Bank of America Corp. stopped offering private student loans on April 17, reducing the range of loan options available to students.

Lenders have been leaving both the federally-supported and private student-loan markets, a move that has been worrying students at Washington University and their parents.

“I think this is really unfortunate for education. There are a lot of students that want to go to more expensive universities than they can afford, like Wash. U. This trend has the potential to widen the gap between classes and their opportunities to move up the social ladder,” sophomore Matt Moriarity said.

Bank of America is still offering federally-guaranteed loans. Students can take out a Stafford Loan, a Parent Loan for Undergraduate Students or a Consolidation Loan that combines already existent federal loans.

Amanda Melton, a student loan specialist at Bank of America, explained the difference between the current and past offerings.

“A federal loan is a government loan based on family income. So, if your family is making too much money, you may not be able to get it. A private loan, what we used to have, is based on credit,” Melton said.

The bank loaned $900 million in private student loans last year but decided to cease offering them after the company The Education Resources Institute Inc. (TERI), filed for bankruptcy protection earlier this month. Bank of America relied on TERI to take over any loans that are not paid.

Many banks are unwilling to risk giving private loans without some other institution, such as the government or companies like TERI, to back them.

“Clients that call in say other banks have done this, too. People looking for private loans say other banks aren’t offering them either,” Melton said.

Citigroup Inc. recently decided to stop loaning to schools when the loans are too small to be profitable. Washington Mutual Inc., Sovereign Bancorp Inc., College Loan Corp., NorthStar Education Finance Inc., HSBC Banks USA and Zions Bancorp have even stopped issuing federally-guaranteed student loans in the last month.

Moreover, several large lenders, including Sallie Mae, have stopped offering federal consolidation loans.

Moriarity said that he was worried that the reduction in private loan offerings would make it more difficult to find money to pay for college in general.

“It’s getting harder to come back to school next semester because of finances. I paid with my life savings for this year, and scholarships have pretty hard competition,” Moriarity said.

Nevertheless, he saw some benefits to the increasing difficulty of taking out loans.

“Though I may not come back to Wash. U. next year because of finances, for society as a whole, maybe it’s good that people can’t borrow so much money. People end up with hundreds of thousands of dollars in debt and then declare bankruptcy, and that’s not healthy,” Moriarity said.

In addition to federal loans, University students can take out Partners in Education (PEP) loans. The multi-year option has an interest rate of 6.25 percent, and the annual option has an interest rate of 7.25 percent.

Students are relieved that the University offers a direct-loan program as many financial institutions leave the college loan market. Bank of America’s decision was unexpected because of the bank’s size and stability and because it is the third-largest student lender in the country.

“I have to pay this loan off within 10 years of when I took this it out,” sophomore Rachel Broadbear said. “But fortunately the annual tuition increases don’t affect me so much.”

Popularity: 1% [?]

 Print This Post

This entry was posted on Monday, April 28th, 2008 at 12:00 pm and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.