The Consumer Bankers Association (CBA) sent a letter to financial aid administrators to inform them that despite a series of recent, negative developments that have increased lending costs and reduced profit margins, banks plan to continue making both FFELP and private loans in the 2008-09 academic year.
"Bank lenders are hoping that the financial markets improve and funds become more readily available for all lending community participants," the letter states. "In the meantime, some banks plan to expand their lending in the upcoming academic year to ensure that students have the funds they need."
The letter explains that the cuts to lender subsidies in last year's College Cost Reduction and Access Act (CCRAA) combined with problems in the financial markets have made it impossible for some non-bank lenders to continue and made it far more expensive for others to raise the funds they need to make loans. Banks have so far not faced the same level of difficulty because they have access to capital through deposits.
The letter stresses that the banks that have made a commitment to student lending have invested in their loan programs, which they consider an important part of their service to their customers.
"They have a decades-long commitment to the student loan business," the letter states.
Despite the reassurances, CBA notes that the student loan business faces some serious challenges. The letter notes that the cuts to for-profit lenders imposed last year in the CCRAA raise longer-term concerns about the capacity of banks to continue to expand lending to students, considering the many other demands for their capital. CBA says it is asking Congress to reconsider some of the CCRAA cuts passed in 2007, but makes it clear that the association is not calling for any cuts to student aid programs.
"[CCRAA] dramatically cut the allowable yield for-profit lenders are permitted to make on FFELP loans while at the same time doubling lender-paid origination fees and risk sharing," the letter states. "This was done at a time when historically favorable conditions prevailed in the financial markets so that lenders' cost of funds was extremely low."
Posted 03/11/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
