Fall 2008′s Student Loan Scramble
Last week’s murmurs of lender exodus at scattered universities have escalated to a real panic at schools across the country. More banks have suddenly withdrawn their student loan packages and rejected all loans for the coming semester. Banks fear more bad loans.
These are mostly large banks clamping down on portfolio risk. Savvy from sub-prime’s collapse, investors fear unprecedented student default rates and are rejecting the sort of student loan bonds that banks used to aggregate and sell profitably. This secondary market, where lenders sell to investors, has dried up.
Nearly 100 lenders have ceased to offer federal loans to students. An even worse indicator follows: 30% are abandoning low-interest private loans too. If banks are struggling to profit from private student loans, which are more expensive and more profitable than federal loans, then students are basically screwed.
Luckily, the federal government has decided to purchase student loan bonds, the federal ones, from approved banks. This acts like a subsidy, buying assets poised to tank; now certain banks can offer federal loans to students without fear.
This is all very complicated for students. Many will have to change banks, and quickly. Though there are no federal deadlines for student loans, most universities set their own. Some have passed, and many more approach. If students miss them and universities reject pleas for extension, the last resort is a private loan. No subsidies there. The new wave of private student loan instruments will aggressively pass risk onto students.
Filed under: Student Loan Shortage | 1 Comment
Tags: Federal Loan Deadlines, Federal Loans, Private Student Loans, Student Loan Crisis, Student Loan Market
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