If you follow financial reports at all, you no doubt have read about the bad start lenders have experienced for the new financial aid year. It all has to do with federal subsidies that legislation is enacting on lenders. I have read the legislation proposals emitted on an almost daily basis. While I deal with student loans, I am not a financial aid planner, nor am I an expert in economics, so even though I can tell you how these subsidies impact students, I don't fully understand the politics and intricacies of banking.
What I can tell you is that these subsidies are reducing the amount of profit for lenders, thus creating a wave of lending institutions rapidly exiting the student loan industry. The lender who has impacted our financial aid office the most is National Education. As of January 15, they are no longer in the student loan business. While they did honor loans processed prior to this date, any loan not disbursed to the student is now null and void.
National Education is an example and by no means the only lender bailing on the student loan program. I know that NextStudent is not funding new student loans now, and Goal Financial is scaling back on theirs. What does this mean if you have used a lender who is no longer in the student loan business? If you have a loan processed through one of these lenders, but have not yet signed your Master Promissory Note, you will have to choose another lender and start the process all over. Your school should notify you if this is the case, but if you have a loan pending with any lender, I encourage you to contact your financial aid office if you still want the loan.
Another impact is the support from lenders who are still in the student lending program. For example, it was announced on January 18 (via washingpost.com) that Sallie Mae is laying off over 350 personnel across the United States. While Sallie Mae is still in the student lending program, the layoffs could mean reduced support for students.
It's no secret that Congress has been pushing schools to go into Direct Lending rather than the Federal Family Education Loan Program (Stafford Loans). Direct lending is student loan program executed by our federal government. Could this be the beginning of the end for Stafford Loans and lenders? What will happen to repayment incentives currently offered by lenders to be competetive? How will that impact the overall economy and interest rates? Right now, your guess is as good as mine.