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Apr-20-2008Financial Services BofA, Citi Scale Back from Student Loans(topic overview)
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Private lenders prefer Dodd's solution. The banks say that the Miller-Kennedy proposal won't work because they would have to sell their existing loans at a loss to gain funding to make new loans. "We would prefer the administration to use its existing authority and work with the Federal Financing Bank to provide more liquidity," said Kevin Bruns, executive director of American Student Loan Providers, a coalition of 80 lenders involved in the federally backed loan program. Financial aid experts said Miller's bill would help students by raising the aggregate loan limits - the total amount borrowed over the course of a student's education - to $31,000 for undergraduates who are dependents of their parents, and $57,500 for undergraduates who are not claimed as dependents. The more students can borrow in federally backed loans with fixed interest rates, the less they have to depend on other loans with higher rates. To help struggling parents, Miller's bill also would give them more time before they have to start paying off their federal PLUS parental loans - allowing them six months after their children leave school rather than the current 60 days. The bill would allow parents to qualify for those loans even if they had been late for three months on their mortgage payments or medical bills. "Those are wonderful actions that would really help students and families right now," Resh of UC Berkeley said. [1] The lender of last resort program is untested, and the state guaranty agencies are not in the business of making loans, lobbyists said. It is not clear whether lenders strapped for capital will readily sell their loans to the Department of Education. Lobbyists for lenders said that it may not be profitable for them to do so, citing a provision of the bill that says the Education secretary can only buy the loans if they are at no extra cost to the government. Lenders are pushing a different fix they say wouldn't require congressional action: having the Federal Financing Bank (FFB), which is overseen by the Treasury, advance lenders funds backed by student loans. "It's an immediate solution," said Kevin Bruns, the executive director of America's Student Loan Providers. The idea got a boost this week when Senate Banking Committee Chairman Chris Dodd (D-Conn.) wrote a letter to Treasury Secretary Henry Paulson urging him to use the FFB to provide liquidity to the student loan market. He also wrote to Federal Reserve Chairman Ben Bernanke, asking him to use his authority to ensure access to loans. The chairman of the House Financial Services Subcommittee on Capital Markets, Rep. Paul Kanjorksi (D-Pa.), wrote to Paulson and Education Secretary Margaret Spellings in February, asking them to consider several forms of federal financing, including advances from the FFB, to shore up capital to student lenders.[2] With large competitors to Sallie Mae scaling back, the government is likely to intervene within the next two weeks to prevent further distress as colleges around the country kick off the financial aid process for next fall, said Matt Snowling, an analyst with Friedman, Billngsm Ramsey & Co. Asking lenders to operate at a loss for a sustained period "is a pipe dream," he said. The House is due to vote Thursday on legislation giving Education Department temporary authority to buy loans from student lenders to ensure their access to capital. The bipartisan bill 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.[3] The House on Thursday passed legislation intended to ensure that students can get federally backed loans for school this fall, as lenders faced more bad news. The 383-27 vote came a day after Sallie Mae, the nation'''s largest student lender, announced it lost $104 million in the first quarter, and said almost all its new loans will be made at a loss. JP Morgan/Chase and Citigroup have also said they will be more selective in the schools to which they lend, likely meaning they will back away from schools with high default rates ''' most frequently community colleges, schools that historically serve minorities and others that educate many people from low-income backgrounds. At least 57 lenders have already dropped out of the federally backed Federal Family Education Loan program this year, driven away by the credit crunch, which has essentially frozen sales of packaged loans on the secondary market. Sallie Mae has said its application for new loans were up roughly 20 percent from last year, as students who previously used other lenders turned to it for help.[4]
"Today the House took an important step towards ensuring that, no matter what happens in our nation's financial markets, students will continue to have access to federal student loans. With families in the middle of planning their finances for the coming school year, it is critical that we continue to act swiftly on this legislation, and I look forward to working with the Senate and the administration to help make that happen." "California State University, Northridge students depend greatly on loans to meet their academic and professional goals," stated California State University, Northridge President Jolene Koester. "We are deeply grateful for Congressman McKeon's continued support of the nation's college students and their ability to maintain access to affordable loans. This bill ultimately will benefit the community at the local level as well as strengthen the country overall." In recent months, the crisis in the nation's credit markets has made it difficult for some lenders that participate in the federally guaranteed student loan program to secure the capital needed to finance their student lending activity.[5] Representative George Miller (D-Calif.),who sponsored the bill, said t he bipartisan legislation ensures that the turmoil in the U.S. credit markets does not prevent any students or parents from accessing the financial aid they need to pay for college. The Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715) would provide new protections, in addition to those already under current law, to ensure that families continue to have timely, uninterrupted access to federal college loans in the event that stress in the credit markets leads a significant number of lenders in the federally guaranteed student loan programs to substantially reduce their lending activity.[6] The Ensuring Continued Access to Federal Student Loans Act of 2008 (H.R. 5715), which carries no new cost for taxpayers, was passed by a vote of 383-27. "During these uncertain economic times we must ensure Iowa students have reliable and expanded access to federal student loans to help defray the rising cost of college," said Congressman Loebsack. "By reducing a student's reliance on more costly private loans and further encouraging responsible borrowing, this legislation makes college more accessible and provides students with the financial stability necessary to complete their educations regardless of the current economic climate." In recent months, turmoil in the U.S. credit markets has made it difficult for some lenders in the federally guaranteed student loan program to secure the capital needed to finance college loans, leading some lenders to scale back their lending activity.[7]
"The U.S. financial system is going through a very difficult time for a variety of complex reasons, which is why it is critical that Congress take proactive steps to ensure the current situation does not end up making it difficult for students to take out loans for college," Hinchey said. "Student loans play a critical role in making the American Dream achievable, which is why we must do everything we can to make them accessible to as many students as possible." The Ensuring Continued Access to Student Loans Act of 2008 would provide new protections, in addition to those that already exist under current law, to ensure that families continue to have timely, uninterrupted access to federal college loans in the event that the stress in the credit markets leads a significant number of lenders to substantially reduce their activity in the federally guaranteed student loan program. Give parent borrowers more time to begin paying off their federal PLUS loans by providing them with the option to defer repayment until up to six months after their children leave school giving families more flexibility in hard economic times.[8]
While no student or college has reported any problems accessing federal student aid to date, Congressman Loebsack believes it is nonetheless prudent for the federal government to make sure that contingency plans are in place that would provide students and families with continued, uninterrupted access to federal loans, regardless of what's happening in the credit markets. The Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715) would provide new protections, in addition to those that already exist under current law, to ensure that families continue to have timely, uninterrupted access to federal college loans in the event that the stress in the credit markets leads a significant number of lenders to reduce substantially their activity in the federally guaranteed student loan program.[7]
Without government action, demand for federally backed student loans would outstrip supply, industry officials said. About 7 million borrowers will need more than $68 billion in federal loans this academic year, according to Education Department estimates. The legislation would "ensure America's families can continue to access the federal college loans they are eligible for regardless of what is happening in the credit markets,'' said Democratic Representative George Miller of California, chairman of the House education panel.[9] The House bill, sponsored by Education and Labor Chairman George Miller, D-Calif., would authorize the Education Department to purchase student loans at a discount, increasing liquidity, and it would raise the limits on how much students can borrow in federally backed loans. Those loans carry lower interest rates than private loans. The bill would allow undergraduates who are dependents of their parents to borrow up to $31,000 in federal loans, up from a current limit of $23,000.[4] Dozens of lenders, making up an estimated 13 percent of the market, recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans. The departure of those lenders hasn't resulted in students being shut out of the program. Other lenders have stepped in, or the students have received loans through a smaller program in which the Education Department makes the loans directly to students. Some students relying on private loans, which are not federally backed and can carry high interest rates, have had trouble getting those nonfederal loans.[10]
Shares of the Reston, Va. -based company climbed 9 percent Thursday, but remained 70 percent from last summer. Even though the majority of student loans are highly rated and carry a federal guarantee, investor demand for securities backed by these assets has plummeted -- a sign of just how nervous investors are about securities backed by mortgages, student loans and other debt. 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 student loans, whose interest rates are capped at 6.8 percent. That situation has forced Sallie Mae, formally SLM Corp., to lose money on every federally backed loan it makes, testing Wall Street's patience as around 60 other companies have exited the market for those loans, either permanently or temporarily. More than 75 percent of federal student loans are issued by those lenders, which primarily raise money by bundling loans into securities sold to institutional investors. If the appetite for such securities doesn't grow, Sallie Mae could be forced to halt new student loans, said Mark Kantrowitz, an expert on student loans who publishes the Web site finaid.org. Without a "thawing of the capital markets and no government intervention. they will run out of liquidity," Kantrowitz said. "If they have no liquidity, then they can't make new loans."[3]
The move is designed to give investors more confidence in securities backed by the loans. "This is about making sure the lifeboats are going to float when they need them,'' Miller said after today's vote. Sallie Mae and other private lenders would prefer that the Treasury buy loans directly from lenders although they didn't oppose the bill that passed the House today. "It does help from the standpoint that rather than making these loans at a loss they can sell them at cost plus a small premium,'' said Sameer Gokhale, a New York-based analyst with Keefe Bruyette & Woods Inc. The legislation passed today would increase the amount that undergraduate students can borrow in their first year of college to $5,500. That figure goes up to $6,500 in the second year and $7,500 for the final two years, an increase of $2,000 each year from current levels. The total amount of federal unsubsidized loans that students dependent on their parents could borrow would increase to $31,000 from $23,000.[9] Congress passed and President George W. Bush signed into law in September legislation that cut federal subsidies to student lenders by $20.9 billion over five years. The threats to the college loan market are emerging as thousands of new college students across the U.S. are making their final decisions about which college they will attend and how they will pay for it. This year, the demand for loans will likely outstrip supply, John Remondi, Sallie Mae's chief financial officer, said at a Senate hearing earlier this week. The legislation passed by the House today would let lenders sell their debt to the Department of Education at a premium.[9] Sallie Mae would like the U.S. Treasury Department to aid the stricken student-loan market by purchasing securities backed by student loans. The U.S. 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.[11]
With a vote of 383-27, the bipartisan legislation will direct federal financial institutions, including the Treasury Department's Federal Financing Bank, to pump liquidity into the student loan market. It will also allow the Education Department to buy federally guaranteed student loans from lenders unable to sell them in the secondary market, and push capital to colleges through state guaranty agencies.[12] Whitfield voted for H.R. 5715, the Ensuring Continued Access to Student Loans Act of 2008. This widely-supported, bipartisan bill will protect students and families by ensuring that disruptions in the financial markets do not affect the availability of student loans. The purpose of the legislation is to prevent a student loan crisis from happening in this time of economic instability. The bill will make it possible for the Department of Education to acquire student loans, or commit to acquiring them in the future, from loan providers so that they can continue to lend to Kentucky students. The legislation also urges federal financial institutions, such as the Federal Financing Bank and Federal Home Loan Banks, to assist private lenders in maintaining student loan availability for the coming academic year and beyond.[13] WASHINGTON ' Congress moved Thursday to reinforce the nation's faltering student loan programs before the new school year, as the credit crisis spreads into loan markets well beyond the housing sector. The swift passage of a bipartisan student loan bill through the House of Representatives by a vote of 383-27 reflected broad concerns in Washington that higher education across the nation could be hit hard this fall by a shortage of financial aid for students. Suffering large losses from the mortgage crisis, Wall Street giants such as Citigroup and Bank of America have reeled back their investments in student loan programs. Lenders are left with fewer sources of funding to meet student demand, and experts warn that low-income students or those with a poor credit history could particularly feel pinched. The House bill would, as a last resort, allow Education Secretary Margaret Spellings to use federal funds to pick up loans that financial firms refuse to take - but only if these moves do not incur a net cost for the federal government.[14] DURING THIS TIME of year, students are typically a lot more concerned about what they're going to do over summer break than they are about shopping for student loans. This year is different. Thanks to the credit crunch, college lenders are exiting the marketplace en masse, leaving students with fewer choices - and more uncertainty - when it comes to securing their next round of financing for school. 60 lenders have stopped or temporarily suspended their participation in the Federal Family Education Loan Program (FFELP), according to Mark Kantrowitz, publisher of the financial aid information web site FinAid.org. (FFELP allows private lenders to make federally-guaranteed Stafford and PLUS loans.)[15]
