Well, it's the Big Game half-time show, so I'll try to get this off before Tom Petty quits singing. It's been several days, but the axe has fallen again on student lending. College Loan Corporation will stop making federal student loans as of March 1. This lender is just another victim of Congress' slashed subsidy rate.
I can't help but wonder what their cash flow would look like if these lenders remained in the student loan program. I have no doubt they've made billions off students who want nothing more than to gain an education. I don't feel sorry for any of these multi-billion dollar companies, but I do have sympathy for the students they impact and the employees they fire. The expected $20.9 billion saved by the government is supposed to be used to fund student aid ($20.2 billion) and reduce the deficit ($750 million) over the next five years. I'll believe it when I see it.
To give you some background, the last 18 months have seen a vicious attack on financial aid offices across the country. A number of colleges received kickbacks from lenders in return for being a preferred lender on these campuses. These kickbacks included all-expense paid trips, large amounts of money, and tangible gifts. Granted, this is immoral, but now ALL colleges are being penalized for the actions of few. One idea to cut lender subsidies is to force lenders to compete for the right to offer student loans. This has resulted in schools issuing requests for information or proposals from lenders. The school then analyzes the proposals and selects the lenders offering the best overall loan package for students. However, more big lenders are dropping out of the program all together.
What does this mean? A lot of these lenders approved loans for students who may have had bad or no credit. Now, with competetion more fierce, certain groups of students who could have borrowed in the past will probably encounter difficulty getting student loans in the future. Without government subsidies, lenders can't rely on that income when "high risk" students default on loans. So, they eliminate the "high risk" student. Unfortunately, the pleas of financial aid administrators to not cut subsidies are falling on deaf ears.