Student Loan Crisis Worsens

by Daria Belov

The Student Loan Corp (STU) and Sallie Mae Corp (SLM) have both been in the news these past few days with announcements related to lending and money losses on federally guaranteed student loans. Student loan Corp on Wednesday announced that it will be suspending lending at certain schools and will withdraw from the Federal Consolidation Loan market due to market turmoil and federal legislation. Sallie Mae’s top executives are reportedly engaged in daily discussions as to how long the company can continue losing money on federally guaranteed student loans.

student loan cash for schoolSallie Mae is the largest student loan lender in the United States, and the company has reportedly been losing money on every federally backed loan it makes. Analysts and investors wonder how long companies will continue making loans that are unprofitable.

According to reports, demand among investors for student loans that are packaged into securities, have plummeted, even though most student loans are highly rated and carry a federal guarantee. The market changes have come just months after new laws which reduce government subsidies for federally guaranteed loans, with interest rates being capped at 6.8%.

Student loan Corp.’s announcement Wednesday adds to the growing concern regarding availability of student loans in the upcoming fall. According to a company statement, student loan Corp. expects the changes to be temporary and it will be evaluating the return to offering federal consolidation loans as the student loan market condition improves.

Many US college students, including those attending chiropractic schools, depend on various loans to help pay for their education. Federally guaranteed student loans are the biggest source for funds being borrowed, but students can also obtain private loans that do not carry government backing.

While it’s a particularly stressful time for banks and investors, incoming students, those currently in school, and recent graduates, are probably all feeling the crunch from changes in the market. Student loans are expected to be paid off and changes in the economy and marketplace is likely resulting in more students and recent graduates seeking options for student loan consolidation.

No word yet on how these changes may affect numbers of students entering colleges and schools this autumn, but no doubt some will be making alternative plans for funding their education. @ 10:26 am | Article ID: 1208453242