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 that 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.[16]
Lawmakers are finalizing legislation to renew the Higher Education Act that would, for example, ban lenders from co-branding private loan products with a college'''s name or logo. The legislation also includes provisions that aim to discourage lenders from making subprime private loans and that would make it easier for colleges to counsel students against taking on private loans prior to exhausting their federal student loan eligibility. These provisions are all good, but they won't provide any relief to borrowers who have already fallen victim to lenders' predatory private student loan practices. The House had a chance to start to make things right for these students in February but punted. Under pressure from the loan industry, the House defeated a measure that would have allowed borrowers in severe financial distress to discharge their private loans in bankruptcy.[17] WASHINGTON ' Students could borrow more through the federal guaranteed college loan program and private lenders could get federal help in raising cash to make student loans under House legislation passed Thursday. The Ensuring Continued Access to Student Loans Act is the latest response by lawmakers to fears that ripple effects from a troubled mortgage industry could make it harder for college students or their families to get federally backed loans.[18]
The U.S. House of Representatives approved H.R. 5715, the Ensuring Continued Access to Federal Student Loans Act. The bill would provide new protections to ensure that families continue to have uninterrupted access to federal student loans in the event that lenders reduce their activity due to stress in the credit markets. "Thousands of Tennesseans depend on student loans to finance their education and realize the dream of earning a college degree," said Gordon. "It's important to make sure loan repayment requirements are reasonable, and it's important to ensure lenders have the capital they need to provide loans."[19] The student loan business is in disarray because of fallout from the subprime mortgage crisis, as well as deep cuts in federal subsidies paid to federally guaranteed student loan providers that were approved last year by Congress. The House bill would also let the Education Department buy federal student loans from lenders unable to sell them on the largely paralyzed secondary market, and funnel loan capital to colleges through state guaranty agencies.[20] 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.[21] April 17 (Bloomberg) -- The Department of Education could buy federally guaranteed student loans that lenders can't sell to investors under a measure the U.S. House of Representatives approved to help avert a shortage of funds to cover college costs.[9]
NEW YORK -- Shares of for-profit education companies were mixed Thursday, after the U.S. House of Representatives backed a measure to help students get college loans in times of tighter credit. The legislation was passed to help boost liquidity in the student loan market, as students are starting to compile financial aid packages before heading off to college this fall.[22] The bill passed in the House on Thursday is similar to legislation introduced in the Senate by Sen. Edward Kennedy, D-Mass., chairman of the Senate Education Committee. Students are just starting to line up financial aid packages for college this fall. Experts say the impact of the credit crunch on the student lending market probably won't be entirely clear until this summer. ROXANA ORELLANA contributed to this story. Homeowners buckling under their mortgage payments would be allowed to refinance into more affordable government-backed loans under a proposal introduced by a House committee chairman. The measure by Rep. Barney Frank, D-Mass., calls for the Federal Housing Administration to insure about 300 billion in new mortgages for distressed borrowers, even if they are badly behind on their payments and have poor credit - including those who owe more than their homes are worth. Lawmakers stunned by a dramatic jump in federal spending on wildfires say they have found a way to pay for the next major fire: A bill approved by the House Natural Resources Committee would set aside up to 1 billion.[23] Provide the U.S. Secretary of Education additional tools to safeguard access to student loans As a member of the House Education and Labor Committee, Congressman Loebsack has made it a priority to make college more affordable and accessible for Iowa students. Last year, the Congressman worked with his colleagues to pass and enact the College Cost Reduction and Access Act. This new law makes the single largest investment in college financial aid since the 1944 GI Bill, helping millions of students and families pay for college, and doing so at no new cost to U.S. taxpayers.[7]
Kentucky's student financial aid agency has put a halt to loans for first-time borrowers, effective May 1. The Kentucky Higher Education Student Loan Corp., known as The Student Loan People, announced Friday that its "decision became necessary as a result of the capital market crisis." This decision apparently would affect all first-time borrowers who attend or are planning to attend many of Kentucky's public universities, community and technical colleges, private colleges and universities and proprietary institutions. This crisis has dried up much of the money on national markets that previously had been available for student loans. The Student Loan People said in its news release that it has called on the U.S. Treasury to ask the Federal Financing Bank to "use its existing authority" to provide money for new student loans temporarily until the market improves.[24] The Student Loan People, along with other student loan providers across the country, have traditionally issued bonds ' taxable and tax-exempt ' in the form of auction rate securities to finance student loans. For years, this financing provided lenders with an efficient means of raising capital for student loans and supporting the availability of borrower benefits such as reduced or waived fees and interest rate reductions, corporation officials said in a statement this morning. Now the credit crisis has essentially closed the auction rate securities market, leaving The Student Loan People and other lenders searching for a new loan financing method, they said. The Student Loan People has sent a request to the U.S. Treasury requesting that the Federal Financing Bank use its existing authority to provide liquidity and capital for new student loans as a temporary measure until confidence is restored in the market.[25] Beyond congressional action, the association urged the Bush administration to "act without delay" to encourage federal financial institutions to provide liquidity to the capital markets serving federal student loan providers. Senate Banking Committee Chairman Chris Dodd, D-Conn., recently wrote Treasury Secretary Henry Paulson, urging him to use the Federal Financing Bank to do just that. "Just this week, two major banks announced that they will be scaling back their student loan businesses as a result of the turmoil in our credit markets," Dodd said. "This is the latest sign that lenders are finding it increasingly difficult to provide educational loans to students." Dodd said that Congress and the Bush administration "must act quickly and aggressively in order to avert a crisis in the student loan market, so that students and their families have options to finance their education." In letters to Paulson and Federal Reserve Board Chairman Ben Bernanke, Dodd urged them to use their existing authority to ensure that there is capital available to meet the demand for federal student loans for the upcoming academic year.[26]
Scott Talbott, executive vice president at the Financial Services Roundtable, a group representing banks and other financial institutions, said the House bill would provide greater liquidity to the student financing market. He said, it would expand the federal government's involvement in lending, something that should be left to the private sector. Dodd said he had written to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson asking them to take steps to address the student loan situation before it reached a crisis. Dodd asked Paulson to instruct the Federal Financing Bank to help provide financing for new student loans, and he asked Bernanke to allow student loan debt to be considered acceptable collateral for the recently established Term Securities Lending Facility.[27] Washington Education Secretary Margaret Spellings and Treasury Secretary Henry M. Paulson Jr. were described today by some student-loan-industry officials as nearing agreement on a plan in which the Federal Financing Bank and the Federal Home Loan Bank System would help private lenders by purchasing their student loans, giving them cash to serve more students. Ms. Spellings started negotiations just last week with loan-industry officials to put in place a large-scale lender-of-last-resort system, in which the government would either give money to nonprofit agencies for distribution to students or give additional federal benefits to private lenders to entice them to remain in the existing system of government-backed lending.[28]
President Bush's education secretary, Margaret Spellings, had already begun contingency planning in case more lenders drop out. Her plan would send funds to a few dozen lenders to make sure all students continue to get the federally backed loans. The Miller-Kennedy measure would give her additional authority to start buying up existing loans. Sen. Chris Dodd, D-Conn., who chairs the Senate Banking, Housing and Urban Affairs Committee, has said he's not sure the bill can be passed quickly enough to make a difference. He wants Congress to direct the Treasury Department's Federal Financing Bank to lend banks money to make student loans.[1] Baird analyst Amy Junker says the bill will help ease turmoil in the student loan market by increasing access to federal loans, primarily by expanding annual loan limits and by allowing the Department of Education to buy federally backed loans from lenders that need new capital in order to stay in business.[22]
Give the U.S. Education Secretary the temporary authority to purchase loans from lenders in the federal guaranteed loan program, ensuring that lenders continue to have access to capital to originate new loans. Include a Sense of Congress that calls on federal financial institutions, including the Federal Financing Bank, to consider using their current authorities to inject liquidity into the student loan marketplace at no cost to the taxpayer to ensure students and parents continue to have access to low-cost federal loans.[5]
Dozens of lenders, making up an estimated 13 percent of the market, recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans. Those lenders include Salt Lake City-based Zions Bank, which stopped accepting applications March 31. The departure of those lenders hasn't resulted in students being shut out of the program. Other lenders have stepped in, or the students have received loans through a smaller program in which the Education Department makes the loans directly to students. In Utah, the Utah Higher Education Assistance Authority (UHEAA), which makes student loans, also has sufficient reserves to meet student needs this year, according to the UHEAA. However, David Feitz, UHEAA executive director, applauds the House's action. "With the lingering credit crisis, decisive action is essential to provide continued funding for student loans," he said.[23] Wisconsin Rep. Tom Petri expressed concern about a provision that would take effect if more private lenders drop out of the student loan program. The legislation would give the Education Department emergency power to advance money to guarantee student loan agencies such as College Assist ' which insure student loans but normally don't make loans ' to serve as lenders-of-last-resort for colleges. Petri, R-Fond du Lac, and student groups worry that guarantee agencies might use the federal money to provide kickbacks or other incentives to colleges and universities to steer students to them.[18] Three schools will scarcely feel the suspension of loans: the University of Kentucky, Kentucky State University and Morehead State University. They participate in the federal Direct Loan Program in which the U.S. Department of Education sends money directly to the schools to be issued as student loans and thus does not involve private lenders.[29]
The Department of Education did not respond to a request for comment by press time. Lenders say that their situation is worsening. More than 40 have stopped lending under the Federal Family Education Loan (FFEL) Program, which provides government-backed loans to students, according to a tally compiled by NASFAA. Meanwhile, 12 have suspended private student loans altogether, including Bank of America, which said it would stop making such loans.[2] Students have not seen the impact yet. A few private lenders are stepping up their lending to fill the void and boost their market share. Some affected schools are turning to the Education Department's direct loan program, which provides $12 billion in loans annually directly to students through their schools. "To me, this is a lender crisis, not a student crisis," said Cheryl Resh, UC Berkeley's director of financial aid, who said Cal students have not been impacted because of the school's direct loan program.[1]
Because of that, Lord said Sallie Mae's new loans would lose money. Sallie Mae's CEO said they have been working with the Bush administration and Congress "to make solutions for lending viable" and that an atmosphere of bipartisanship was present. Hope may come in the form of a bill which would permit the Department of Education to buy federally guaranteed student loans from lenders unable to sell them on the secondary market.[6] The measure would give the Education Department temporary authority to buy existing student loans at a discount to give lenders more cash for new loans. It would also allow the Education secretary to send federal money to certain guarantee agencies, allowing them to act as "lenders of last resort" to make new federally backed loans.[30]
A Bush administration statement yesterday backed most provisions of the House measure while recommending some changes. Congress is considering other measures, and Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, sent letters today to Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson urging them to take action to provide liquidity for federally backed loans. "We must act quickly and aggressively in order to avert a crisis in the student loan market, so that students and their families have options to finance their education,'' Dodd wrote. The global credit crunch has raised student-loan makers' financing costs, and they are unable to raise the rates they charge for federally guaranteed loans because they are locked in by the government.[9] The bill carries no additional cost for taxpayers. "At a time when too many Americans are facing severe economic uncertainty, students and families shouldn't have to worry about whether or not the federal student aid they need to help pay for college is in jeopardy," said Rep. Miller, who chairs the House Education and Labor Committee. Rep. Howard P. "Buck" McKeon (R-CA), the Senior Republican of the House Education and Labor Committee said, "This bill is a first step to prevent a crisis in the student loan program, and its consideration has come not a minute too soon."[6] "Peak lending season begins in July and we cannot, we must not, wait until a student is denied a loan to put mechanisms in place to deal with the turmoil in the student loan market." "At a time when too many Americans are facing severe economic uncertainty, students and families shouldn't have to worry about whether or not the federal student aid they need to help pay for college is in jeopardy," said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee, and one of the bill's authors.[5]
