Student loans arouse student moans

As Congress cuts available funds, loan industry faces crisis

Mon, Mar 10, 2008

After a year of criticism and scrutiny from Congress and audits from the Department of Education, the student loan industry faces a crisis in funding these loans.

With Congress reducing subsidies to lenders in the federal-guaranteed student loan program and the current United States mortgage industry meltdown, student loan agencies are finding it difficult to raise capital.

Even now, as the meltdown runs its course, investors are wary of purchasing securities backed by student loans, making it nearly impossible for student agencies to auction off bonds and continue to fund loans.

Kevin Burns, executive director of the trade group America's Student Loan Providers, told The New York Times that while the sky is not falling, there are some pretty dark clouds and that such disruptions in the loan market could force students with existing loans to seek new lenders.

"As many Americans face foreclosure on their homes, millions of college students may now face foreclosure on their plans for a higher education," said State Rep. William F. Adolph, chairman of the Pennsylvania Higher Education Assistance Agency (PHEAA) Board of Directors.

A PHEAA press release announcing an emergency Student Loan Funding Summit on Thursday, Feb. 21, stated that lenders throughout the U.S. are exiting the $50 billion Federal Family Education Loan Program (FFELP) while others are cutting back, consequently jeopardizing the funding plans of millions of American students.

FFELP creates federally guaranteed loans for students and parents through a public-private partnership between private, nonprofit and state-based lenders.

During the current school year, according to studentloanfacts.org, "FFELP served more than 6.4 million students and parents at 5,000 post-secondary institutions, lending a total of $55.3 billion, or 78 percent, of all new federal student loans."

The summit took place at the most crucial time. According to the press release, in the recent weeks College Loan Corporation terminated its participation in the FFELP, Iowa Student Loan Liquidity Corp announced its inability to fund loans for the upcoming school year, a Michigan agency suspended its private loan program, a Montana agency was unable to sell $583 million in bonds and PHEAA, after experiencing failed auctions, temporarily suspended its student lending activity.

Source:
http://media.www.theticker.org/media/storage/paper909/news/2008/03/10/News/