Another Student Loan Crisis?

from The American Prospect:



Another Student Loan Crisis?

This summer, rumors stirred that the incoming class of college freshmen was having difficulty securing loans for college. The crisis, however, is more about the ways we're asking college students to finance their educations.

Te-Ping Chen | September 10, 2008 | web only



It was an afternoon in May when Bill Spiers got the call. As financial aid director at Florida's Tallahassee Community College, he'd been expecting it for some time now. "Loan crisis goes to college," CNN blared. "Credit crisis hits students," The Boston Globe ran.

"Bill?" It was the local Chase representative on the line: "I have some bad news for you."

For months, like financial aid administrators around the country, Spiers had braced himself for the fallout of the sub-prime mortgage crisis, waiting for it to impact the student loan industry. "There was almost this level of panic," Spiers remembers. "People thinking, 'What's going to happen to us?'"

Now he had the beginning of an answer. Chase was cutting off federal loans to his school, refusing to lend its students money. In the weeks to come, Wells Fargo, Key Bank, SunTrust, and Citibank would all follow suit.

Throughout the spring, stung by investor wariness over the sub-prime mortgage meltdown, sales of asset-backed securities -- the source of liquidity for many student lenders -- contracted. As a consequence, some student lenders were "completely unable to obtain capital to make loans," says Bob Murray, spokesman for USA Funds, the largest guarantor of federal student loans. "Or they were having to pay significantly more than they were used to." Factor in the $19 billion industry-subsidy cut Congress approved in September 2007 -- after the discovery that lenders were bribing financial aid officers sparked national outrage -- and the ranks of lenders participating in the Federal Family Education Loan (FFEL) program, through which lenders like Chase provide capital for federally backed loans, were thinning. Hence the ensuing fear of a student loan "crisis" -- which, as it turns out, was more of a lender-inflated narrative (picked up by overly breathy media) than it was a real threat to students nationwide.

What angered Spiers was that lenders like Chase weren't cutting off FFEL loans to students at all schools -- just ones attending those they deemed a special risk, such as community colleges like his. "These are government-backed lenders conducting discriminatory practices," he says. "I was very disappointed." .......(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=another_student_loan_crisis

My old school pretty much deals exclusively with them. I'm a little worried about College Foundation of North Carolina though... they recently secured funding from State Employees Credit Union (they're huge for a credit union btw) and if they're turning away from non-traditional banks to be able to finance Stafford loans then maybe they'll have a freeze sometime soon too?

Mark.

Maybe if the community college students who are getting redlined dragged the people making these decisions out of their offices and beat them a whole bunch, there might be a change of policy.

Just a passing thought.

I got direct loans through my school. It is a state university, but I'm enrolled in the "community college" side of it AND, to paraphrase my microbiology professor (a PhD from Rutgers) it's like being at a 3rd world university, lol!

Yet every semester, without fail, I get a letter from Chase telling them I may qualify for up to $40K/semester in loans. They are, as a result, last on my list of where I'll go for private loans when I need them next year. I figure if they're chasing me *that* hard they probably are the worst deal around...

Filthy bastards ...