State-Based Loan Agencies May Not Offer Student Loans, Despite Government Intervention
Just this year, some 112 student loan lenders have cut back or ended
their participation in the federal and private student loan markets,
including nine state loan agencies, who have each issued slightly
different responses to the industry’s changes, according to The
Chronicle of Higher Education (“Some State
Loan Agencies Say They
May Stay on the Sidelines This Year,” June 12, 2008).
After the passage of the Ensuring Continued Access to Student Loans Act,
which was intended to aid ailing student lenders, state-based
student loan agencies in Kentucky, Missouri, and New Hampshire —
often the largest student loan providers in their states — have said
they will resume lending again sometime this year.
However, the Missouri Education Loan Authority says it will no longer
be able to offer borrower benefits like the .25-percent interest
rate reductions for those who make automatic monthly payments, or
interest rates as low as .25 percent for graduates who gain
employment in the state after school.
With over $12 billion in federal student loans, the Pennsylvania
Higher Education Assistance Agency, the largest state lending entity
in the country, will reduce grant awards to 160,000 low-income
students by approximately $500 each, but is still unsure whether it
will re-enter the student loan market in 2008.
The other five state-loan organizations in Indiana, Iowa, Massachusetts, Michigan, and Montana that have exited the federal
program, say
they’re also uncertain if they will start re-issuing loans this
year, as they are awaiting clarification on loan servicing
regulations under the new law. Many of these state-based lenders
question whether they can continue afford to lend through the
federal student loan program in light of the recent credit crunch
and the elimination of federal subsidies to lenders last fall.
While industry insiders say that the new law is “a good first step,”
Will Shaffner, director of business development at the Missouri
Higher Education Loan Authority, believes that the federal rescue
plan doesn’t go far enough. He said it doesn’t ease the longer-term
problems both public and private lenders see with the federal
program.