Student Loan Lenders Dwindle
Last updated Tuesday, July 1, 2008 5:34 PM CDT in Business
By Kim Souza
The Morning News
SPRINGDALE - Tough economic times and rising loan delinquencies have prompted at least 20 lenders who made college loans to the University of Arkansas students last year to cut off future funding.
University of Arkansas Credit Union, Bank of Arkansas and Arkansas Federal Credit are three local lenders that chose not to renew student loan partnerships with the University of Arkansas this year, said Kattie Wing, director of financial aid for the school.
"It's not because we don't want to offer the service, but the secondary market for these loans has tightened up, giving us no outlet in which to sell the loans," said Gina Williams, CEO of UARK Credit Union.
She said the buyer and servicing agent the credit union was using left the market and UARK hasn't found a replacement.
"We are a small financial institution, and we simply can't carry these loans in our portfolio, so when we couldn't sell them, we had to quite writing them," Williams said.
She estimates a majority of the small lenders who made student loans have suffered a similar fate.
The university estimates about 3,000 of its students will have to find another lender this summer and complete new paperwork in order to have a loan awarded in time for the fall semester.
Arkansas-based Arvest, Simmons First National and First Security Bank said they are eager to fill the gap left by small lenders and some of the nation's largest banks that also have vacated the market.
Northwest Arkansas Community College said Chase Bank and Citibank, two of the 10 lenders on their preferred list, have elected not to lend money this year to two-year institutions.
"The federal subsidies that once made the loans profitable for lenders have been cut, encouraging some banks to exit the market," said Michelle Cordell, director of financial aid for the college.
The subsidies were cut to increase the annual Pell Grant awards for low-income students from $4,050 to $5,100, according the America's Student Loan Providers, a network of higher education lenders.
National education advocates estimate more than 100 student loan lenders have reduced or ended their participation in the federal and private student loan markets, including nine state loan agencies.
While federal Stafford Loans are plentiful, students who need more money through private, Parent Plus or Grad Plus loans might come up empty.
Cordell said Stafford Loans are not driven by credit score, but have annual limits from $3,500 for freshman to $5,500 for juniors and seniors, plus an additional $2,000 in unsubsidized funding this year.
When more money is needed, students who rely on Parent Plus or private loans must undergo credit scrutiny before gaining approval, she said.
Barbara Sloan, vice president of student lending for First Security Bank, said negative credit in the last five years could hinder approval. However, the federal government recently told banks to overlook credit issues involving foreclosure, she said.
Some lenders are cutting incentives such as paying the 1 percent loan origination fee or 1 percent default fee for the borrower, said Phil Phillips, student loan officer with Arvest.
He said Arvest does subsidize both of those fees for its Stafford Loan participants, but has recently quit paying the 3 percent origination fee on Parent Plus loans.
In The Know
Subsidized student loans refer to the federal government paying the interest on the loan while the student is enrolled in school at least part time. The interest rate on new loans is 6 percent.
Unsubsidized student loans require the borrower to pay the interest while the student is attending school. The interest rate on new loans is 6.8 percent.
Source: studentaid.ed.gov
Reader Comments (No comments posted.)
The following comments are provided by readers and are the sole responsibility of their authors. The Morning News does not review comments before their publication, nor do we guarantee their accuracy. By publishing a comment here you agree to abide by our comment policy. If you see a comment that violates our policy, please notify the web editor.
Not already registered?
