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Student loans: The latest credit crisis
By: Connor Mendenhall
Issue date: 4/29/08 Section: Opinions
An integral credit market full of risky loans suddenly seizes up.
Borrowers can't find the capital they need, and banks are hesitant to lend in an uncertain and unprofitable market. The result? A sloppy, billion-dollar bailout courtesy of the federal government.
Thinking of the credit crunch that resulted in a $30 billion rescue of investment bank Bear Sterns by the Federal Reserve last month? Think again: A similar cycle of uncertainty is underway in the market for student loans, and it could have big consequences for those who need to pay for a college education in the coming academic year.
The government is by far the biggest player in the student-loan market, providing over $83 billion in student loans each year through a farrago of federally-subsidized programs designed to make college affordable for all. But over the last two months, more than 50 private lenders have withdrawn from government-backed student loan programs. Together, they make up almost 14 percent of the loan market by volume, according to the Wall Street Journal. That's a troubling indicator of uncertainty and potential turmoil.
Sallie Mae, the nation's largest student lender, didn't mince words with its latest quarterly earnings report. "Today's environment," wrote CEO Albert Lord, "is the most difficult we have seen in our 35-year history of student lending. It has become obvious that we can only meet the enormous student credit demands we are seeing at Sallie Mae if there is a near-term, system-wide liquidity solution."
Translation: "Help us, Obi-wan Bernanke … you're our only hope!"
Policymakers are already tripping over each other to arrange yet another massive federal bailout. On Saturday, President Bush devoted his weekly radio address to student loans, affirming that "a slowdown in the economy shouldn't mean a downturn in educational opportunities" and urging Congress to rush an aid package to his desk "as soon as possible." The House is already on top of the request - earlier this month, they passed a bill that would give the U.S. Department of Education broad new authority to buy up bad loans.
Borrowers can't find the capital they need, and banks are hesitant to lend in an uncertain and unprofitable market. The result? A sloppy, billion-dollar bailout courtesy of the federal government.
Thinking of the credit crunch that resulted in a $30 billion rescue of investment bank Bear Sterns by the Federal Reserve last month? Think again: A similar cycle of uncertainty is underway in the market for student loans, and it could have big consequences for those who need to pay for a college education in the coming academic year.
The government is by far the biggest player in the student-loan market, providing over $83 billion in student loans each year through a farrago of federally-subsidized programs designed to make college affordable for all. But over the last two months, more than 50 private lenders have withdrawn from government-backed student loan programs. Together, they make up almost 14 percent of the loan market by volume, according to the Wall Street Journal. That's a troubling indicator of uncertainty and potential turmoil.
Sallie Mae, the nation's largest student lender, didn't mince words with its latest quarterly earnings report. "Today's environment," wrote CEO Albert Lord, "is the most difficult we have seen in our 35-year history of student lending. It has become obvious that we can only meet the enormous student credit demands we are seeing at Sallie Mae if there is a near-term, system-wide liquidity solution."
Translation: "Help us, Obi-wan Bernanke … you're our only hope!"
Policymakers are already tripping over each other to arrange yet another massive federal bailout. On Saturday, President Bush devoted his weekly radio address to student loans, affirming that "a slowdown in the economy shouldn't mean a downturn in educational opportunities" and urging Congress to rush an aid package to his desk "as soon as possible." The House is already on top of the request - earlier this month, they passed a bill that would give the U.S. Department of Education broad new authority to buy up bad loans.
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Student Loans
posted 3/19/09 @ 8:38 AM PST
This is crazy. Soon only the Fed will offer federal student loans and private student loans are pretty much dried up. Those companies still offering private loans require a 750 credit score!!! How does that make any sense? Those attending school have zero or little credit and most people with credit have under a 750 score. (Continued…)
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