More banks are dropping their federally backed student loan business, citing default rates and subsidy cuts that make it too risky to continue.
Students at for-profit colleges are some of the hardest hit, but financial aid officers say there’s still help out there; it just takes more looking.
“It has been a frustrating couple of weeks,” said Laura Beatty, who administers financial aid for SAE Institute of Technology in Nashville, a 200-student audio engineering school.
The school was notified last month that SunTrust, the school’s primary federal loan provider, would drop students from its program on June 1.
Fifteen lenders have placed some sort of restriction on student loans or loan consolidation in Tennessee since Jan. 1, accounting for about 15 percent of the lenders that serve the state.
“Most of those are small lenders,” said Levis Hughes, associate executive director for Tennessee Student Assistance Corp. “To my knowledge, we have not had any schools say they are unable to get funding.”
SunTrust spokesman Hugh Suhr wrote in an e-mail that the bank did not disclose which schools it dropped from its program “in keeping with our policy of not discussing our client relationships.”
SAE Nashville was able to find another lender to offer federal loans this week, Beatty said.
Unlike private loans that banks make to other customers, federally backed student loans have a set, typically lower interest rate.
Lenders say they’re dropping federally backed loans due to the credit crunch and subsidy cuts by Congress, which used some of those funds for increased Pell Grants.
51 lenders halt loans
According to the National Association of Student Financial Aid Administrators, 51 lenders nationwide have suspended federally backed loans from the Federal Family Education Loan Program.
“We’ve determined that there were just some schools where the loans were not going to be profitable enough to warrant continuing them,” said Chase bank spokesman Tom Kelly.
Chase began restricting federally backed loans and consolidation of student loans in Tennessee May 1.
For-profit college students defaulted at a rate of 8.2 percent in 2005, nearly twice the rate of public school students and more than three times that of private school students.
In 2005, SAE Nashville had a 20 percent default rate. That figure will probably drop to about 13 percent for 2006 loans, Beatty said, as more students use federal loans at the school.
Federal assistance may be on the way for lenders who can’t back the capital for federal loan requests, thanks to legislation passed earlier this month.
U.S. Secretary of Education Margaret Spellings sent a letter to lenders Wednesday outlining the federal government’s temporary ability to purchase loans this year from struggling lenders.
Spellings also indicated the department could double its $15 billion Direct Loan program if necessary and would provide advances to guaranty agencies like TSAC to make emergency loans to students if no other lenders are available.
In the meantime, perhaps the greatest disservice to students will be the frustration of balancing multiple lenders, Hughes said.
“It may cause some aggravation for students,” he said. “It’s nice to have either consolidated statements or a consolidated loan, but that’s not really happening right now.”
Contact Colby Sledge at 259-8229 or ccsledge@tennessean.com
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