According to the spokeswoman, Miller in talks with the administration had urged the U.S. Education Department to be ready to begin increasing lending directly to students. "It is critical to make sure that this authority is ready to be implemented to ensure American families can continue to access the federal college loans they are eligible for, regardless of what's happening in the credit markets," said Miller, as he introduced the bill to the House on Wednesday.[27]
Shares of for-profit education companies opened mostly higher Friday after the U.S. House of Representatives backed a bill to boost federal funding for student loans. A BMO Capital Markets analyst says education stocks have risen on this measure, despite unfavorable news from high-profile lenders, such as Citigroup (nyse: C - news - people )'s Student Loan Corp. (nyse: STU - news - people ), which have cut back on doling out student loans.[31] The bill also increases unsubsidized Stafford loan limits. This will allow students to receive more federal funding and, as a result, help reduce reliance on higher-cost, private loans. In addition to supporting H.R. 5715, Whitfield took further action this week to make college more accessible to a greater number of Kentuckians. Heeding the call of the Kentucky Higher Education Student Loan Corporation (KHESLC), the Congressman and the entire Kentucky Congressional Delegation joined forces to urge Administration officials to identify a new form of capital that can guarantee loan access to students seeking financial assistance this fall.[13] Private student loans should not be treated any differently from other forms of consumer debt when it comes to bankruptcy. Folks who borrow private students loans are trying to better their lives. They certainly shouldn't be treated more harshly than those who rack up credit card debt at the mall. We also believe that policy makers need to consider efforts to help borrowers who took on private loan debt before exhausting their federal student loan eligibility. They can do this by authorizing the Department of Education to offer a debt swap to these borrowers. Under this proposal, which we floated last month, the federal government could make new unsubsidized federal Stafford loans available for all borrowers (out-of-school or in-school) with private loan debt and untapped federal loan eligibility. These newly borrowed funds would have to be used to pay off existing private student loan debt.[17]
LOUISVILLE, Ky. The agency overseeing Kentucky's college-loan program says it will suspend making loans to first-time borrowers on May 1 until it can secure additional financing. The Kentucky Higher Education Student Loan Corp. said Friday it's unable to secure money for new loans right now, meaning thousands of students may have to turn to private lenders to pay for their education.[32] BofA and Citi's decisions have a domino effect on companies that specialize in the roughly $85 billion education financing market. Some 75% of federal student loans are issued by lenders that primarily raise money by bundling those loans into securities that institutional investors had bought. First Marblehead FMD, whose stock price has plummeted more than 90% as the credit crisis has unfolded, is losing a major source of revenue in BofA. The bank on Thursday terminated its agreement with First Marblehead, after The Education Resources Institute, or TERI, the Boston non-profit that guaranteed the loans it packaged and sold, filed for bankruptcy earlier this month. Student Loan reported its first-quarter earnings, which have dropped a whopping 65% from the previous year's quarter.[12] The latest figures from KCTCS show that 17,549 students working toward two-year degrees have taken out loans. About 25 percent of them are first-time borrowers, he said. Because of the bad market, the Student Loan People have been unable to sell bonds this year to gain money for student loans, said Jim Ackenson, the agency's executive vice president. With less money available for loans, there are fewer borrowers, and this has caused a drop in the agency's revenue, although this does not jeopardize its existence, he said. Another contributing factor to the crisis is that many private lenders have dropped out of the student loan market. This happened because a federal guarantee for the loans has dropped from 98 to 96 percent of a loan's amount, and many previous lenders said the market is no longer profitable.[29]
The reason: The new federal College Cost Reduction and Access Act, effective Oct. 1, cut the yield on student loans for lenders by 0.55 percent. After that came the credit crunch, fueled by subprime mortgage loans, making it tougher for lenders to continue such loans.[33] Kevin Bruns, executive director of America's Student Loan Providers, said that quick action is needed on the legislation. "It's no secret that deep budget cuts and recent turmoil in the credit markets has placed significant stress on the Federal Family Education Loan Program. This legislation is especially important to those families who are currently making their college decisions for the coming fall, but are unsure whether all the financial pieces will come together so their children can attend the colleges of their choice," Bruns said in a recent release.[26] U.S. Rep. Loebsack: Ensures continued access to federal student loans for Iowa families 4/17/2008 CONTACT: Gabby Adler [email protected] 202.226.6476, office Washington, DC - Today Congressman Dave Loebsack joined a bipartisan majority in the U.S. House of Representatives to approve legislation to ensure that the turmoil in the U.S. financial markets does not keep students and families from accessing the federal student loans they need to pay for college.[7] Washington, DC -- Congressman Maurice Hinchey (D-NY) today helped the House pass a bill to ensure that the turmoil in the U.S. financial markets does not keep students and families from accessing the federal student loans they need to pay for college.[8]
The U.S. House of Representatives approved a bill on Thursday calling on federal financial institutions, including the Treasury Department's Federal Financing Bank, to pump liquidity into the student loan market.[34] The House of Representatives overwhelmingly approved a bill to direct federal financial institutions, including the Treasury Department's Federal Financing Bank, to ensure enough money is available to provide student loans.[20]
The bill would also let the department funnel capital to colleges through state guaranty agencies and call on federal financial institutions, including the Federal Financing Bank, to pump liquidity into the student loan market.[21]
The bill says short-term delinquencies in mortgage or medical payments should not prevent otherwise eligible parents from borrowing money for college. The legislation would give the Education Department authority to buy up loans from student lenders to ensure they have access to capital and can keep issuing loans. Lenders, and some lawmakers, say more action is needed in this area.[10] Borrowers must now start repaying the loan within 60 days after it is issued. The bill would give the Education Department the power to aid lenders by buying their student loans at discount to provide cash lenders could use to make new loans.[18] Lawmakers are worried enough that the House passed a bill Thursday to give the Department of Education temporary authority to buy up existing student loans, which could free up money for lenders to make new loans.[1] House Education and Labor Chairman George Miller '''s manager'''s amendment targets federal loan limit increases already in the bill to students most in need. It specifies that lenders must use funds from loan purchases to create new loans and clarifies the Education Department can enter into forward commitment loans. As the bill was debated in committee last week, there was some question about its potential cost.[35] Staff changed the bill before heading the House Rules Committee Tuesday night to ensure efforts to increase liquidity would not have any cost by including the Treasury Department and OMB in the decision-making process. The Republican amendments, one of which is bipartisan, direct the Education Department to revise regulations as the bill may necessitate regarding prohibitions on certain actions by lenders trying to entice colleges to put them on a preferred lender list. It also includes late medical bill payments in the extenuating circumstances category that federal lenders cannot use to deny parent loans for college.[35]
The House bill seeks to address that problem by raising limits on how much borrowers can receive under the federal program. The amount undergraduates can borrow in their first year of college would increase to $5,500. It would go up to $6,500 in the second year and $7,500 for the final two years, an increase of $2,000 each year from current levels. The total amount of federal unsubsidized loans that students dependent on their parents could borrow would increase to $31,000 from $23,000.[36] Monge and Lawson said college loans are fact of life ' a federal study pegged average undergraduate student debt at $19,237 in the 2003-2004 academic year. Both said the House bill would help students by raising the annual amount a student can borrow by $2,000.[18]
"There will be next to no impact on us," said Lynda George, UK's director of financial aid. On average, UK undergraduates borrow $4,500 a year to help pay for school; they graduate with about $17,900 of loan indebtedness. Gary Cox, president of the Association of Independent Kentucky Colleges and Universities, said a state loan is crucial to many private college students because "it tends to be the gap filler" after a student learns how much aid is coming from the school and other sources, such as federal grants and state and private scholarships.[29]
Sen. Edward Kennedy (D-Mass.), chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, plans to mark up a very similar bill. Kennedy this week called on schools to consider switching from the private FFEL lenders to the direct loan program, saying it "provides a stable and efficient way for all students -- regardless of the institution they attend -- to receive federally guaranteed student loans." In a letter to David Ward, the American Council on Education president, Kennedy wrote that he has urged Spellings to make it as easy as possible for institutions to switch to the direct loan program. Kennedy sent a letter to nearly 100 Massachusetts colleges and universities suggesting they register for the direct loan program, even if they don't intend to offer it to students just yet.[2] Agencies in at least 10 states, including Massachusetts, Michigan and Pennsylvania, have announced plans to stop providing federally guaranteed student loans, in which the government subsidizes and backs low-interest loans. The departure of those lenders has not resulted in students being shut out of the program. Other lenders have stepped in or the students have received loans through a smaller program in which the Education Department makes the loans directly to students.[36] Dozens of lenders, making up an estimated 13% of the market, recently stopped making loans under the federal student loan program. Although other lenders have stepped in to take their place and students can receive loans directly through the Education Department, some students relying on private loans are having trouble getting those non-federal loans.[37] Education lobbyists doubt that the direct loan program, which accounts for 20 percent of student loan volume, could scale up rapidly if private lenders fled the market. It was "simply not realistic" for the Department of Education to quickly ramp up to 50 percent of loan volume, Miller said.[2]
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.[16] The measure would give the U.S. Department of Education temporary authority to buy loans from private lenders and provide more cash for new loans. It also would give borrowers more time to pay off federal college loans.[38] The bill also would allow the education secretary to advance money to guaranty agencies - state or private entities that insure federal loans - which could serve as lenders of last resort if more private lenders bail out. "Now more than ever, families deserve every assurance that we are doing all that we can to make sure that they will continue to be able to finance their children's college education regardless of what happens in the credit markets," said Rep. George Miller, D-Martinez, the chief sponsor of the measure.[1]
Fifty-seven lenders have left the federal loan program because a tightening credit market has made investors wary of buying securities the companies sold to provide cash for student loans.[18] The federal loan landscape has grown uncertain as well. More than 50 lenders stopped writing federally guaranteed student loans after they ran into trouble finding investors to buy the securities backed by that debt, according to FinAid.org, a Web site that provides information about student financial-aid sources.[39]
Moments ago, the House of Representatives voted 387 to 27 to approve a measure that would provide federal intervention in stabilizing the $85 billion student loan industry, including backing the purchase of federally guaranteed student loans by the Department of Education.[6] Already, there are signs the wider credit problems are affecting the student loan market. At a Senate hearing this week, U.S. Sen. Chris Dodd, D-Conn., said about 50 providers of federally guaranteed loans, as well as nearly 20 private student-loan firms, have pulled out of the market. That's removed about $8 billion from the market, Dodd said during a hearing of the Senate Banking Committee, which he chairs. Bank of America Corp. (BAC) said it was discontinuing its private student loan products, but the company said it will still provide government- backed student loans.[27] WASHINGTON - 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 last week. 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 would meet its full-year earnings target.[40] Sallie Mae SLM, the nation's largest student loan lender, warned on Thursday that it will lose money on every federally backed loan it makes. That came a day after Sallie reported a first-quarter loss of $104 million.[12] Sallie Mae is the largest student loan lender in the United States, and the company has reportedly been losing money on every federally backed loan it makes.[41]
Depending on your school, you may end up borrowing from the feds directly. Or you may take out a loan from a private company or nonprofit that is backed indirectly by the federal government. It's that second category _ federally backed loans made by other lenders _ where there are problems. Typically, it works like this: lenders like Sallie Mae make loans to students, sell the loans as securities, and use the cash to make more loans.[42]
John Remondi, chief financial officer of Sallie Mae, the nation's largest student lender, testified at a Senate hearing Tuesday that the U.S. was "facing a scenario where demand for student loans will significantly outstrip supply." He added that without government help, the industry would have a "material shortfall" in student loan access this year.[30] Sallie Mae, the nation's top student lender, is not immune to credit woes, SanDiego.com reports. With its interest rate capped at 6.8% and with many of its competitors scaling back their student loan activity or withdrawing completely from the market, Sallie Mae is looking for help after reporting a first quarter loss of $104 million. It's particularly critical now since this is the time when many students apply for loans for the fall semester.[11]
Dozens of lenders, making up an estimated 13 percent of the market, recently stopped making loans under the federal student loan program, in which the government subsidizes and backs low-interest loans. While no student has been shut out yet, lawmakers fear that they could end up relying on nonfederal loans at higher interest rates, according to the Associated Press.[26] 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).[16] The cheap federal funds interest rates available to banks are very short-term rates, while the student loans I'm talking about carry a fixed rate for 10 years.[43]
