring - it probably goes without saying - with the difficulties of selling new big-box appliances into an indifferent housing market. The final quarter of last year offered some enticing morsels that suggested the manufacturer had effectively stemmed the erosion in market share in its business.[41] The Reston, Virginia-based firm said it lost $104 million, or 28 cents per share compared to a gain of $116 million, or 26 cents per share in the same quarter a year earlier.[23] Analysts polled by Thomson Financial had expected earnings of 40 cents a share on revenue of $893.2 million.[47] On average, nine analysts polled by First Call/Thomson Financial expected earnings of $0.40 per share.[34]

The company said it still expected "core" earnings of $1.70 to $1.80 a share for the year.[11] Excluding non-recurring items of $21 million of restructuring expenses and an $82 million acceleration of premium amortization expense, adjusted earnings were $254 million, or 48 cents a share.[35] Sallie reported a net loss for the three months ended March 31 of $104 million, or 28 cents a share, compared with a year-ago net profit of $116 million, or 26 cents a share.[35] Sallie reported a GAAP loss of $104 million, or 28 cents a diluted share, vs. a net profit of $116 million, or 26 cents a diluted share, in the year-ago period.[47]

Sallie shares were falling 4.4% to $15.55 in recent after-hours action.[47]

Investors might have perked up, but analysts mostly showed picque. Those holders are singing a few verses of "I'm A Believer" in Wednesday's trading. CSX, which reported results after the close Tuesday, said it figured to post full-year results that would come in near the high end of its guidance of $3.40 to $$3.60 a share.[41] Lending to investors fell by $685 million (9.5%) to $6.6 billion.[54]

It´s true that the government would be taking the lenders off the hook; the banks would not need to disclose lending practices to the public if the government becomes the published resource.[43] Net interest income is the difference between how much it costs a bank to borrow money and the amount it receives from lending money.[10]

Just debate the dollars and cents. Harvard University, the Chicago School of Economics, The Heritage Foundation, even the Pew Hispanic Center. they have all released studies which put the cost at close to 300 Billion dollars a year. Much of the cost is not counted because the Black Market, which is trillion dollar shadow economy, and which has sprung up to serve those who are paid "off the books" causes inflation on the so called real market.[48] Penn recently issued formal requests for information to banks in order to build a list of available lenders for the coming academic year. Schilling said that it has received "positive responses" from almost all of the banks they approached.[17] Even if all the private lenders pulled out of the market, the Department of Education would step in as lender of last resort.[25] The Fed. Gov. is responsible for all of this. They decided, that no matter what, everyone should buy a home, those on min. wage, those on welfare, and those that are here Illegally. They are the ones that FORCED the lending institutions to find ways to make it happen, or ELSE! Now the Feds., you know our elected GODS, are pointing fingers at all of the lenders.[48] Experts of all sorts say some government action is critical for propping up an industry battered by the lending squeeze at the same time the weakened economy is drying up state government scholarships.[48]

For instance, a clinical psychologist working for the state or federal government needs the same doctoral degree as one in private practice, and the public/private institutional distinction really doesn't apply at the postgraduate level.[36] The federal government is making plans to fill the funding gap as a "lender of last resort" if needed.[42] Unless the Wall Street crunch eases or the government steps in with funding, families might only have a handful of lenders to which to turn in the coming year.[21] Brazil's booming economy is shifting into overdrive, with biofuels and deep-water oil providing energy independence and the government collecting enough. Hedge funds recorded their worst performance in almost four years in the first quarter as stocks and bonds around the world were clobbered by a credit cr.[23] Stuart Nachbar operates http:www.EducatedQuest.com, a blog on education politics, policy and technology. He was involved with education politics and economic development for two decades as an urban planner, government affairs manager and a software executive. His first novel, The Sex Ed Chronicles, about sex education and school politics in 1980 New Jersey, was published this past fall.[43] No federal officials spoke at the hearing, but Education Secretary Margaret Spellings has said the government is monitoring the situation to prevent a breakdown.[21]

The new law increases the Pell Grant program to $4,800 next year and $5,400 by 2012. [46] The student-loan provider reported net interest income of $276.4 million, down from $413.8 million a year ago.[10] SLM closed Wednesday's regular trade at $16.26, down $1.18 or 6.77%, on 24.69 million shares.[34]

Merrill Lynch downed the stock after the results, effectively saying a 10% haircut an opportunity to sell.) Those analysts acknowledged that the key point of concern - the whopping $4.5 billion in unrealized losses in State Street's portfolio - might turn into realized losses down the road. They said they understood the concerns that State Street might have to follow the lead of some of its fellow financials, and recapitalize its balance sheet. Those analysts said State Street could improve its capital ratio within two or three quarters, and that capital-raising efforts wouldn't be harshly dilutive. Shareholders have signalled they aren't buying the argument.[41] "There may be fewer lenders, but I'm not in a panic," said Jane Williams, director of financial aid at Concordia.[37] Now the department is planning a more comprehensive way of asking the question. The survey will ask the aid administrators to confirm that they have secured lenders throughout the 2008-9 academic year, and to provide a list of those lenders, the department said in its notice.[45]

