College loans crimped
For the first time ever, Student Loan Corp. is suspending lending at schools where it is obtaining “unsatisfactory financial returns.”
Student Loan Corp. (SLC) is based in Stamford and is a subsidiary of New York City-based Citigroup Inc. The company has 60 employees in Stamford and 580 total.
SLC said it is making the change on May 1 due to ongoing turmoil in the capital markets and recent federal legislation, one of several lenders to have been plunged into crisis along with Reston, Va.-based SLM Corp., known as Sallie Mae. And the Education Resources Institute, the largest nonprofit guarantor of private student loans, filed to reorganize under Chapter 11 protection from creditors.
At a U.S. Senate banking committee hearing in mid-April, the publisher of Monster.com Inc. subsidiary FinAid.org said nearly 60 lenders have suspended participation in federal loan programs, and a third of that number have halted private lending. The sector has already been hit with more than 2,500 layoffs, the publisher Mark Kantrowitz estimated.
At the same hearing, Sallie Mae’s chief financial officer said that because it is now unable to securitize loans, every loan originated in the Federal Family Education Loan Program will be made at a loss. Overseeing the Stafford, Plus, and Federal Consolidation loan programs, FFELP is the largest federal source of student loans.
“The gap between available loans and the demand for them could manifest itself as early as May,” said Jack Remondi, chief financial officer of Sallie Mae. “Lenders who have not already left the business of student lending will be faced with the difficult decision of exiting the student loan business or continuing to make loans at a significant loss.”
SLC did not publish a list of schools that are to be affected by the change, with Citigroup spokesman Mark Rodgers saying its relationships with schools are kept confidential.
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