2 lenders stop making student loans
CIT Group, NorthStar cite soaring costs
NEW YORK - CIT Group Inc. and NorthStar Education Finance Inc. will stop making loans to US students after lending costs soared, reflecting the global slump in credit markets.
New York-based CIT, which quit originating private loans last year, said yesterday it would no longer make government-guaranteed student loans. NorthStar, a nonprofit organization in St. Paul, will "temporarily suspend" processing applications for federally backed Stafford, PLUS, and Grad PLUS loans, according to its website.
At least 40 lenders ceased writing at least some form of student loans as investors shunned bonds backed by the educational debt, according to UBS AG analysts. Eligible borrowers will continue to get educational loans elsewhere, said Mark Kantrowitz, publisher of FinAid.org, which provides financial-aid information.
"It's just that they're going to have to hunt around more for a lender that's going to make the loan," Kantrowitz said.
Leading Democrats in Congress yesterday proposed increasing the amount that college students can borrow from US government-guaranteed loan programs to pay for higher education.
Loan limits for undergraduates who are financially dependent on their parents would be increased by $1,000 a year under legislation proposed by Senator Edward Kennedy. The Massachusetts Democrat also proposed raising the limits by $2,000 for students whose parents cannot obtain government loans because of poor credit.
Legislation proposed separately by House Education and Labor Committee Chairman George Miller of California would also authorize the US Education Department to buy loans from lenders that need capital to lend more money to students.
Sales of securities with student loans as collateral fell 65 percent in the first quarter, UBS wrote Tuesday. That has prompted some lenders to stop making loans.
"This list of 'departees' is likely to grow over the next few months," wrote the UBS analysts, led by Laurie Goodman in New York.
Kantrowitz predicted the number of lenders will plummet to 15 or 20, from 2,000, "if there is no thawing of the capital markets or government intervention" by the end of June 2009. He also said he expects a higher denial rate for PLUS loans, starting this summer or early fall, affecting about 1 to 2 percent of borrowers.
PLUS loans are fixed-rate loans available to parents, or graduate or professional students, from private lenders under the Federal Family Education Loan Program, or from the government directly. They aren't subsidized.
