College Lenders Get Back to Business Just in Time for the New School Year
Tuesday, July 01, 2008SUSIE GHARIB: Well, the new academic year began today and the market for student loans is looking better for both lenders and students. That's a big improvement from earlier this year when the credit crunch took a toll on that market. But as Dana Greenspon reports, some analysts say it's unclear how long the optimism will last.
DANA GREENSPON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Students heading to college this fall, take note: lenders are in better financial shape now than they were just a few months ago. Peter Warren represents non-profit and state lenders. He says the worst may be over, at least in the Federal student loan market.
PETER WARREN, VP, GOVERNMENT RELATIONS, EDUCATION FINANCE COUNCIL: We're still closer to that bottom than we are to where things were before, but we're moving up from that abyss.
GREENSPON: Many of the lenders that withdrew or scaled back on the Federal loan program are now considering coming back into the market. And major lenders like Sallie Mae and Nel-Net say they will originate new loans for the coming school year. Analyst Sameer Gokhale says financing costs for those lenders are still high, but they're inching downward.
SAMEER GOKHALE, ANALYST, KEEFE, BRUYETTE & WOODS: There seems to be more of a sense of normalcy in some parts of the financing markets and I think that's manifesting itself in better funding costs for Federally guaranteed student loans.
GREENSPON: The new lending year also brings new benefits for students. The rate on subsidized Federal Stafford loans for undergraduates will go down from 6.8 to 6 percent. And students will be allowed to borrow an extra $2,000 in unsubsidized funds on top of their base loan. That change could drive more students away from private loans, which were used to top off their Federal funds. Gokhale says the private loan market is still reeling from tight credit conditions.
GOKHALE: You've seen a lot of different types of asset classes either seeing funding costs increase dramatically or funding not being available at all. And I would put the funding for private student loan securitizations in the latter category. Deals just aren't getting done.
GREENSPON: But deals are getting done in the Federal student loan market because the government is providing the funding. In April it offered to buy up loans that banks are unable to bundle and sell to investors. Still, the offer is only good for one year. After that, Warren isn't sure the math will add up.
WARREN: Once they step back from taking that special role, then the question becomes, OK, well how's it going to work next year? How's it going to work for the 09-10 academic year and the years after that? GREENSPON: Analysts say the future of the student loan market will depend on the credit markets getting back to normal and that could take two to three years. Dana Greenspon, NIGHTLY BUSINESS REPORT, Washington
