More Lenders Plan to Drop Private Student Loan Programs: Survey

There was further evidence yesterday of lender nervousness about making private loans to students, according to a survey of the members of the National Association of Independent Colleges and Universities. Lenders have found it increasingly difficult to garner funds to loan as the credit freeze spreads beyond subprime mortgage lending.

More than 43 percent of the schools said that lenders are telling them that they plan to stop making private student loans. Of the lenders continuing to make these loans, more than 45 percent plan to enact stricter lending requirements.

About one-third of the lenders plan to reduce or eliminate borrower benefits, while 20 percent will increase interest rates.

Private lenders accounted for more than 80 percent of all federal student loans in fiscal 2007, typically guaranteed under the Federal Family Education Loan Program (FFELP).

Comments to the survey, though anecdotal, were also telling. “We have received information that several lenders are suspending their participation in the FFELP program. There is concern regarding the ability of state agencies to securitize student loan debt and issue bonds,” according to a respondent from one large Midwestern university.

Last month, Michigan announced it was suspending its MI-LOAN student loan program, because of disruptions in the credit markets ("Credit Crunch Hits State Education Loans; Michigan Suspends Program," Feb. 20). In 2007, there were about 8,500 loans through MI-LOAN program that were valued at about $68 million.

Schools that responded to the survey noted the importance of private lenders with nearly 60 percent saying that private student loan borrowing is very important or critically important to their financial health.

On average, more than 20 percent of students at the schools that responded to the survey take out a private loan.

The Association conducted the survey of its 952 members during the first two weeks of March. More than one-third of the members participated.