Transcripts

The Credit Crisis & Student Loans

SUZANNE PRATT: A busy week for SLM Corp., more commonly known as Sallie Mae. The student lender shored up its bottom line by selling $3 billion in stock and accelerated its push into private student loans that aren't backed by the government. The move highlights the spread of the credit crisis into the student loan market. Some families are now worrying about how they'll finance their children's education. As Dana Greenspon reports, students shouldn't have trouble getting loans, but they may have to pay more for them.

DANA GREENSPON, NIGHTLY BUSINESS REPORT CORRESPONDENT: American University's financial aid director Brian Lee Sang says his school hasn't felt the blow of the credit crunch yet. Most families took out loans before the crisis hit, borrowing enough to cover them through the spring semester. But he's starting to see trouble for some families who are looking to borrow more.

BRIAN LEE SANG, FINANCIAL AID DIRECTOR, AMERICAN UNIVERSITY: It's creating issues where families are coming to us asking us for institutional help, saying, hey can I get more money any way to try to help get us through the spring semester. But I think more colleges are going to see even more of this and feel the impact of this next year.

GREENSPON: Some student loan companies are already struggling. Earlier this month, First Marblehead, a major securitizer of student loans, cut its dividend in half and said it would not bundle together loans for the current quarter. Sallie Mae's shares have dropped almost 50 percent so far this month. Peter Warren represents non-profit and state lenders. He says getting lender financing for education loans can be difficult in the current credit environment.

PETER WARREN, VP OF GOVERNMENT RELATIONS, EDUCATION FINANCE COUNCIL: These are asset-backed securities. And people, buyers, are shying away from asset-backed securities, apparently of all types and they're not paying a lot of attention to the underlying credit part, there's a general sort of mistrust.

GREENSPON: Congress has also shaken up the student lending environment. A bill passed this fall cuts subsidies to student lenders. Combined with the credit crunch, Warren says lenders are being squeezed.

WARREN: On the one hand, their yield is being diminished significantly as a result of these reconciliation cuts and on the other hand, at the very same time their financing costs have spiked in a way that we haven't seen for a very long time.

GREENSPON: While many analysts say student loans will still be widely available and attainable, the price tag could noticeably rise. Private loan rates are tied to market rates whereas interest rates on Federal loans are capped. So while private lenders may raise interest rates to cover costs, Federal lenders may cut borrower incentives. But things may be looking up for the lenders. Just last week, Goldman Sachs announced it would invest $260 million in First Marblehead to help it weather the credit crunch. And late yesterday Sallie Mae announced it had raised $3 billion in capital. Analysts say those deals show confidence in the student lending industry moving into next year. Dana Greenspon, NIGHTLY BUSINESS REPORT, Washington.