On July 28, just a few weeks before the fall semester gets underway, some 40,000 college students in Massachusetts suddenly found themselves facing outstanding tuition bills with no money to pay them, when the nonprofit Massachusetts Educational Financing Authority announced that it wouldn’t be able to provide any private student loans for the upcoming semester. MEFA, the largest issuer of student loans to Massachusetts residents, had already suspended its federal student loan program back in April.
MEFA’s announcement came on the same day that the Brazos Higher Education Service Corp., the 26th-largest originator of federal college loans in 2007, released a statement of its own saying that it would be suspending its federal student loan program.
In the wake of these ongoing lender suspensions — according to FinAid.org, 131 lenders to date have suspended or curtailed their federal student loan programs, and 30 lenders have stopped issuing private student loans — a growing number of families are scrambling to find a provider for the parent and student loans they need to pay for fall semester, even as the first day of classes draws closer.
Nonprofit Lenders Struggle, Despite Federal Intervention
As more lenders are forced to suspend their student loan programs amid troubled credit markets that have left student loan providers without investors willing to buy their student loan portfolios, many nonprofit lenders like Brazos and MEFA are finding little relief in the federal legislation that was intended to help them.
Signed into law in May, the Ensuring Continued Access to Student Loans Act was aimed at assisting struggling student loan providers by allowing the Department of Education to buy their student loan portfolios as a means of providing the liquidity these lenders need to continue funding new student loans.
However, since many cash-strapped smaller state agencies and nonprofits lack the capital to disburse any new student loans to begin with, these lenders have no such portfolio to sell.
The Brazos Group, for example, had originally stopped offering federal college loans in March, but started its federal student loan program up again in May, after the government passed the Ensuring Continued Access to Student Loans Act.
“After suspending our [federal loan] participation earlier this year,” said Murray Watson, Brazos president and CEO, “we felt confident that the short-term liquidity plan established under the act would provide a way for us to continue helping students achieve their educational goals.”
But Brazos soon found it didn’t have the liquidity implicitly demanded by the legislation in order to receive a government-backed infusion of liquidity, which led to the organization’s second suspension of its federal student loan program late last month.
“We have simply run out of time to secure financing to disburse loans as soon as they are needed,” said Watson.
And Texas-based Brazos is clearly not the only one.
The financial aid office at Texas A&M University was recently notified by seven different lenders saying they would no longer be able to provide college loans, leaving the more than 54,000 students at A&M with a shrinking number of financing options as fall classes loom just around the corner.
Article Source: http://www.nextstudent.com
