Student loans are getting whacked
Bank of America and a unit of Citigroup have joined a growing list of lenders cutting back on student loan programs. At the same time, the House passed an emergency bill that would enable lenders to have more cash to keep making loans. John Dimsdale reports.
Student loans (iStockPhoto)
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TESS VIGELAND: OK, here's another side-effect of the credit crunch: Student loans are getting whacked. Today Bank of America and a unit of Citigroup joined a growing list of lenders cutting back on student loan programs. Also today the House passed an emergency bill to give the Education Department more authority to buy up student loans. That way, presumably, lenders would have more cash to keep making them.
John Dimsdale reports from Washington.
JOHN DIMSDALE: Today the Bank of America joined the dozens of lenders who've recently withdrawn from the federally-guaranteed student loan business. Yesterday, the nation's largest student lender, Sallie Mae, announced a $133 million loss in the first quarter of this year. That compares to more than $100 million in profits last year. But the editor of HigherEdWatch.org, Michael Dannenberg, isn't worried yet.
MICHAEL DANNENBERG: There are a couple thousand student loan providers -- federal student loan providers. There are two fail-safe systems in place. There's definitely a crisis for some individual lenders, but that's different from actual students. Theoretically, something very bad could happen down the road, but we're not there yet.
Anecdotally, at least, some students say it's a lot tougher to find a loan. But Terry Hartle at the American Council on Education says it's not clear there's a crisis.
TERRY HARTLE: It is clear that some students in some schools face a problem. But it is not universal. It tends to be concentrated in trade schools, tends to be concentrated in community colleges.
That's because the default rates at trade schools and community colleges are traditionally higher. Hartle says students having trouble with a loan should contact their school to find out who's lending.
The House bill now heads to the Senate, where a companion version is still in committee. But sponsors say there's enough bipartisan momentum to have a bill on the president's desk by Memorial Day.
In Washington, I'm John Dimsdale for Marketplace.