Cuts in subsidies to student lenders, approved by Congress last fall, also have made federal student loans less profitable. 57 lenders are getting out of the business, including such big banks as Washington Mutual and HSBC Bank. Citigroup's Student Loan Corp. will stop issuing loans May 1 at certain colleges where it's no longer profitable, often because of low graduation or high default rates.[1] Bank of America, the nation's largest bank and one of our largest student lenders, today announced that it would stop making private student loans and instead "do more lending under a federally guaranteed program," says the Wall Street Journal.[44] Bank of America on late Thursday said it would exit the private student loan business, but continue to make loans backed by a federal loan program for students. Citi, meanwhile, said earlier this week that its subsidiary Student Loan Corp. STU would temporarily stop issuing loans at schools where profits aren't as high as they'd like.[12]
Bank of America decided to get out of the private student loan business yesterday. The parent firm of giant Sallie Mae told investors this week that it can't make a dime on new college loans.[43] WASHINGTON, April 17 (Reuters) - Sallie Mae (SLM.N: Quote, Profile, Research ), the largest U.S. student loan company, affirmed its 2008 profit forecast on Thursday as legislation advanced to stabilize the college loan market, sending its shares higher.[34] WASHINGTON (Reuters) - Sallie Mae, 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.[21]
The Student Loan Corp (STU) and Sallie Mae Corp (SLM) have both been in the news these past few days with announcements related to lending and money losses on federally guaranteed student loans.[41] Sallie Mae's top executives are reportedly engaged in daily discussions as to how long the company can continue losing money on federally guaranteed student loans.[41]
The credit crunch roiling the financial markets is starting to hit college campuses as dozens of lenders - comprising at least 13 percent of the student loan market - have stopped offering federally guaranteed student loans over the last few weeks.[1] WASHINGTON -- In a bid to keep the global credit crunch from cutting into financial aid for college students, the House overwhelmingly approved a bill Thursday to expand access to federally backed loans.[30] In an effort to keep the U.S. credit crunch from spilling into the college loan industry, the House of Representatives overwhelmingly approved legislation Thursday to boost access to federally backed student lending.[38]
WASHINGTON Connecticut lawmakers have joined the vast majority of their colleagues in backing legislation aimed at helping students secure college loans this fall despite a tightening credit market. The House Thursday approved the bill 383-27 as members returned to their home districts for a long weekend. All five members of the Connecticut delegation supported the bill that now goes to the Senate for its consideration. "I am grateful we were able to work together to take this first step to protect our nation's students," said Rep. Christopher Shays, R-4.[26]
The Ensuring Continued Access to Student Loans Act passed easily as 161 Republicans voted with the majority Democrats in favor of the legislation. The White House indicated late Wednesday it supported key provisions of the bill and was willing to work with Congress to craft a law both branches of government could get behind.[27] The House overwhelmingly passed legislation to intervene just moments ago. GOP presidential candidate Senator John McCain of Arizona had pre-empted a call for government intervention in the student loan arena when he revealed his economic plan, saying the government needed to step in and assure students that they could continue to receive financing in order to complete their higher education.[6] The legislation would also allow the administration to purchase loans from firms lending to students through government programs on an interim basis to provide emergency liquidity to the markets. This would only be allowed if it could be demonstrated that such activity wouldn't cost the taxpayer anything, said a spokeswoman for House Education and Labor Committee Chairman George Miller, D-Calif.[27] The bill carries no additional cost for taxpayers. "This bill is a first step to prevent a crisis in the student loan program, and its consideration has come not a minute too soon," said U.S. Rep. Howard P. "Buck" McKeon (R-CA), the Senior Republican of the House Education and Labor Committee.[5]
For the time being, however, there are still more than 2,000 companies that continue to offer student loans, including big institutions like J.P. Morgan Chase that are actually looking to expand their stake in the business. (J.P. Morgan Chase declined comment for this story.) "As of now, this is a crisis for lenders, but not a crisis for student borrowers," says Michael Dunnenberg, director of the education policy program at the New America Foundation, a Washington, D.C. -based think tank.[15] A new program by the state is allowing education majors to take out no-interest student loans if they agree to teach in Alabama after graduating. Robin Bynum, assistant dean of the college of education at Troy University, said education majors can obtain interest-free Stafford Loans if they commit to teaching in Alabama. A Stafford Loan is a federally backed loan that students don't begin repaying until they finish their studies.[45] Last month, Zions Bank, one of the nations' biggest lenders of federally backed students loans, told state colleges and universities that it would make no more federally backed student loans after March 31.[33] SALT LAKE CITY (AP) - College students shouldn't have to worry whether student loans will be available for the upcoming academic year. The Utah Higher Education Assistance Authority says it will use cash reserves to make sure students needing loans can get them. The assurance comes as banks across the national have said they will stop issuing federally backed student loans.[46] Utah college students won't have to worry about the availability of student loans for the coming academic year. As banks across the nation and in Utah have announced they will halt federally backed student loans, the Utah Higher Education Assistance Authority on Friday said it would use cash reserves to make sure students needing loans can get them.[33]
According to a company statement, student loan Corp. expects the changes to be temporary and it will be evaluating the return to offering federal consolidation loans as the student loan market condition improves. Many U.S. college students, including those attending chiropractic schools, depend on various loans to help pay for their education.[41] Citing ongoing fallout from the national capital market crisis, the state announced today it will suspend making college loans to first-time borrowers beginning May 1 until it can secure additional financing. The Kentucky Higher Education Student Loan Corp., also known as The Student Loan People, said it will continue to make loans for its previous borrowers based on availability of funds.[25] A news release said it would continue to make student loans to current or previous borrowers, based on the availability of funds. The estimated 27,000 affected borrowers include current students and some who are planning to enroll this fall at the state's public universities, community and technical colleges, private colleges and universities and proprietary, or for-profit, institutions.[29]
Without immediate assistance, KHESLC will not have the means to finance new student loans for any borrowers after April 30, 2008. Since the organization typically finances between $400 and $500 million in student loans during an academic year, other lenders might not have the capital to take on these additional loans and numerous Kentucky students could be left without the financial support they need.[13] Larson relies on student loans for her tuition. "It's $60,000, approximately," said Larson. Everything was good for Larson until Thursday, when she received a call from her financial aid office at school. "They called some of the students and said I needed to come in and fill out new forms and get another lender," said Larson.[47] 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.[16] Lobbyists for lenders and schools worry that the fix could get bogged down in the Senate, failing to help lenders in time to meet the surging demand for loans in the coming months. "If this goes through a long legislative process, the fact is it's going to be too little, too late," said Philip Day, the president of the National Association of Student Financial Aid Administrators (NASFAA).[2]
Lobbyists for colleges and financial aid administrators place the blame squarely on direct-to-consumer marketers. Many private colleges and high-priced public universities are also putting students in harm's way by including private loans in the financial aid packages they offer students. Packaging private loans gives students the misleading impression that they have no choice but to take out these loans. It also leaves them with the impression that these loans have the colleges' imprimatur and therefore must have pretty reasonable terms, which they seldom do. Some lenders have encouraged colleges to brand the loans with their institutions' names -- which only adds to the confusion.[17] Roberta Johnson, director of student financial aid at Iowa State University in Ames, says one must distinguish between federal and private loans.[16] "As far as we're concerned, direct loan is a real option for schools that are concerned." San Francisco State University is also a direct loan school and has seen no immediate impact, but the school's director of financial aid, Barbara Hubler, said she worries it could affect students who also have to take out private loans. "We might not be getting the feedback from students until later this summer, when they try to get those loans and they find it's harder to do so," Hubler said.[1]
Federally guaranteed student loans are the biggest source for funds being borrowed, but students can also obtain private loans that do not carry government backing. While it's a particularly stressful time for banks and investors, incoming students, those currently in school, and recent graduates, are probably all feeling the crunch from changes in the market.[41] Some education officials, however, worry that increased limits could cost students more in the long run. "We believe an increase to the aggregate loan limit at this time is a misguided policy that will have long-term negative, unintended consequences," Constantine W. Curris, president of the American Assn. of State Colleges and Universities, wrote to Kennedy in a letter. "While undoubtedly born from good intent, this proposal would in fact facilitate major tuition increases and result in even greater student debt." The legislation would also allow parents to defer repayment of federally guaranteed loans for up to six months after their children leave school, as well as increase the circumstances in which parents with an adverse credit history are eligible to receive loans.[30] The average college graduate in Oregon leaves school with about $20,000 in college debt. Most of those students are coming out of school with a 20-, 30-year loan repayment schedule, just like a mortgage. If they're getting the federally backed loans, the interest rates are 4.5 percent.[48] Perhaps the students who have been hurt the worst have been the low-income and working-class students who were pushed to take out subprime private loans, with rates and fees totaling more than 20 percent, to attend poor-performing trade schools owned by giant for-profit higher education chains like Career Education Corporation and Corinthian Colleges. By all accounts, defaults on these loans are growing alarmingly. Serious questions have been raised about whether these companies have duped disadvantaged students into taking on private loan debt without making them aware of their cheaper loan options first.[17] A ton of our most influential politicians went to private colleges. Private schools may take up the onus of helping to ensure that kids can be funded for going to their overpriced campuses. Otherwise, we'll likely see a school-loan-credit-crunch, as students will be forced to take out loans with unfavorable rates as the student loan competition dwindles.[44]
Recent changes in subsidies have made it less profitable for lenders to originate, process, and ultimately sell student loans. This is part of a longer-term tug of war between government and private companies, a disagreement over the best way to deliver college tuition finance.[43] The pieces often include loans backed by the federal government, but the availability of private loans has triggered the greatest concern of late. Similar to other types of consumer loans, such as mortgages and auto loans, private student loans depend on the recipients' creditworthiness, making them more vulnerable in this skittish lending environment.[39] The bill would clarify the federal government has the ability to designate, and even provide capital to, lenders as a last resort to students who are unable to get loans from other firms participating in the government's loan program. It would also provide for up to 35 government-sponsored entities to begin lending to students as an interim measure if insufficient capital is deemed to be in the marketplace. Under existing law, the government already has this authority, although it has never been invoked.[27] "If students find themselves graduating in the midst of a slow economy, immediate loan repayment may not be a practical option," said Gordon. The bill provides the Secretary of Education with tools to ensure lenders have the capital they need to provide student loans.[19]
The loan corporation has sent a request to the U.S. Treasury requesting that the Federal Financing Bank provide liquidity and capital for new student loans as a temporary measure until confidence is restored in the market.[49] At the hearing, Sen. Christopher J. Dodd (D-Conn.) suggested immediate steps to address the potential crisis. He called on the government to instruct the Treasury Department's Federal Financing Bank to give banks more money for student loans.[30]
Now, the credit crisis has essentially closed the auction-rate securities market, leaving The Student Loan People and other lenders searching for a new student loan financing method." "I don't want to give any indication that it's because we have a credit problem here," Ackinson said. "It's because there is a general perception that if an investor puts their money there that they may never get it back."[49] The exodus of lenders is the latest side effect of the mortgage crisis. Investors, wary from the losses they've suffered in mortgage securities, are now balking at buying student loans, making it tougher for lenders to raise the cash they need to offer new loans.[1]
"The fallout in the subprime market and subsequent weakening of the credit market has destabilized what many consider to be sound investments, most notably student loans. Investors are not hungry to invest, funds have dried up and lenders have been unable to secure the capital they need to make new loans."[26] Scores of student lenders have yanked back on loans -- or fled the business altogether -- since Congress and the Bush administration slashed subsidies on federally backed loans last year and tightened credit markets have increased capital costs.[2] 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.[16] Some have urged 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.[10] Some would use government money to buy up loans from lenders. If all lenders stop making new federally backed loans _ a scenario that no longer looks out of the question _ the government can act as "lender of last resort," providing money for state guarantee agencies that they could in turn loan to students. Some experts are confident this would solve the problem in an emergency. Others wonder whether the Washington bureaucracy could spring to action fast enough.[42]
I haven't read the article, but when they say that they're going to "do more lending under a federally guaranteed program," I'm guessing that means they'll continue with PLUS loans. For grad students, GradPLUS loans let you take out up to the full "cost of attendance", including tuition, room and board, books, and personal expenses, and they're backed by the federal government.[44] In recent months, the nation's credit crisis has affected lenders that participate in the federally guaranteed student loan program to secure cash for loans.[38] The Senate Banking Committee held a hearing this week to discuss growing concerns ''' chiefly among lenders and for-profit colleges ''' that a credit crisis is looming in the student loan market.[50]
