2008 Woodie Awards
Student loan field takes defense
Kevin Zelaya
Issue date: 3/5/08 Section: News
Like bees attacking an intruder in their hive, student loan lenders are rushing to keep the sub-prime mortgage crisis from infiltrating their industry.
Late last month, lobbyists for the student loan industry began coaxing Congress to pass legislation that would authorize the government to inject money into the student loan market, which has struggled to raise enough capital from wary investors who fear the spreading mortgage crisis.
To raise capital, or money, to provide future loans, lenders bundle loans into their portfolios and auction the interest to investors.
The housing crisis has brought a shortage of capital to the economy, and the $80 billion securities auction industry, the backbone of student lenders, is having trouble convincing enough investors to buy in.
Unstable auctions have prompted some lenders, such as the Iowa Student Loan Liquidity Corp. and the Michigan Higher Education Student Loan Authority, to predict their loan offerings will decrease this fall.
The Michigan group suspended loans to more than 100 schools in Michigan this month.
Sallie Mae, one of the nation's largest student lenders, has pitched a plan to Congress that would make the 12 well-financed banks in the federal home loan bank system inject cash into the industry by buying up student loans.
Craig Munier, director of the University of Nebraska-Lincoln's office of scholarships and financial aid, said he didn't favor Sallie Mae's plan but supported the idea of having the U.S. Education Department buy more loans from private lenders, a process that's already begun as lenders dump defaulted loans into the department.
Since the department is part of the government, it is better positioned to collect defaulted loans since it can withhold tax refunds if payments are not received, Munier said.
He said the student loan crunch would only affect students looking for private loans, not those dependent on federal loans such as Stafford or Perkins loans.
Late last month, lobbyists for the student loan industry began coaxing Congress to pass legislation that would authorize the government to inject money into the student loan market, which has struggled to raise enough capital from wary investors who fear the spreading mortgage crisis.
To raise capital, or money, to provide future loans, lenders bundle loans into their portfolios and auction the interest to investors.
The housing crisis has brought a shortage of capital to the economy, and the $80 billion securities auction industry, the backbone of student lenders, is having trouble convincing enough investors to buy in.
Unstable auctions have prompted some lenders, such as the Iowa Student Loan Liquidity Corp. and the Michigan Higher Education Student Loan Authority, to predict their loan offerings will decrease this fall.
The Michigan group suspended loans to more than 100 schools in Michigan this month.
Sallie Mae, one of the nation's largest student lenders, has pitched a plan to Congress that would make the 12 well-financed banks in the federal home loan bank system inject cash into the industry by buying up student loans.
Craig Munier, director of the University of Nebraska-Lincoln's office of scholarships and financial aid, said he didn't favor Sallie Mae's plan but supported the idea of having the U.S. Education Department buy more loans from private lenders, a process that's already begun as lenders dump defaulted loans into the department.
Since the department is part of the government, it is better positioned to collect defaulted loans since it can withhold tax refunds if payments are not received, Munier said.
He said the student loan crunch would only affect students looking for private loans, not those dependent on federal loans such as Stafford or Perkins loans.
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