Student Loan Blog : private loans

Students Reach Record-High Levels of Credit Card Debt

Student Loan Girl — Wed, 15 Apr 2009 23:00:00 GMT

College students are piling up alarming amounts of credit card debt, according to a recent survey by student loan company Sallie Mae, which suggests that not only are more students relying on credit cards to pay for their rising college costs, but that more students are charging more frequently (“Average College Credit Card Debt Rises With Fees, Tuition,” April 13, 2009, USA Today).

“The message is clear,” said Edmund Mierzwinski, consumer program director for the U.S. Public Interest Research Group. “Students are carrying more debt on credit cards, and more students are paying for education on credit cards.”

Sallie Mae’s survey of 1,200 private student loan applicants found that 84 percent of undergraduate students had at least one credit card, a 76-percent increase from 2004 when the survey was last conducted. The survey also revealed that students are carrying an average $3,173 in credit card debt — the highest level seen since the data was first collected in 1998.

Financial aid experts attribute these increases, in part, to the fact that college tuition and fees have increased 439 percent over the past 25 years and that the average median family income has not kept pace, rising only 147 percent by comparison, according to the National Center for Public Policy & Higher Education (“Study: Undergrads Relying on Credit at Record Levels,” Creditcards.com, April 13, 2009).

In fact, students in the survey cited not having enough “savings or financial aid to cover all the costs” of college as their number one reason for taking out a credit card, a problem that has been exasperated by the fact that private student loan lenders have scaled back lending and tightened their credit standards due to the waning credit markets.

Because lenders have severely limited students’ access to private student loans, students have more often been charging textbooks, room and board, and schools supplies to credit cards. In 2008, students charged an average of $2,200 in educational expenses on their cards, a 134-percent increase compared to four years ago.

Once considered the “lender of last resort,” says Kalman Chany, president of Campus Consultants, a college funding advisor, credit cards are now higher up in the hierarchy of students’ college funding sources. “If (students) can’t get private loans, they turn to credit cards.”

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Wachovia Suspends Its Undergraduate Private Student Loan Program

Student Loan Girl — Thu, 07 Aug 2008 00:41:00 GMT

After posting an $8.9 billion second-quarter loss in July, Wachovia Corp. announced on Tuesday that it would stop making private student loans to undergraduates (“Wachovia to Stop Writing Private Undergrad Student Loans,” CNN Money, Aug. 5, 2008).

Wachovia representative Ferris Morrison said the company’s student loan lending subsidiary, Wachovia Education Finance Inc., will continue to offer federal student loans, as well as private loans for graduate and professional education students. However, as of August 5, Wachovia is no longer accepting applications for private student loans for undergraduates.

“At this time, we felt it was prudent,” Morrison said.

Wachovia Education Finance, the sixth-largest provider of student loans, sent a letter to its borrowers on Tuesday informing them of the change, citing “the current overall financial industry environment,” reported Inside Higher Ed (“Quick Takes: Wachovia Abandons Private Student Loans,” Aug. 6, 2008).

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Sen. Hillary Clinton Unveils Plan to Tackle the Student Loan Crisis

Student Loan Girl — Tue, 29 Apr 2008 17:56:00 GMT

Sen. Hillary Rodham Clinton recently announced the details of a sweeping plan to help ensure students have continued access to federal student loans amid a flurry of private lenders leaving the federal student loan program.

“Hundreds of thousands of students who are actively considering how to finance their education could be left in the lurch, without the ability to pay for college,” Clinton wrote in a press release on April 25.

Clinton urged the Bush administration to act quickly to support her plan, which includes:

Creating a way for colleges to quickly make a switch from the Federal Family Education Loan Program to the Department of Education’s Direct Loan Program — a move that currently takes colleges about six weeks.

Allowing parents’ applications for credit-based federal PLUS loans to be reviewed on a case-by-case basis. Currently, parents will be denied outright for the low-cost federal loans if they have defaulted on a mortgage, or if they are 90 days late on a loan payment.

Authorizing the Education Department to advance money to state or private entities that issue student loans and to purchase federally guaranteed loans from private lenders that are no longer able to service the loans.

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Bank of America Backs Out of Private Student Loan Business

Student Loan Girl — Sat, 19 Apr 2008 13:03:00 GMT

On April 17, Bank of America Corp. notified student-loan packager First Marblehead Corp. that it would no longer offer private student loans, focusing instead on providing federal student loans. Bank of America’s announcement comes amid increasing unsteadiness in the federal student loan market, where nearly 50 non-government lenders in the last six months have suspended their federal student loan programs.

Bank of America exercised its right to terminate its agreement with First Marblehead after The Education Resources Institute, the Boston-based nonprofit that guaranteed the loans packaged by First Marblehead, voluntarily filed for Chapter 11 bankruptcy protection on April 7, 2008.

Bank of America’s decision delivered yet another financial blow to First Marblehead, whose shares have already been on a downward spiral over the past few weeks, tumbling 37 percent on April 8 alone, the day after TERI filed its bankruptcy petition.

Shares in First Marblehead fell another 17 percent to $3.37 on the heels of Bank of America’s announcement, with the stock down nearly 91 percent over the past year. The loans originated by Bank of America accounted for about 15 percent of First Marblehead’s total revenue for the 2007 fiscal year, according to a Boston Business Journal article (“First Marblehead Loses Major Customer, Revenue Source,” April 18, 2008).

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