Private student loan lenders disappering
Kevin Zelaya
Issue date: 4/25/08 Section: News
By next year, only 15 private student loan lenders might be left standing after the on-going credit crunch meltdown.
With a new lender seemingly announcing their departure from the industry every week, Mark Kantrowitz, publisher of FinAid, a Web site that provides financial aid advice to students, has predicted that of the more than 2,000 current lenders, only the 15 lenders with the most loan volume will remain by next year.
The student loan crunch, where private lenders have struggled to raise enough cash to make new student loans, has been brought on from spillover from the home mortgage crisis, which has scared investors throughout the economy.
Some lenders rely on auctions, where they raise money to make new loans by auctioning off interest in their loan portfolios to investors.
Because of the stagnant economy, many auctions for lenders have failed in recent months, which has forced some lenders out of the loan-making business.
James Manning, a spokesman from the U.S. Department of Education, didn't dispute Kantrowitz's prediction in a news release.
Manning affirmed Kantrowitz's estimate, noting that some of the largest banks have pledged to continue in the student loan business.
Kantrowitz refused to disclose which lenders he believed would remain in the industry.
"I don't want a self-fulfilling prophecy," he said.
So far, 63 lenders that give Stafford and PLUS loans have suspended their student loan businesses, which represents 13.6 percent of student loan volume, according to data from the 2006 fiscal year.
While lenders representing 76 percent of the loan consolidation volume have left the industry, Kantrowitz said students could always consolidate their loans with the federal government by going to loanconsolidation.ed.gov.
Craig Munier, the director of the University of Nebraska-Lincoln's office of scholarships and financial aid, said he thought Kantrowitz's predication would leave plenty of lenders in the loan industry.
"What's the difference if 15 can make loans to everyone?" Munier said.
Kantrowitz said he anticipated about one percent, or 100,000, of student borrowers to be impacted by new or existing borrower eligibility requirements, such as a higher credit score requirement and a clause disqualifying families with a recent foreclosure from receiving a Stafford PLUS loan.
The Bush Administration sent a proposal to Congress on Wednesday that would allow the government to buy billions in student loans from lenders, in an effort to inject cash into the struggling industry and keep loans accessible for students.
While the federal government buying private loans was a logical step, because it already provides direct loans and handles default loans, Munier said he didn't want the government to be beholden to private lenders.
"I don't like the idea that the federal government be used so someone can make a profit," Munier said. "I was taught profit is the result of risk."
Some financial aid tips from Kantrowitz are:
-Borrow as little as you need and don't live beyond your means.
-Borrow federal loans first. They're cheaper, readily available and give better repayment terms.
-If you have to get a private loan, apply with a credit worthy co-signer.
-Search for scholarships on Web sites like fastweb.com.
kevinzelaya@dailynebraskan.com
With a new lender seemingly announcing their departure from the industry every week, Mark Kantrowitz, publisher of FinAid, a Web site that provides financial aid advice to students, has predicted that of the more than 2,000 current lenders, only the 15 lenders with the most loan volume will remain by next year.
The student loan crunch, where private lenders have struggled to raise enough cash to make new student loans, has been brought on from spillover from the home mortgage crisis, which has scared investors throughout the economy.
Some lenders rely on auctions, where they raise money to make new loans by auctioning off interest in their loan portfolios to investors.
Because of the stagnant economy, many auctions for lenders have failed in recent months, which has forced some lenders out of the loan-making business.
James Manning, a spokesman from the U.S. Department of Education, didn't dispute Kantrowitz's prediction in a news release.
Manning affirmed Kantrowitz's estimate, noting that some of the largest banks have pledged to continue in the student loan business.
Kantrowitz refused to disclose which lenders he believed would remain in the industry.
"I don't want a self-fulfilling prophecy," he said.
So far, 63 lenders that give Stafford and PLUS loans have suspended their student loan businesses, which represents 13.6 percent of student loan volume, according to data from the 2006 fiscal year.
While lenders representing 76 percent of the loan consolidation volume have left the industry, Kantrowitz said students could always consolidate their loans with the federal government by going to loanconsolidation.ed.gov.
Craig Munier, the director of the University of Nebraska-Lincoln's office of scholarships and financial aid, said he thought Kantrowitz's predication would leave plenty of lenders in the loan industry.
"What's the difference if 15 can make loans to everyone?" Munier said.
Kantrowitz said he anticipated about one percent, or 100,000, of student borrowers to be impacted by new or existing borrower eligibility requirements, such as a higher credit score requirement and a clause disqualifying families with a recent foreclosure from receiving a Stafford PLUS loan.
The Bush Administration sent a proposal to Congress on Wednesday that would allow the government to buy billions in student loans from lenders, in an effort to inject cash into the struggling industry and keep loans accessible for students.
While the federal government buying private loans was a logical step, because it already provides direct loans and handles default loans, Munier said he didn't want the government to be beholden to private lenders.
"I don't like the idea that the federal government be used so someone can make a profit," Munier said. "I was taught profit is the result of risk."
Some financial aid tips from Kantrowitz are:
-Borrow as little as you need and don't live beyond your means.
-Borrow federal loans first. They're cheaper, readily available and give better repayment terms.
-If you have to get a private loan, apply with a credit worthy co-signer.
-Search for scholarships on Web sites like fastweb.com.
kevinzelaya@dailynebraskan.com
Viewing Comments 1 - 2 of 2
Alex Hamilton
posted 4/25/08 @ 10:10 AM CST
It says quite a bit when a high-ranking official of the University of Nebraska, supported by corporate taxes as well as taxes paid by Nebraskans who work for companies, has a problem with someone making a profit. (Continued…)
Alex
posted 4/25/08 @ 7:07 PM CST
I think you interpreted this wrong (other) Alex. I think what Munier is saying is that he doesn't want lenders' losses to be subsidized by the federal government while profits are kept. (Continued…)
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