The Kentucky Higher Education Student Loan Corp., better known as The Student Loan People, announced Friday it was suspending loans to first-time borrowers because the national credit crisis has dried up a lot of money previously available for student loans.[29] "We're not waiting for a problem to develop," said Miller, chairman of the House Education and Labor Committee. "The unprecedented nature of the season in the credit markets has spilled over, to some extent, into the student loan market, as institutions have tried to recapitalize their ability to make future loans.[30] The House on Thursday moved to create a temporary safety net for student lenders currently squeezed by the credit crunch, as many fear education loans could dry up for the college-bound this fall.[2]
The Student Loan People, the only nonprofit student lender in the state, was created by the legislature in 1978 to help make higher education more affordable for Kentuckians.[49] The FFB proposal was discussed at a recent meeting between Paulson and Spellings, according to a student lender lobbyist. The administration officials haven't yet signaled whether they would go further than that. A spokeswoman for the Treasury, Jennifer Zuccarelli, declined to comment on the proposal, saying only that the Treasury and the Department of Education "were following the issue closely to ensure that federal student aid, both grants and loans, remains available to all eligible students."[2] Kanjorski has also introduced a bill that would allow the 12 Federal Home Loan Banks to advance funds to student lenders.[2] Saturday, April 19, 2008 U.S. Rep. Bart Gordon voted Thursday for a bill intended to ensure that turmoil in U.S. financial markets does not reduce access to federal student loans.[19] The U.S. House of Representatives has passed legislation that would authorize the Federal Financial Bank to sell money to state student financial agencies to issue as loans.[29] As students start lining up for financial aid for college this fall, newly passed legislation by the U.S. House may help ensure they get the loans they need.[37] Bill passed will have an impact on local college students. The U.S. House of Representatives has overwhelmingly approved bipartisan legislation to ensure that the turmoil in the U.S. credit markets does not prevent any students or parents from accessing the financial aid they need to pay for college.[5] The bill passed in the House on Thursday is similar to legislation introduced in the Senate by Sen. Edward Kennedy, D-Mass., chairman of the Senate Education Committee. Students are just starting to line up financial aid packages for college this fall. Experts say the impact of the credit crunch on the student lending market probably won't be entirely clear until this summer.[10] Passage of the bill on a 383-27 vote comes as worries mount that the tightening credit markets, stemming from the subprime mortgage crisis, could limit financial aid for students. "Families deserve every assurance that we are doing what we can to make sure that they will continue to be able to finance their children's college education, regardless of what happens in the credit markets," said Rep. George Miller, D-Calif., who chairs the House education committee.[10]
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.[16] As director of financial aid at Westminster College, Aimee Bistow sees the sagging economy's effects on student loans.[51]
Financial aid counselors at most Wisconsin colleges and universities have not heard of students having a tougher time getting loans, said Ernesto Monge, the federal issues chairman for the Wisconsin Association of Student Financial Aid Administrators.[18] 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.[16]
As it becomes more difficult for some students to get loans, new options have emerged, including an online person-to-person lending system. The program may sound great to those who are in need of loans, but there are faults within the P2P program. The assistant director of scholarships and financial aid said taking a loan with this system would be risky as it is untested. The P2P system offers loans by having students fill out a profile online with how much money they need and what interest rate they are looking for.[52] Tracy Reed, Fern Creek's senior guidance counselor, called yesterday's news "disappointing." "So many of our students need that to be able to go" to college, she said, echoing other counselors who said the state often has good loan deals for students, often including low interest rates. Jennifer Martin, a college counselor at Trinity High School in Louisville, said she recommends the program to students because it is associated with the state.[49]
At William and Mary in Williamsburg, about 3 or 4 percent of undergraduates borrow privately, Irish said. At Norfolk State, 20 percent of students rely on this type of financing, Sass said. With these applications, many students depend on a co-signer who has a more-established credit history and can help the student obtain loan approval and a better interest rate. Some of those co-signers now face their own problems with mortgage payments and other debt and may no longer qualify to assist with a student's loan, Sass said. "Students who have borrowed a lot of money up to this point and are becoming a higher risk to these companies, they might have a problem," she said.[39] The U.S. Department of Education sets the interest rate for student loans. It is currently 6.8 percent annually.[29] The Kentucky Higher Education Assistance Authority, a sister agency, announced it will pay the 1 percent default fee on student loans, effective May 1, to encourage lenders to make more loans available to Kentucky students.[29] KHESLC, Kentucky's non-profit student loan lender, services nearly 70 percent of the loan volume for higher education institutions throughout the Commonwealth.[13]
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.[16] Major lenders like Sallie Mae have also stopped participating in the federal loan consolidation program, which means big trouble for graduating law students like myself who need to stretch out the payments.[44] WASHINGTON -- Sallie Mae cannot write money-losing student loans indefinitely. Top executives are holding "daily deliberations" about just how long the nation's largest student lender can afford to sacrifice its bottom line for the sake of college-bound Americans, Sallie Mae CEO Albert J. Lord said Thursday.[3] Sallie Mae, the nation's largest student lender, says it is losing money on new loans.[18] Sallie Mae, the nation's biggest student lender, said last week it will no longer make consolidated loans, which pull together all of a student's college debts.[1] Earlier this week, SLM Corp. (SLM), popularly known as Sallie Mae, the largest student lender, reported a first-quarter loss and warned that it couldn't make profitable loans at this time.[27]
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.[40] First Marblehead was jumping 9.2% to $3.68, Student Loan jumped 1% to $106.07 and Sallie Mae was up fractionally to $17.28.[12] Student loan giant SLM Corp., known as Sallie Mae, said on Thursday that it would record a loss in the first quarter. JP Morgan Chase and Citigroup announced this week that they would stop making loans to some students and schools without giving details. "We think that's code for schools with large low-income and minority populations," said Miller, who says the bulk of his members serve such students.[2] The situation in the student loan market and the flood of applications at Sallie Mae has pushed the company to look to Washington for help.[12] Sallie Mae recently warned that it could no longer make profitable student loans at all.[44]
The Ensuring Continued Access to Federal Student Loans Act of 2008 (H.R. 5715), which carries no new cost for taxpayers passed the House easily.[8] Student loan Corp on Wednesday announced that it will be suspending lending at certain schools and will withdraw from the Federal Consolidation Loan market due to market turmoil and federal legislation.[41] Lawmakers recently asked the Federal Reserve to inject cash into the student loan market by using a special lending operation. Fed Chairman Ben Bernanke denied that request, responding that since a shaky student loan market doesn't threaten the financial system, it's not the central bank's job to steady it.[3] According to the American Bankers Association, the volume of delinquencies for loans made through auto dealers surpassed 3 percent during the October-through-December quarter, the highest level in at least eight years. Those lenders who finance new-car purchases have to deal with an increase in the number of prospective buyers who owe more on their existing vehicles than they're worth. This comes about because a car's value falls faster than the amount that is owed on the vehicle. In its January survey of bank lending officers, the Federal Reserve found that 90 percent of participating institutions hadn't changed their credit standards for approving new card applications. That means credit cards remain available to the vast majority of Americans. What worries credit counselors in Hampton Roads and other parts of the country is that a greater number of people are using those credit cards for routine purchases, such as gasoline and groceries. Some are maxing out on their limits, said Barbara Wright, of the counseling service Clearpoint Financial Solutions.[39]
More than 50 lenders have stopped making student loans in the past few months as the credit crunch continues to make student lending unprofitable.[44]
If markets have minds of their own, the screwy credit market for student loans is off its nut. Parents and college administrators are worried the financial machinery that makes it possible for young people and their families to shoulder crazy tuition expenses with long-term loans is breaking down.[43] "So some are exiting the student loan market." Although the economy has not affected Federal loans yet, these loan issues have made financial advisors' jobs difficult. "It's hard because we can't guarantee to students and parents that they'll get the same amount of funding all four years." This is the reality facing Westminster junior Christopher Parker, who found out last minute that he cannot get a loan from MOHELA.[51] My parents made just enough so I didn't qualify for a lot of scholarships and federal loans, so they had to cosign for all my private student loans. Now I will be paying them off into my 30s for sure.[44] Good riddance. Private student loans are a ripoff and most people don't max out their federal loans first.[44]
Cerb, it's similar for law students - my tuition for law school 8 years ago was $1000 more than the federal guaranteed loan limit, meaning all my living expenses, books and all had to be covered by private loans.[44] I have mixed feelings about the student loan credit crunch. On one hand, I think it's a blessing: schools will be forced to rein in tuition increases, and many students will escape student loan slavery by virtue of its unavailability to them. It could be pretty devastating for individual students in the short run. My school (and all of its "peer" schools) charged nearly $40,000 per year in tuition alone.[44] I was lucky and ended up at a state school in a relatively inexpensive city. If I hadn't gotten into this school I would have ended up at Temple which costs 40k+ a year for tuition alone! I've heard a lot of fear from Carribean students about being able to afford their tuition this year because their lenders have stopped making student loans.[44] James R. Ackinson, the authority's executive vice president, said in an interview that the corporation and other loan providers have traditionally issued bonds -- taxable and tax-exempt -- in the form of auction-rate securities to finance student loans. A release issued by The Student Loan People said, "For years, this financing provided lenders with an efficient means of raising capital for student loans.[49]
Choosing a loan is not something that should be taken lightly, and using a program whose credibility has not been firmly established is a risk students shouldn't be willing to take. Decisions about financing education will impact students long after the four years of college are over, so it's important to research and understand the lending process before any action is taken.[52] U.S. Representative Ed Whitfield voted today to secure and increase critical student loans relied on by thousands of Kentuckians currently pursuing higher education degrees. "Right now students across the First District are making the difficult decision of choosing a college to attend this fall," Whitfield said. This important legislation will ensure that they do not and I am proud to support it."[13] WASHINGTON (Reuters) - The U.S. Congress moved closer on Thursday to putting a government safety net under the $85 billion student loan market as millions of young people make preparations to head to college in the autumn.[20]
H.R. 5715 would increase the annual loan limits on federal college loans by $2,000 for undergraduate students and increase the total loan limit over the course of a student's education.[19] Student loans are expected to be paid off and changes in the economy and marketplace is likely resulting in more students and recent graduates seeking options for student loan consolidation. No word yet on how these changes may affect numbers of students entering colleges and schools this autumn, but no doubt some will be making alternative plans for funding their education.[41] Ackenson said the Kentucky agency is negotiating a deal with a major national bank to acquire new loan funds. Both Ackenson and Ellis said they were optimistic the student loan crisis would be resolved before school opens on many campuses in August.[29] Experts said there are fewer lenders willing to take the risk when it comes to student loans. "A lot of the banks and big lenders were having problems with real estate and other mortgage loans, so they've pulled the reins," said financial expert Dennis Brewster.[47] Bank of America BAC and Citigroup C this week became the latest lenders to scale back their student loan programs amid rising concerns about defaults.[12]
Yes, look into loan payment assistance programs that might be offered either by your university or your state. Some law schools offer LRAPs (Loan Repayment Assistance Programs), which helps graduates pay their loans if they make under a certain income and/or work in public interest, etc. Some states (Illinois, for example) also offer programs that pay off doctors' student loans if they agree to practice family medicine, OB/GYN, or other needed specialties in underserved areas.[44] Many law schools offer LRAPs (Loan Repayment Assistance Programs) for graduates who have accepted jobs that pay under a certain income level and/or are in a public interest field. Many states (Illinois, for example) will pay all or part of a doctor's student loans if he agrees to practice a necessary specialty (family medicine, OB/GYN, etc.) in an underserved area.[44]
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. "There are good, more affordable options," he says.[16]
Q: I'm a parent hoping to borrow on behalf of my child. A: Parents of dependent undergraduates also have a federal loan option _ they can borrow up to the cost of their children's attendance to pay for college. Unlike federal loans students take out themselves, these fixed-rate PLUS loans can be denied for bad credit.[42] The amount that students could borrow from federal programs would also be raised by $2,000, and parents with short-term delinquent mortgage payments would be allowed to access federal loans that otherwise would not have been available.[14] The Stafford Loan program is named for Sen. Robert Stafford of Vermont. Students can obtain them by filling out their Free Application for Federal Student Aid and meeting loan requirements. Undergraduate Stafford Loan recipients can get between $3,500 and $10,500 in aid from the program per academic year, depending on their grade level and other factors.[45] Zions typically would lend about $70 million in federal student loans a year.[33] In the past five years, The Student Loan People have provided $67 million for the state general fund budget and $22 million for KHEAA scholarships for Kentucky students, Ackenson said.[29] Iowa's students and families will receive an additional $430.3 million over five years in additional benefits in the form of student loans and Pell Grants.[7]
