Keeping doors open for students
Congress is concerned about an imminent crisis in the student loan industry. Jeremey Hobson looks into the subprime crunch's spillover into educational funding and why some lenders are closing up shop.
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Doug Krizner: As if the problems with mortgages weren't enough, now warnings of an imminent crisis in the student loan industry. This has Congress concerned. And today lawmakers take up the matter with Education Secretary Margaret Spelling. Jeremy Hobson has a preview.
Jeremy Hobson: Most student loans come either directly from, or are guaranteed by the federal government. But about a quarter of all loans are from private lenders with no loan guarantees.
Kevin Bruns with the industry group America's Student Loan Providers says many lenders no longer want to take a chance with risky loans.
Kevin Bruns: If you're low income and have credit problems, you may not be able to get a private loan.
And with the current credit crunch, Bruns says some lenders are closing their doors to all student loans.
HOBSON: Are there lenders getting out of the business right now?
BRUNS: Oh absolutely, yes.
That's what has Democratic Congressman George Miller worried. He's written a letter to the Education Department asking for a plan to make sure students are able to get loans no matter what happens.
George Miller: When you see what the spillover of the subprime credit crunch has done to major institutions in this country, it's not hard to believe that there might be some spillover onto the student loan problem, and that's what we're working to deal with.
But Kevin Bruns says a law passed last year -- and supported by Miller -- may have made things worse. It boosted funding for student grants, while cutting into the profits lenders get from the most popular kind of student loans -- federally-backed loans at low interest rates.
Bruns: If conditions persist, it's not unimaginable that you'll continue to see more and more lenders decide to suspend federal student loan borrowing.
But even Bruns admits the industry is not in a crisis yet.
And Philip Day, who represents the nation's financial aid administrators, says there's one thing to keep in mind:
Philip Day: As best as we can determine at this point in time, no student has been denied a student loan.
In Washington, I'm Jeremy Hobson for Marketplace.
