Financial Aid: Pete Riley / PHOTO EDITOR
The state of the economy and reduced federal government subsidies are causing loan companies to change the loans they give to students and their parents.
“Significant legislative cuts and severe credit market deterioration have caused one-third of the top 100 student loan originators to exit the student loan program, displacing more than 16 percent of Federal Family Education Loan Program loan originations,” said Beth Guerard, spokeswoman for Sallie Mae, in an e-mail. “As a result, loan demand will significantly exceed lender supply for the upcoming academic year.”
Several student loan companies are no longer giving federal loans.
Executive Director of Student Financial Services Michael Reynolds said federal loans are direct loans where the money comes from the federal government and Stafford loans where the money comes from a bank.
Guerard said while Sallie Mae will continue making Federal Stafford and PLUS loans, April 11, but they suspended participating in the federal consolidation loans, which only affects students who have graduated college and want to combine federal loans they have received.
“Federal loan consolidation generates a negative return and, therefore, is no longer economically viable for any FFELP lender,” Guerard said.
Guerard said Sallie Mae will focus all its resources on college access for loans granted after May 2. She said this will not change any existing loans that Auburn students have or the PLUS loans for parents or Graduate PLUS loans for graduate students.
Reynolds said there was a limit or set amount per year for each direct or Stafford loan.
“With the cost of education going up, these limits do not really cover the cost to attend college, especially if you are an out-of-state student paying three times instate,” Reynolds said.
Reynolds said there are two reasons why these companies are not making money and are therefore coming out of the business.
“In order to encourage banks to actually make these loans to students, the federal government pays them a subsidy, and what they did was they cut back on that,” Reynolds said. “Not only did you have that, but the market has gotten into a shape that they can not make money by borrowing money to make these loans.”
He said if people signed a master promissory note with one of the companies that no longer gives out federal loans, then they will have to select another company, and if a company does not give out federal loans any more, then it will affect whether they can be placed back on Auburn’s list in the future.
Reynolds had some advice for parents.
“I would definitely suggest them looking at and questioning these companies about their solvency and if they are in fact in it for the long haul,” Reynolds said.