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 government subsidies to federally guaranteed student loan companies.[34] Agencies in at least 10 states including Massachusetts, Michigan and Pennsylvania have announced plans to stop providing federally guaranteed student loans.[9]
Hopefully the bill would clarify "uncertainty" about the availability of federally backed student loans, Alcala said.[38] Brewster said investor groups want federally backed loan guarantees to protect themselves from bad loans. He said the demand for student loans is very high. "They've had demand for about $3 billion a month, and they've only been able to fund about $1 billion," said Brewster. Larson said she only needs $60,000 of that $3 billion, and she might have to get it the hard way.[47]
Presumably, a debt swap policy would ease the financial burden of private loan borrowers and infuse liquidity into the private student loan market. These proposals -- for revising the bankruptcy law and authorizing a debt swap -- are reasonable steps that Congress can take to help out private loan borrowers in dire straits. Borrowers with unmanageable debt loads may not be able to hire high-priced lobbyists or lavish lawmakers with generous PAC contributions, but that doesn't mean that they should be left out of the discussions. This post was prepared by Stephen Burd and Michael Dannenberg.[17] Luke Swarthout, who does student advocacy work with the group USPIRG, says many private loans _ like bad mortgages _ should never have been made. He believes they often hurt borrowers more than they help. Students unable to borrow what they want may be forced to attend cheaper community colleges instead of more-expensive, for-profit schools.[42]
Typically, students in greater need depend on private loans to fill the gap between college costs and federal aid.[39]
The bill would also bolster state agencies' ability to step in as lenders of last resort in cases where private lenders are unable to satisfy the demand. It would increase the limits on unsubsidized Stafford loans so that students wouldn't have to rely as much on costlier private loans.[2] The authority announced Friday that it would pay the 1 percent default fee on students' loans beginning May 1 to encourage private lenders to continue to make loans available in Kentucky.[32] About 8 percent of undergraduate students nationwide borrow using private or state-sponsored loans that aren't federally guaranteed, according to the Project on Student Debt, an organization that studies the increasing need for families to borrow to pay for higher education.[39] Students with poor credit history are likely to find it tougher to get federally guaranteed loans, which have a fixed interest rate lower than most private loans.[1] A: Probably yes, though many students will have fewer lender choices. Some students will face more serious obstacles _ particularly those who need private loans and already have problems like too much credit card debt.[42]
Then a lender picks a student it wishes to give a loan to. It all sounds great - the borrowers and lenders make an agreement, and the student gets to pay for college. This form of lending is risky for both students and lenders.[52] For independent students, the amount would increase from $46,000 to $57,500. Parents who take out loans to pay for their children's education would be able to defer payments for up to six months under the new bill. It also says short-term delinquencies in mortgage or medical payments shouldn't prevent otherwise eligible parents from borrowing.[36] The House bill seeks to address that problem by raising limits on how much borrowers can receive under the federal program. The bill also would try to encourage parents to take out federal loans for their children's education. The bill would allow parents to defer repayment of those loans until after their children leave school, which is currently not allowed.[23] The bill also would give parent borrowers more time to begin paying off federal PLUS college loans. Parents could defer repayment of the loans until six months after their children leave school.[19]
The bill also would allow parents to defer loan payments for up to six months after their children leave school, and change the rules to allow more parents with adverse credit histories to borrow. "It's a good start, and most welcome news to the financial aid community and students," said Sal Alcala, Solano Community College's dean of financial aid.[38]
Loans for about 27,000 of Kentucky's college students could be in jeopardy if the state's student financial agency can't come up with new money to lend.[29]
I'm a graduating law student too, and the prospect of being unable to consolidate my student loans is scary. It's frustrating -- you feel like you've gotten a good education, done everything right, and yet you're still financially vulnerable. I would recommend that graduating students look into loan assistance programs offered by their university and/or their state.[44] "We're unsure what the financing will look like," Brough said Friday. "They will be marketed as student loans programs, but alternative programs to the federal programs."[33] The federal government could make the problem go away by effectively becoming the investor of last resort for student loans.[43] "We're hoping things will move and we will be able to come back in 30 days and tell the universities we will be able to make loans we ordinarily would," said Jo Carole Ellis, vice president for government relations and student services at The Kentucky Higher Education Assistance Authority, which acts as guarantor for loans provided by The Student Loan People.[49] Edward J. Cunningham, executive director and CEO of The Student Loan People and the Kentucky Higher Education Assistance Authority, said in the release that Gov. Steve Beshear and Kentucky's congressional delegation are supporting the effort to "ensure student loan access in Kentucky."[24]
The Student Loan People was created by the legislature in 1978 to help make higher education more affordable for Kentuckians.[32] Feitz said, Congress must be encouraged to take action now. "We want them to help shore up these collapsed credit markets" so student loans are available in the coming years.[33] Underscoring the urgency, Bank of America Corp said on Thursday it would no longer offer private student loans in the coming academic year.[20] Rates on bank deposits aren't any more expensive. Those student loans in question yield as much as 8.5 percent. That's a spread of 6 percent. Bankers who can't make money with that should reconsider their career options.[43] "We've got money to make the student loans without disruption, whereas many states do not," said the authority's executive director, David Feitz.[33]
The Student Loans Act not only ensures that loans will continue to be available to students who rely on them, but provides new flexibility for parents and children.[13] The corporation, also known as The Student Loan People, said it will continue to make loans to previous borrowers, based on availability of funds.[49]
The action is intended to address a crisis in the market that has forced Citigroup Inc.' s Student Loan Corp., SLM Corp. and about 50 other lenders to stop writing some forms of student loans.[9] The questions the hearing set out to answer: is there a student loan crisis ''' or at least a looming one ''' and, if so, is the crisis severe enough to warrant a tax-payer bailout of lenders. One possible signal of a market in crisis was addressed by Senator Dodd, chairman of the committee, in his opening remarks.[50]
The defections come at a time of stress for the student loan market, which has seized as investors' appetite for packaged debt has dried up in the credit crisis.[12] "(The credit crisis) is definitely affecting the student loan marketplace," said Justin Draeger, a spokesman for the National Association of Student Finance Aid Administrators.[27]
WASHINGTON -- The House backed a measure Thursday aimed at ensuring that students get college loans amid the turmoil in the credit markets.[36] The House of Representatives on Thursday overwhelmingly approved a bill to address the problems in the student loan market.[12] U.S. Sen. Edward Kennedy, D-Mass., has introduced legislation in the Senate similar to that approved by the House. The House bill would also provide financial assistance directly to students and their families. It would extend by $2,000 a year the amount that students are allowed to borrow from the federal government. Parents of dependent children would be given six months after their children graduate to start paying the borrowed money back. The bill also would allow parents who have fallen delinquent on their mortgages to qualify for financial assistance.[27] The White House backed the House bill on Wednesday while the Senate mulls over similar legislation targeting relief for students. Both houses of Congress are expected to pass the bill before the summer recess, in time for the new academic year.[14]
The House today agreed 223-192 to a rule on student loan legislation up for a final vote Thursday that includes a few changes in a manager'''s amendment and allows votes on three Republican amendments.[35] The White House has released a statement saying the Bush administration is eager to work with Congress to protect student loan programs.[38] In response to the economy's effect on the student loan market, the U.S. House voted in favor of a safety net to keep loans available for students.[51]
Associated Press - April 19, 2008 12:45 PM ET SALT LAKE CITY (AP) - College students shouldn't have to worry whether student loans will be available for the upcoming academic year[46] Last year, more than 6 million students used the guaranteed loans to help pay for college.[9]
A student recently walked into Norfolk State's financial-aid office wondering why the application for a bank loan to help cover tuition had gotten longer. Lenders are asking for more information than they did before, said Terricita Sass, the university's associate vice president of enrollment management.[39] 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.[16] Under current law, parents with an adverse credit history are ineligible to receive a parent PLUS loan, except under extenuating circumstances. Clarify that existing law gives the U.S. Education Secretary the authority to advance federal funds to guaranty agencies in the event that they do not have sufficient capital to originate new loans, and allow guaranty agencies to carry out the functions of lender of last resort on a school-wide basis.[8] Give the U.S. Education Secretary the temporary authority to purchase loans from lenders in the federal guaranteed loan program, ensuring that lenders continue to have access to capital to originate new loans.[8] Clarify that existing law gives the U.S. Education Secretary the authority to advance federal funds to guaranty agencies in the event that they do not have sufficient capital to originate new loans, and allow guaranty agencies to carry out the functions of lender of last resort on a school-wide basis.[5]
Luke Swarthout, higher education advocate at the U.S. Public Interest Research Group in Washington, says federal loans complement other financial aid.[16] A: Your college's financial aid office can tell you which lenders are sill making loans.[42]
The Utah Higher Education Assistance Authority lends about $350 million a year to Utah students, Feitz has said. The authority, however, wants to keep students out of a financial lurch that could discourage them from seeking a college education. It plans to use its financial reserves "as a bridge to better times," Feitz said. "Even if other lenders drop out, we're still planning to make those loans. until the credit markets turn around," he said. There is about $200 million in those financial reserves, Feitz said, thanks to conservative management, low overhead and money set aside along the way.[33] A little retro banking, please Boston Globe If markets have minds of their own, the screwy credit market for student loans is off its nut.[43] '''While I am unaware of an instance to date when a student has been unable to secure a loan., in the student loan market ha fueled concerns that a potential student loan credit crunch may be looming.'''[50]
According to reports, demand among investors for student loans that are packaged into securities, have plummeted, even though most student loans are highly rated and carry a federal guarantee.[41] More importantly, investors are demanding too much interest to make securities backed by student loans feasible.[43]
"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 Thursday morning. 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." Despite the bad news, Lord said the company would not reduce its full-year earnings forecast of $1.70 to $1.80 per share, excluding one-time charges and the impact of derivatives, though he said earnings are likely to be on the low end of that range. On Thursday's conference call, company executives said such assistance is urgently needed, particularly as students rush to file loan applications early, given concern about the availability of funding.[3] If you're denied a PLUS loan, your child becomes eligible to borrow $4,000 or $5,000 more per year through the unsubsidized Stafford program than the typical cap. Proposals in Congress would raise loan limits even more for those students.[42] Since the federal loan limits are just $18,500 per year for subsidized and unsubsidized combined, the program would have been unattainable without private loans (or wealth). I must admit that I now wish I hadn't qualified for those loans.[44]
Private loans are just one piece of a puzzle that students often must tackle to pay for higher education.[39] Congress is preparing to take steps that will make private loan borrowing somewhat safer for future students.[17] Although fewer than one in ten undergraduates have private loans, many graduate and professional students depend on them, and tougher terms could hurt. Some don't see this is a bad thing.[42] Some students relying on private loans have had trouble getting nonfederal loans.[36]
The bill, approved by a strong bipartisan majority of 382-27, lays out emergency measures that could be implemented if there's evidence the student loan market is seizing up.[27] The bill also increases the aggregate loan limits for students. Students who are dependents of their parents would be able to borrow up to $31,000, an increase from $23,000, and the independent-student limit would rise from $46,000 to $57,500.[30]
The House passed a bill Thursday allowing the Department of Education to free up money to guarantee loans for lenders.[47] The House of Representatives yesterday gave the Department of Education the green light to do that for many loans. A similar bill is working its way through the Senate. Why don't bankers act like, well, bankers? That means making loans, putting them in bank credit portfolios, and doing it the old-fashioned way. A lot of bankers are running scared these days, just like credit investors.[43]
House lawmakers on Thursday overwhelmingly approved legislation that would temporarily allow the Department of Education to buy federally backed loans from providers that are unable to raise capital.[2]
The idea has been backed publicly in recent weeks by Rep. Paul E. Kanjorski, a Pennsylvania Democrat who is chairman of the House Financial Services Committee's subcommittee on capital markets. Other officials involved in student lending said they also understood Ms. Spellings and Mr. Paulson were nearing an agreement on a plan for using the federal agencies to direct more government funds toward private student-loan companies, but did not yet regard it as imminent. A department spokeswoman, Samara Yudof, said that Ms. Spellings had no plans for an announcement on the matter '''at this time.'''[28] The bill was sponsored by Rep. George Miller, D-Martinez and passed 383-27. "At a time when too many Americans are facing severe economic uncertainty, students and families shouldn't have to worry about whether or not the federal student aid they need to pay for college is in jeopardy," said Miller, chairman of the House Education and Labor Committee.[38]
