Friday, September 12, 2008

Your Turn How is student lending reacting to the credit crunch?

This feature contains responses from industry professionals to questions posed by Business First.

Evelyn Levino - Vice president for students, Franklin University

The current mortgage meltdown has created a secondary adversity – fewer student loan funding options. Fewer loan options create volatility in what was previously a stable environment. In my 25 years in higher education, I have never before witnessed such abrupt participation withdrawals by student loan lenders.

As a result of losing timely access to sufficient capital to finance lending activities, some lenders have simply stopped processing loans with no notice to students or schools. Some lenders have been forced to move away from the less profitable Stafford loans, using them instead as “loss leaders.”

This move allows lenders to provide loans only to students at schools with a high volume of more profitable alternative loans, thereby decreasing funding choices. Consequently, some schools have expanded their preferred lender list beyond the required three to minimize the impact of additional lenders pulling out of the market.


Catherine Meyers - Title: Relationship manager, Key Bank

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Sallie Mae to turn on $10B private tap for student loans

by Tucker Echols

Sallie Mae is rushing into a market many are deserting by setting a goal of making $10 billion worth of student loans that are not backed by the federal government. Reston, Va.-based SLM, known as Sallie Mae, plans to make those loans within the next 16 months.

CEO Albert Lord, addressing a Lehman Brothers conference on Wednesday, said such private loans would let Sallie Mae set the interest rate and provide for more profit. Lord noted that Sallie Mae expects to make $20 billion in government backed loans next year. Sallie Mae originated a total of $25.5 billion in loans in 2007.

Lord said his management team is pleased that many competitors have stopped making private loans to students for fear that their credit is weakening. Lord said a lack of credit history should not be confused with poor history, and that students offer long-term credit potential.

Sallie Mae is also increasing the use of co-borrowers on its private loans. He expects the current 50 percent co-borrower rate to increase to 80 percent. SLM profit fell 72 percent in the second quarter to $266 million. SLM stock (NYSE: SLM) has lost almost two-thirds of its value in the last 12 months.

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