State-Based Loan Agencies May Not Offer Student Loans, Despite Government Intervention

Student Loan Girl — Fri, 20 Jun 2008 23:18:00 GMT

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.

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Student Loan Blog : Missouri Higher Education Loan Authority, Eric Kelderman

State-Based Loan Agencies May Not Offer Student Loans, Despite Government Intervention