Tuesday, 19 August, 2008
PHOENIX, AZ, Aug 19, 2008 (MARKET WIRE via COMTEX) -- Despite federal legislation passed in May that was designed to help the struggling student loan industry, cash-strapped lenders continue to drop out of the student loan business, leaving families throughout the country scrambling to find a new student loan provider as 6.7 million undergraduates prepare to head back to school.
On the heels of its decision in April to stop issuing federal student loans, the Massachusetts Educational Financing Authority -- the largest student loan issuer to Massachusetts residents -- suspended its private student loan program on July 28, citing turmoil in the student loan credit market. Non-federal private student loans accounted for 80 percent of the $500 million in student loans MEFA issued last year.
"The whole problem with the capital markets started with mortgages and has drifted down," said Thomas Graf, executive director of MEFA. "Difficulty in the capital markets has made it difficult for us to secure funding for the fall semester."
The suspension of both MEFA's federal and private student loan programs means that some 40,000 MEFA borrowers will now have to find a new provider for their student loans with fall tuition bills coming due over the next few weeks.
"An economy that is in such a tailspin that it affects a critical agency like MEFA is an economy that scares me," said Kathryn Osmond, executive director of student financial services at Wellesley College in Wellesley, Mass.
The government had hoped the Ensuring Continued Access to Student Loans Act, which was signed into law in May, would be enough to shore up the student loan market. The bill allows the U.S. Department of Education to buy federal student loans from private lenders as a means of providing additional capital for lenders who are no longer able, in the current credit crunch, to find investors for their student loan portfolios. Yet, despite the legislation, some of the nation's biggest student loan lenders have fallen victim to the general economic downturn.
The Brazos Higher Education Authority, the nation's 23rd-largest originator of federal student loans, had originally pulled out of the federal student loan market in March, but returned in May after the passage of the student loan bill, feeling "confident that the short-term liquidity plan established under the act would provide a way for us to continue helping students achieve their educational goals," said Murray Watson, Brazos' president and CEO.
"Unfortunately," Watson continued, "that has not proven to be the case." On the same day MEFA announced it would stop issuing private student loans, Brazos again suspended its federal student loan program indefinitely.
According to the National Association of Student Financial Aid Administrators (NASFAA), since March, roughly 100 U.S. lenders have suspended their federal student loan programs, and nearly 30 lenders have stopped issuing private student loans.
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Source: http://www.marketwatch.com/