College Loan Corporation (CLC) announced yesterday that it would no longer participate in the Federal Family Education Loan Program (FFELP) to "focus exclusively on the private student loan marketplace," according to a letter from CLC Founder and CEO Cary Katz. CLC is one of several lenders in recent weeks that have announced their intentions to leave or limit their participation in FFEL, as a result of the recent instability in the credit markets and recent lender subsidy cuts on FFELP loans.
"Regrettably, recent Congressional action has decimated the Federal Family Education Loan Program, essentially making it impossible for midsized companies like College Loan Corporation to participate in the federal loan marketplace," Katz said in a statement. "In addition, continuing disruptions in the credit markets have compounded the impact of the legislation. After careful consideration, College Loan Corporation will cease making new FFELP Loans on March 1, 2008. We will honor all second and third disbursements to our customers and continue to manage our existing loan portfolio."
While Katz classified CLC as a "midsized company," it is the eighth largest originator and holder of FFELP loans.
This move comes after similar announcements by other lenders in recent weeks. Sallie Mae, the largest originator, holder, and consolidator of FFELP loans announced that it would be scaling back on its loan originations, specifically withholding loans from students attending schools with low graduation rates. Nelnet, the second largest FFELP loan consolidator and the third largest holder of FFELP loans in FY 06, also announced that it would cease consolidating federal loans.
With unease about securitizations of subprime mortgages spreading throughout the asset-backed securities (ABS) market, and recent subsidy cuts imposed by Congress, some are worried that student loan providers may have a tough time raising enough capital to continue funding loans for borrowers. But many industry analysts say it is really too soon to tell what the full impact of these conditions will have on lenders and ultimately students and families.
"We're concerned about students' access to low costing federal loans and we're watching these developments very carefully," said NASFAA Interim President Joan Crissman. "We are listening to our schools to keep close tabs on how students are being affected by these developments."
Katz committed CLC to meeting its disbursement obligations on students' second and third disbursements through this year, but plans to stop making new FFELP loans in March. Katz also said that CLC would "advise families to exhaust less expensive funding options such as grants, scholarships, work study, and federal financing options before using private loan products," despite the shift in company resources into private loans.
By Justin Draeger
NASFAA Assistant Director for Communications
Posted 02/01/08 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