Limit the ability of students to take on heavy loans, and college education becomes untouchable for anyone but the wealthiest Americans. If loans dry up, universities will be forced to slash their bureaucracies and substantially reduce tuitions.[28] Not surprisingly, the Career College Association, which represents for-profit schools, sees the funding shortage as serious. The group says its students are already being forced to drop out because they can't get loans.[42] The announcement is adding to the financial worries of some college-bound students. Christina Filer, 17, a senior at Fern Creek High School in Louisville, said she was looking into taking out a loan through the state to attend the University of Louisville in the fall. "It's crazy," she said.[32] About 27,500 new borrowers use the student-loan corporation each year, authority spokeswoman Lori Powers said. The average borrower, both new and recurring, takes out $6,452 in a year's time, she said. The corporation said first-time borrowers who have applied for loans before May 1 will have their requests honored, but those who do not meet the deadline likely will have to find another lender. That was not good news to Christina Filer, 17, a senior at Fern Creek High School in Louisville, who was looking into taking out a loan through the state to attend the University of Louisville in the fall. "It's crazy," she said.[49] Borrowers will find more scrutiny of their loan applications from lenders that have been stung by the subprime loan debacle. Some seeking to refinance a mortgage or open a home-equity line may be surprised to learn that their homes aren't appraised at what they thought they're worth - affecting the amount that can be borrowed. Gary Pope and his wife envisioned saving $600 to $700 in monthly payments when they sought to refinance their home in Currituck County, N.C., earlier this year. His application was denied by the bank, which cited its tighter loan-to-value requirements, he recalled. The couple wanted to refinance two mortgages totaling $385,000 with their existing lender.[39]
Many large lenders including College Loan Corp., HSBC Bank, Washington Mutual and Zions Bank, are suspending lending altogether. (For an up-to-date list, visit FinAid.org's web site.) Unfortunately, the situation is only expected to get worse as lenders continue to struggle with securitizing and selling their loan portfolios to investors, says Kantrowitz. Burned by the subprime mortgage crisis, lenders are having a hard time making a profit off of these loans. "Only the largest banks that not just originate these loans but also hold onto them are the ones likely to stay," Kantrowitz predicts.[15] The first, and less controversial of the two, would allow an arm of the Federal Reserve called the Federal Financing Bank to inject liquidity in the market, should it become necessary. The second would authorize ''' and possibly require''' a second Federal Reserve office, the Term Securities Lending Facility, to allow lenders to use asset-backed securities as collateral for loans. Essentially, lenders would be able to swap their loan-backed securities for federal cash. Of the latter proposal, a key question went unanswered and undiscussed: what pricing mechanism should be used? If lenders cannot sell their securities on the open market, accurate pricing information will be unavailable. If Congress forces the TSLF to purchase the securities at a given price, lenders could simply swap their least valuable securities and hold onto the ones that are expected to perform.[50]
If your school participates in the federal direct lending program, you should have ready access to a direct loan from the government.[42] Lenders are fleeing the federal loan program by the dozens, and the federal government is scrambling to prop up the system.[42] Dozens of lenders have exited the federal loan program altogether since the cuts in subsidies, prompting some analysts to predict a shakeout of smaller competitors and growth for larger players.[20] 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.[16]
Goldman Sachs analyst James Fotheringham is worried about the negative impact of the legislation on Sallie Mae. "First, legislated liquidity relief may shift Sallie's mix toward less-profitable loans; second, potential funding to enhance the Direct Loan Program may erode Sallie's market share," he wrote Thursday. Fotheringham cut his estimates and lowered his price target for the lender.[12] Experts said that, unless the government intervenes or market conditions rapidly improve, Sallie Mae could have no choice but to stop writing new federally backed loans.[3] 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."[21] Lord said Sallie Mae's new loans for the most part would lose money as a result of the credit crunch.[34]
Most recently, the credit market catastrophe has left some lenders without the money to make new loans.[16]
The company said today that new student loans are being made only at a loss. [9] If you borrowed 50k in student loans for a degree that will get you a job where you make 50k a year prepare for a decade of ramen fueled eating.[44] "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," Johnson says.[16]
The Student Loan People have an AAA rating for buying and paying off bonds that produce money for student loans.[24] The groundbreaking idea of bankers holding loans would be a good way to ease the student loan problem. Once upon a time, this would have seemed obvious.[43] There is another benefit to the student loan deduction (if you qualify), which is that you don't have to itemize deductions to claim it. This is just FYI as I definitely agree with your point that it's absurd to value mortgage loans above student loans.[44] There are many kinds of student loans, and no one idea will solve everything.[43] Some 60 companies have exited the student loan market recently putting pressure on the remaining providers.[12] I'm not talking about all kinds of student loans, just the safest ones. Those are loans that come with a rock-solid guarantee backing 97 cents on every dollar.[43] Student loan Corp.' s announcement Wednesday adds to the growing concern regarding availability of student loans in the upcoming fall.[41] Student Loan Corp.' s first-quarter net income tumbled 65% amid slumping loan-sales volumes and surging loan-loss reserves.[53]
There are still plenty of lenders out there." Davis noted that institutions are not permitted to recommend a lender, but he said his office keeps a list of lenders that have expressed an interest in making loans to KCTCS students.[29] The Delegation sent a letter to Secretary of the Treasury Henry Paulson and Secretary of Education Margaret Spellings pushing for action to prevent KHESLC from becoming unable to provide critical loans to Kentucky students.[13] The legislation would change the Parent Loans for Undergraduate Students to allow parents to delay repayment until six months after a student graduates.[18] Parents who are less than 180 days delinquent on mortgage payments could still qualify for the Parent Loans for Undergraduate Students (PLUS) program.[18] Bynum said students at Troy University are starting to take advantage of the program. "It's very attractive because many of our students are on the Stafford Loan," she said.[45]
Alarm is growing on Capitol Hill as lawmakers dread the prospect of students unable to get loans during an election year.[2] Cedric Lawson, legislative affairs director for the United Council of UW Students, said lawmakers should focus less on loans and more on putting money into grants that students don't have to repay.[18] Educational institutions just like any business can only charge what the market can bear. By making a lot of cheap credit available the government changed this. Wanting a private education people took out loans for more than they could afford with the hope of making much more money in the future.[44] "I'd probably get a private loan through my credit union," said Larson. For Larson, that would mean monthly payments instead of waiting until she finishes her education.[47]
Bank of America said Thursday it plans to join the ranks of lenders that have stopped issuing private loans, though it plans to continue making government-backed loans.[10] GradPLUS loans, even though made by a private bank, are still part of a federal program.[44] Today's announcement comes a few months after the state announced it would be phasing out three loan forgiveness programs for health care, education and public prosecutors due to federal cutbacks and the market crisis.[25] In January, it announced it would have to phase out loan forgiveness programs for teachers, nurses and public service because of a combination of federal cutbacks and the credit crisis.[32]
"We've always paid our bills, and we have good credit," said Pope, the Hampton Roads general manager for financial services company AIG/American General. In its January survey of senior loan officers on their banks' lending practices, the Fed found that slightly more than half had tightened their standards for prime mortgages.[39] The lenders may be giving out loans with less information about the recipients. These type of programs, because they are new, may not be as trustworthy as more established lending companies. It makes the lending system seem weak and, ultimately, less credible.[52] The loans usually have low interest rates, but thanks to a recently approved new lender code, Alabama education majors can obtain interest-free loans.[45] The market changes have come just months after new laws which reduce government subsidies for federally guaranteed loans, with interest rates being capped at 6.8%.[41] To review: Government makes sure banks have access to very inexpensive money and guarantees loans that offer much higher interest rates.[43]
Lenders are tightening up. They're insisting borrowers have higher credit scores, and cutting back on loans at schools with low graduation rates.[42] 'We have seen lenders dropping by the wayside and dropping out of business,' Bentley said. Bentley said that as long as his office overcomes 'operational and communication challenges' in redirecting some students to new lenders, then Emory, with a student body with low default and high graduation rates, remains in good stead. 'It's primarily institutions that serve higher credit risk populations' that are struggling right now, he added. Henry Urick, an associate director at University of Texas's financial aid office, said not all students are affected equally, since borrowing opportunities may diverge between students attending 'large, 4-year public flagship institutions' and those at smaller schools. 'UT-Austin has high quality students and the availability of lenders is not seen as a problem,' he said.[14] Passage of the bill 383-27 comes as worries mount that the tightening credit markets, stemming from the subprime mortgage crisis, could limit financial aid for students.[23]
With college costs seemingly forever on the rise, students have racked up enormous debts to get that precious sheepskin. Private lenders, some of them using tactics reminiscent of the shadiest subprime mortgage lender, have eagerly filled the market niche. Now, the credit crisis has pinched those college lenders, who are suffering a shakeout similar, if on a smaller scale, to that of their brethren in the mortgage industry. The Oregonian talked with Dave McDonald, associate provost at Western Oregon University in Monmouth, about how the industry turbulence is affecting college lenders, how the state is attempting to make college more affordable, and how students and their parents can try to avoid trouble.[48] 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."[16]
The chief executive of Sallie Mae, the largest student lender, said the system was in for "something of a train wreck" by mid-2008 if the federal government did not move quickly with a stabilization plan.[20] House lawmakers were prepared Thursday to vote on a measure that would boost funding for Sallie Mae and other student lenders, and analysts believe the Treasury department could act as soon as next week. Sallie Mae lost $104 million in the first quarter as it grappled with higher borrowing costs, restructuring charges and other factors, though Lord said in a conference call with analysts that the company would not lower its full-year earnings target.[3]
Sallie Mae CEO Al Lord, during a conference call Thursday, said loan demand was running at $3 billion a month, while the company has only been able to access funding of about $1 billion a month -- at record-setting costs.[12] The nation's biggest lender, Sallie Mae, recently announced it will stop offering consolidation loans and paying for loan origination fees.[15] SLM Corp., known as Sallie Mae, has stopped offering consolidation loans, which allow borrowers to combine several loans into a single one charging a lower rate.[9]
Sallie Mae would still be able to operate, Kantrowitz said, because the company would still receive fees for collecting loan payments.[3]
"What I did was apply for a FAFSA again," says Parker, "and Wachovia that had really high interest rates." MOHELA and Wachovia are two loans Westminster sees often, but the school has seen these two dry up. Westminster says that Sally Mae and Chase Bank loans are still coming in, and that about six percent of the loans they process are private.[51] Federal loans only guarantee us so much per year, which can make things really tight if you have a family, go to a private school, or live in an expensive city.[44] That blows, almost all of my school loans are private since federal loans only covered so much to go to private school.[44]
In pop-up Internet advertisements, youtube videos, and television and radio commercials, the companies tout the convenience of applying for private loans but seem to brush by the fact private loans are more expensive than federal loans and lack important safeguards.[17]
Because of the government backing, Johnson says, "there should not be a challenge in the federal loan program."[16] The Education Department would be authorized to purchase loans only if doing so would not result in a net cost for the federal government.[8] The companies cite increased borrowing costs, cuts in government subsidies for education loans and a lack of investor interest in securities backed by loans.[9] Right now, nobody wants to invest in the securities. Government subsidies on those loans were just cut, and lenders say that makes them unprofitable.[42]
The announcement came as lenders across the United States have stopped or suspended participation in Stafford and PLUS (Parent Loans for Undergraduate Students) loan programs.[33] More than 50 lenders, including for-profit companies and state loan authorities in places like Massachusetts and Pennsylvania, have stopped making new loans.[42]
I'm worried," says FAMU Sophomore, Shantia Wheeler. "I've got a buddy working at Publix 3 a.m. to noon everyday because his loans weren't working out for him. It's kind of a bummer," says Erik Sunset, a Sophomore at Florida State. The passed bill will allow parents to defer repayment of loans they take out until after their children leave school, which is currently not allowed.[37] The private loans are more like 8 percent, 10 percent interest. Those are grim numbers. It's a really bad policy place to be. We can't afford as a state to have a generation of individuals less educated than their parents.[48]
An aggressive Federal Reserve has slashed the federal funds rate, the interest available to banks for overnight loans, to 2.25 percent in an attempt to head off a bad recession.[43] An amendment proposed by Castle and Rep. Peter Welch, D-Vt., directs GAO to examine whether increasing federal loan limits leads to college tuition increases. That'''s in response to concerns from some advocacy groups.[35] If you don't make enough money during your residency, you should qualify for loan abatement based on income -- it kept me from paying my federal loans during my clerkship.[44]
Bear in mind, too, that even "federal" loan programs like the Stafford and Perkins loans are still actually made by private institutions.[44] The private lenders, which make about two-thirds of the total loans, are very much like the mortgage lenders.[48] The total for independent students would increase from $46,000 to $57,500. The measure also would expressly authorize the department to advance funds to guarantee agencies, allowing them to act as lenders of last resort if more private lenders drop out.[4]
