Like dominos, more private lenders either are ending or scaling back their student loan businesses.
On the heels of an ongoing student loan credit crunch, three more student lenders - HSBC Bank USA, M&T Bank Corporation and the TCF Financial Corporation - announced their withdrawal from the government's subsidized private loan program, according to the Wall Street Journal.
Spillover from the home mortgage crisis, which has resulted in a loss of money known as liquidity, has spooked investors throughout the economy.
The student loan industry relies on investors to securitize their loans by auctioning off interest in their loan portfolios, which have been hit with a string of failed auctions and lack of cash.
Lenders use money raised from auctions to offer new loans to students.
Earlier this year, the Michigan Higher Education Student Loan Authority suspended loans to more than 100 schools in the state, while the Iowa Student Loan Liquidity Corp. predicted its loan offerings would suffer this fall.
Lincoln-based lender Nelnet announced in January it would cut 300 jobs, discontinue consolidation loans and become more selective in its loan services to offset the market volatility.
Craig Munier, the University of Nebraska-Lincoln's director of scholarships and financial aid, said the handful of banks leaving the industry wasn't a cause for concern because the Department of Education estimates more than 2,700 banks remain in business.
"A handful of banks making decisions to not loan does not constitute putting loans in jeopardy," Munier said.
Officials at the New America Foundation, a nonpartisan think tank investigating the student loan industry, agreed, noting the last three banks to leave the industry accounted for less than 1 percent of the government loan program's loan volume in 2006.
Munier stressed the student loan crunch would not affect UNL students because it is a federal direct student loan institution that gives government direct student loans.
The media are unwittingly causing widespread panic that college loans are drying up, even though they're not, said Stephen Burd, a senior research fellow at the New America Foundation.
Burd stressed a distinction has to be made between federal loans, which are guaranteed regardless of credit, and private loans.
"The loan industry and the for-profit college industry want a bail-out," Burd said, "but there is no federal loan crisis for students. Policy makers and media should take heed."
Policy makers rushing to aid private lenders should consider the failure of some firms is a given in any market, said Republican Rep. Tom Petri from Wisconsin in a news release this month.
"Students have no reason to panic," Petri said, regarding the student loan crunch. "Turmoil in the financial markets is inconveniencing some lenders, but students should hardly notice."
kevinzelaya@dailynebraskan.com
is a member of the 
