Following announcements by Chase Education Finance and Citibank's Student Loan Corporation (SLC) that they would suspend lending to students at certain schools, NASFAA contacted members in Congress and officials at the U.S. Department of Education to voice concern about this troubling lending practice.
"While market conditions have deteriorated and the environment has created headwinds, we are making adjustments that will enable us to serve the needs of our shareholders, through the efficient allocation of our capital resources and continued focus on originating loans at the many schools where the economics allow for acceptable returns," said Michael Reardon, chairman, president and chief executive officer of SLC, in a press release.
SLC also noted that it is working closely with affected schools and their prospective borrowers to minimize disruption and to position SLC to resume doing business with these customers as economic conditions improve.
Similarly, Chase Education Finance spokesman Thomas Kelly told The Chronicle of Higher Education that Chase had conducted a college-by-college review "based on the payment history of the alumni and other factors" and decided to stop lending at institutions that "don't meet [Chase's] profitability standards."
In communications with Senators, Representatives and Department officials, NASFAA President and CEO Dr. Philip Day expressed concern that these lending practices would likely have the greatest negative impact on students at institutions that serve large numbers of low-income students. In addition, Day expressed concern that these new lending practices were coming at a time when more nonprofit lenders and state loan agencies are being forced to suspend FFELP participation, leaving FFELP business in the hands of for-profit lenders that have to remain profitable.
Sen. Edward Kennedy (D-MA), chairman of the Senate education committee, also expressed concern about the new loan practices.
"The Citibank and Chase announcements highlight the need for Congress to take action to ensure that a student's access to college loans is not driven by the quarterly earnings of banks," he said in a press release.
Kennedy has suggested that schools take steps to participate in the Direct Loan program in case they are unable to get loans from FFELP lenders. However, Day expressed concern that it is likely that schools being denied loan funds will also lack the administrative resources to quickly switch from FFEL to Direct Loans.
Day highlighted the importance of quickly passing legislation in the House (H.R. 5715) and Senate (S. 2815) that would increase federal loan limits and provide liquidity for FFELP lenders to make new loans.
"We hope that raising awareness about this issue will cause for-profit lenders to reexamine and revise their lending practices," Day said. "We also believe it is vital that H.R. 5715 and S. 2815, which address student loan access, be passed as soon as possible."
By Haley Chitty
NASFAA Assistant Director of Communications
Posted 04/17/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