The new Democratic Congress had already put a target on the credit card companies after taking control last year.[48] Aside from new legislation, investors' aversion to risk has made it hard for lenders to raise money.[14] St. Cloud State University officials said Tuesday that three of 10 lenders it works with are opting out. St. John's University and the College of St. Benedict told the Star Tribune last week they, too, had lost three.[52]

In yesterday's report, Sallie Mae said it was "still in the preliminary phase of assessing all potential restructuring activities." [9] My wife and I promptly returned the packet to our case worker, who let us know that we should hear back soon. This is where it gets fun and exciting, soon after we began the process, Sallie Mae assigned us a representative who provided a direct line for the consolidation information to be routed through.[30] The switch, Thompson said, is the result of uncertainty in the amount of funding Sallie Mae will be able to provide.[44] There's a limit to how much people will lend to Sallie Mae so we can then turn around and lend it at a loss.[21]

SOURCES

1. Credit crisis hits student borrowers - The Boston Globe
2. Congress holds hearing on student lending industry - WalletPop
3. Citigroup to stop issuing student consolidation loans | Chron.com - Houston Chronicle
4. Sector Snap: Student lenders fall on margin, funding concern | Chron.com - Houston Chronicle
5. Student loan losses put Sallie Mae in quandary
6. Ahead of the Bell: Student loans
7. Consolidated loans cut as Sallie Mae takes loss - News
8. US student loan firm cuts 1,000 jobs | Vedior - Accounting/finance recruitment, North America News
9. Sallie Mae Reports Loss; Cut 1,000 Jobs in Past 6 Months - washingtonpost.com
10. The Associated Press: Sallie Mae swings to $104 million loss in 1Q
11. Sallie Mae affirms outlook, warns of train wreck | Reuters
12. Ahead of the Bell: Student loan aid | Chron.com - Houston Chronicle
13. Bloomberg.com: U.S.
14. Earnings Preview: Sallie Mae - Forbes.com
15. Experts see no reason to panic on student loans: Times Argus Online
16. Credit Crunch Goes To College - Forbes.com
17. Credit crisis may hurt student loan industry - News
18. The Morning News: News : Officials Offer Assurances On College Student Loans
19. How do you plan to pay for college? - Latest News - The Grand Rapids Press - MLive.com
20. Industry Experts Answer Questions About Student Lending Crunch
21. Turmoil in student loans stresses families - Apr. 15, 2008
22. Hedge funds eye student loan market - Eamon Javers - Politico.com
23. Sallie Mae Takes Loss As Loan Sales Disappear - International Business Times -
24. Bloomberg.com: Worldwide
25. Borrow Smart for College - Kiplinger.com
26. Sallie Mae Halts Student-Loan Consolidation (Consumer Action: Personal Finance) at SmartMoney.com
27. GW preps for student loan scare - News
28. Students feel pinch in credit market as student loan availability drops - News
29. Devising a battle plan for college financial aid - Money - MSNBC.com
30. Use your congressman to resolve student loan problems - WalletPop
31. After Vocational School Closes, Debt-laden Students Decry Fraud
32. IU Bloomington campus switching to federal direct loans for 2008-09: IU News Room: Indiana University
33. For many, fewer options exist to pay for college | The Auburn Plainsman
34. Sallie Mae Posts Q1 Loss; Says Loans Can Only Be Made Now At An Economic Loss - Update [SLM] - RTTNews, Today's Top Stories, Global Newswires, ToDay's Top News,Global Business news .
35. Sallie Mae 1Q adjusted profit falls
36. TPMCafe | Talking Points Memo | A Tougher Market for Student Loans
37. Postbulletin.com: Many businesses drop college-loan programs - Tue, Apr 15, 2008
38. montanakaimin.com - News
39. Senators say they won't let student loan market sink | Chron.com - Houston Chronicle
40. Out of the Gate: Sallie Mae downgraded by Morgan Stanley - Forbes.com
41. Stocks To Watch Today : Sallie Poor Mae, Wringing Whirlpool, State Street Stumbles
42. Credit crisis hitting student loan market - RecordOnline.com - The Times Herald Record
43. American Chronicle | Chased Away from Student Loans
44. IU switches to federal direct loans
45. Education Department Plans 'Emergency Survey' of Colleges' Student-LoanPlans - Chronicle.com
46. Baylor University || The Lariat Online || News
47. Sallie Swings to a Loss | Financial Services | SLM - TheStreet.com
48. Bailouts should sound alarm - Jeanne Cummings - Politico.com
49. Opening Glance: Education stocks face student loan woes
50. SunHerald.com : On the Money: Student loan consolidation
51. Citigroup will suspend student lending at some schools | APP.com | Asbury Park Press
52. St. Cloud Times | Opinion
53. UPDATE 2-W.House backs much of US House student loan bill | Reuters
54. Home loan finance plummets - Business - BrisbaneTimes - brisbanetimes.com.au
55. Earnings Preview: Sallie Mae - Seeking Alpha
56. Government Bailout, Take Two - BankNet360.com
57. Free Preview - WSJ.com
58. MSU Students May Face Loan Trouble in Bad Economy - News

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