Students borrow about $100 billion a year to go to school. Here in America's college town, this is especially serious stuff. None of it would make any sense in a normal world but, as you may have noticed, these are not normal times when it comes to lending money.[43] Under normal circumstances, most lenders don't even talk to students before July 1. Today, Gary Carpenter, a certified college planning specialist in Syracuse, N.Y., is advising his first-year student clients to start contacting lenders as soon as they choose a school. (The acceptance deadline at most schools is May 1.) Returning students should contact their school or current lender to see if they're still in business. If they aren't, it's time to start shopping for another lender.[15]
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.[21] Cuts made last year in federal subsidies to student lenders is going to have a devastating effect.[6]
"No matter what happens in our nation's financial markets, students will continue to have access to federal college loans," Miller said. [38] An announcement of the alternative plan, using the two federal banks, is expected by Ms. Spellings and Mr. Paulson within days, said Philip R. Day, president and chief executive of the National Association of Student Financial Aid Administrators. Such an action would almost certainly eliminate the need to continue making preparations for a lender-of-last-resort system, Mr. Day said.[28]
Do some googling, talk to your university's financial aid people, and see what your options are if you think you may not be able to pay back your loans.[44] Based on foreclosure data, Mark Kantrowitz, who runs the financial aid web site finaid.org, expects to see a 10 percent increase in the number of PLUS loan applications that are denied.[42] Dean Bentley, financial aid director at Emory University, has observed the loan market tightening firsthand.[14]
"Because of our financial reserves, we have staying power to make loans, even in the credit crisis."[33] If your credit is too bad for a PLUS loan, you probably can't get a private or home equity loan either.[42] There are private education loans - the kind giant Bank of America decided to stop writing yesterday - that may be more expensive but can sometimes offer more flexibility.[43] Freely available education loans made allowed many more people to attend private institutions than normal.[44]
Unlike the rest of the world, there are two kinds of college lenders: government-backed loans and private.[48] Help struggling homeowners pay for college by making sure that short-term delinquencies in mortgage payments don't prohibit otherwise eligible parents from being able to borrow parent PLUS loans.[8] The bill permits late mortgage payments to be considered as extenuating circumstances that cannot interfere with parents''' ability to acquire college loans.[35] An amendment to a routine homeland-security bill would ban students at Arizona's public colleges from organizing groups based on race. The Education Department should rethink its interpretation of the rule, the association's president says.[28] Miller said the bill would ensure that students can pay for college '''regardless of what happens in the credit market.''' In the Senate, Edward M. Kennedy, D-Mass., has introduced a similar bill, which he is working to get through that chamber as quickly as possible.[4] The measure, approved 383 to 27, aims to ensure that college students get aid amid credit market turmoil.[30]
Is a kick-start needed at all? As the chairman and witnesses all acknowledged, no student has yet been denied access to credit to pay for college.[50]
There's lot of uncertainty, some tightening of credit, lots of turmoil. Where this is hitting students hardest is at the high-cost private institutions, those that are charging $30,000-$40,000 a year in tuition.[48] Some stores are a bit more watchful. Haynes Furniture Co., the Virginia Beach retailer that owns five stores from northeastern North Carolina to Richmond, has "selectively tightened" its credit requirements for customers because of the shifting terrain of the lending industry, said Bruce Breedlove, the company's senior vice president and chief financial officer, in an e-mail. Haynes offers a variety of credit plans, financing most of them in-house. "However, our lenders impose certain restrictions based on their requirements," Breedlove added. At Grand Furniture last month, Monique Wright, 32, was surprised when the salesman talked her into a payment plan with no interest for a year when she bought a bedroom furniture set for her children for $2,250. Describing her credit history as shaky, the single mother said she had intended to pay cash. "They explained to me that it would help my credit if I paid on credit," Wright recalled.[39] For Hampton Roads, Bank of America, Chase and Countrywide, for instance, have frozen the amounts of credit available on some existing lines of credit. These home-equity lines offer homeowners a financial safety net and provide tax-deductible financing for major purchases, such as home remodeling and autos. "A lot of lenders have looked at this situation, and we are no different," said David Bradley, a spokesman for Bank of America, based in Charlotte. "We recognize that for people who do get a letter, it can be a hardship, and we will work with them." Bradley said the percentage of borrowers in Hampton Roads notified that they can't increase their borrowing is significantly lower than in some other markets, especially in Western states. Navy Federal is one local lender that has not significantly changed its standards.[39]
In the event funding cannot be secured, the authority will assist first-time borrowers in securing loans from other lenders, officials said. [49] Then securitization, chopping up loans into securities for investors, caught on as a way to make sure there was always money available to all qualified borrowers. Now securitization seems to be freezing all kinds of markets in their tracks. Bankers used to think about the potential return to capital when they did business. At some point they started to think more about the velocity of capital - how many times they could turn their cash over and ultimately make bigger profits.[43] Submitted by Pass (not verified) on April 17, 2008 - 10:00pm. If those lenders don't want to invest their capital without taking a loss on every unprofitable loan, then they can take their capital and shove it.[17]
If you're not at a school that participates in the direct loan program, keep your fingers crossed that Congress and the Bush administration will come through with new options.[42] Day, of NASFAA, noted that it was "not exactly easy" to switch to direct lending, in part because the schools most vulnerable to losing access to loans have the least resources to devote to the transition.[2]
Zions, meanwhile, is continuing work on a private student lending program, and expects to roll it out in the next 30 to 60 days, said Rob Brough, bank executive vice president of marketing and communications.[33] Some schools that weren't in the direct lending program are joining, to make sure students have that option.[42]
I think this decision hits the private colleges pretty hard too (not just students) - potential students will forgo expensive private schools in exchange for cheaper local state schools.[44] The plus side of that is that private colleges have bigger lobbying power than students.[44]
Dumb. It isn't the job of a private institution to provide education for American students.[44] "We are finding that some lenders are no longer able to afford to provide student loans," Bistow said.[51]
Yep we now see where this is going. All this is going to do is royally screw those students who have parents that make JUST enough to not qualify for any of the federal programs, but who also dont make enough to actually pay outright for their kids.[44] Direct lending by the federal government comprises around 20% of federal lending efforts to students.[27] Partly because of a downturn in interest rates in January, Navy Federal made $1 billion more first mortgages during the first quarter than in the comparable period last year, said Mary McDuffie, executive vice president of lending at the Vienna, Va. -based credit union.[39]
Prosper, the oldest online p2p marketplace, has been around for over two years and made over $133 million in loans.[52]
The loans are issued by private institutions, but are backed by the government. There is essentially zero risk for these institutions.[44] The agency said the decision to suspend loans to first-time borrowers on May 1 was due to ongoing fallout from the national credit crisis.[32] The release said that if new funds are not found, KHEAA will "assist borrowers in securing loans from other lenders."[24] I don't need a new loan, but am still paying back some variable-rate loans and would like to consolidate.[42]
"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 analysts. 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."[40]
The number of schools applying to participate in the government's direct-lending program, which has so far been immune to the credit crisis, is on the rise. Nearly 60 schools filed applications in the first quarter this year, more than you'd typically see for the whole year, Kantrowitz says. (Currently, only about 20% of the roughly 4,000 colleges and universities in the higher education system are direct lenders.) Borrowing will be trickier and more time-consuming this year.[15] The announcement was particularly bad news at a time when public universities and colleges in Kentucky are preparing to raise tuition for next school year. The Kentucky Council on Postsecondary Education is scheduled to vote on those proposals May 9.[49]
We will just go to work and save our money before we go to college, however many years that will take. Or we will go to community college. Or we will just beg for money on the streets like the students in Canada. Or join the army. [17] Dodd said it would be "almost miraculous" for the current legislation to be cleared in time to make a difference for students who plan to attend college in September.[30] Students at for-profit colleges, which have lower graduation rates, could also be more at risk.[1] For undergraduates that rate will drop to 6 percent on July 1. Ackenson and Jo Carole Ellis, the state agency's vice president for government relations and student services, said they are optimistic that one or more solutions are in the works.[29]
"Fortunately, no student has been denied access to federal aid, despite the growing problems with our economy.[26] The Kentucky Delegation is calling on the Secretary of the Treasury and the Secretary of Education to assist KHESLC and ensure Kentucky students continue to have access to higher education.[13] This has potential to become a serious problem, according to Karen Finerman. Student financing woes could spill over into education stocks as well, she said.[54] Students and families with good credit histories should secure financing with few problems, local financial-aid experts said.[39]
For graduating students, do some googling and talk to your financial aid folks.[44] I just got my husband through college. When he started, they offered enough financial aid for him to get through. A year before he was done, the level of financial aid was cut back. He has one of those degrees that takes five years, so you can have a four year degree. Because of a few extra quarters demanded at a community college, it caused him to come up short.[44] Miller, who represents Vallejo, said the bill is meant to prevent a financial aid crisis before one happens.[38]
During a conference call with analysts Thursday, Sallie Mae Chief Executive Al Lord said, "We've been predicting something of a train wreck" if something isn't done by mid-2008. Lord said that the credit fallout over the subprime mortgage crisis has hurt families to the extent that their home equity has shrunk and that it has caused parents to rethink their ability to help their children finance their higher education. [6] Shares of Sallie Mae, known formally as SLM Corp, were up 5.8 percent to $17.20 in afternoon trading on the New York Stock Exchange amid a broadly lower market.[34]
There are a large variety of inexpensive public colleges that provide an excellent education for a very modest price. In addition there are many state and federal programs to assist you in getting into those colleges. [44] One of the biggest problems with private education in the past decade has been the government intervention in credit markets.[44] Turmoil in global credit markets and congressional action last year to reduce subsidies to lenders have combined to restrict lenders' access to capital.[9]
The U.S. Department of Education is working on changing regulations that would allow it to become a "lender of last resort."[29]
SOURCES
1. Credit crunch now hitting student loans
2. TheHill.com - Reprieve for student lenders moves to Senate
3. Sallie Mae Rapidly Losing Ground in Loan Business
4. CQ Politics | House Passes Bill To Head Off Student Loan Crisis
5. McKeon Applauds Student Loan Access - Hometown Station KHTS AM-1220
6. House passes student loan act, avoids train wreck
7. Iowa Politics
8. Student Loans for American Families
9. Bloomberg.com: Worldwide
10. The Associated Press: Congress acts to boost student lending
11. Student loan market in trouble : CR80 News
12. BofA, Citi Scale Back From Student Loans | Financial Services | BAC C FMD SLM STU - TheStreet.com
13. The Times Leader Online - Princeton, Kentucky
14. Credit crunch spreads to student loans: Times Argus Online
15. Squeezed Lenders Abandon Students (Consumer Action: Personal Finance) at SmartMoney.com
16. The State | 04/20/2008 | There's some good news about student loans
17. Wheres the Bail Out for Borrowers? | New America Blogs
18. Green Bay Press-Gazette - House moves to maintain availability of student loans
19. Shelbyville Times-Gazette: Story: Gordon backs bill protecting student loans
20. Congress moves to calm student loan turmoil | U.S. | Reuters
21. ABC News: Sallie Mae: Student Loans a 'Train Wreck'
22. Closing Glance: Education stocks trade mixed on legislation | Chron.com - Houston Chronicle
23. House acts on student loans - Salt Lake Tribune
24. Student loan agency halts loans to first-time borrowers
25. State to suspend student loans to first-time borrowers | courier-journal | The Courier-Journal
26. Delegation backs bill to save student loans - The Connecticut Post Online
27. UPDATE: US House Votes To Support Student Loan Financing
28. Plan Is Said to Be Near for Federal Banks to Help StudentLenders - Chronicle.com
29. Loans for 27,000 students in doubt
30. House backs bill to boost student loans - Los Angeles Times
31. Opening Glance: Education stocks trade higher on legislation - Forbes.com
32. Student-aid agency facing financial difficulties
33. Deseret News | State fund to offer student loans
34. UPDATE 1-Sallie affirms '08 outlook, House votes, shares rise | Markets | Markets News | Reuters
35. CongressDaily - House Endorses Rule On Pending Student Loan Legislation
36. House backs bill to ensure aid for college | Freep.com | Detroit Free Press
37. Ensuring Loans for Students
38. House OKs boost to student loans - Vallejo Times Herald
39. How tough is getting credit in Hampton Roads? | HamptonRoads.com | PilotOnline.com
40. The Enquirer - Sallie Mae issues distress call
41. Student Loan Crisis Worsens
42. Q&A;: What parents, students need to know about student loans | Chron.com - Houston Chronicle
43. A little retro banking, please - The Boston Globe
44. Credit Crunch: Bank of America To Stop Making Private Student Loans
45. New program gives education majors interest-free student loans - local_news | The Dothan Eagle
46. LocalNews8.com Idaho Falls, Pocatello - Weather, News, Sports - State to help issue college loans
47. Students Find Difficulty In Securing Education Loans - San Diego News Story - KGTV San Diego
48. Not all bad news on student loans- OregonLive.com
49. State student-loan program may stop taking applications | courier-journal | The Courier-Journal
50. AACRAO Transcript - Senate Banking Committee Holds Hearing on Lending Market
51. KOMU.com - Students Feel Loan Crunch - Improve Your View
52. Person-to-person lending practices risky - The Skiff View
53. Free Preview - WSJ.com
54. School'''s Out Forever? - Tomorrows Playbook - MSNBC.com
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