WALL STREET – The crisis in the student loan market intensified yesterday after the nation’s two largest banks, Citibank and Bank of America, announced major cutbacks in student lending.
First, Citibank said its Student Loan Corp. subsidiary will exit the guaranteed student loan program and will stop lending at schools where loans with lower balances and shorter interest-earning periods are less profitable. Then, BofA said it will stop making so-called private student loans, or non-federally guaranteed loans, because the turmoil in the bond market has made it difficult to sell the loans on the secondary market.
As many as 50 major lenders have retrenched or exited the student loan market in recent months, drying up liquidity just as the critical loan season approaches for fall semester.
Sallie Mae, the central player in the market as both the largest lender and buyer of loans, reported a first quarter loss of $104 million on Wednesday, saying it cannot make a profit on student loans in the current economic climate.
Congress is urging the Bush administration to step in and provide liquidity and guarantees to lenders to make more capital available, but so far the administration has been reluctant to intervene.
