HARRISBURG, Penn. – In the latest sign of tightening credit, the Pennsylvania Higher Education Assistance Association, the largest student lender in the state, announced it will halt making federally guaranteed loans next week.
The state-owned student loan company, which provides services for more than 170 credit unions in Pennsylvania, cited two reasons: major cuts in federal subsidies for guaranteed student loans and an increasing reluctance by investors to buy securities backed by student loans on the secondary market.
The state agency is the sixth participant in the student loan market to announce cutbacks in the last month, joining Iowa Student Loan Liquidity Corp., Michigan Alternative Student Loan program, Missouri Higher Education Loan Authority, and private lenders Sallie Mae and College Loan Corp.
The vast majority of student loans originated by credit unions either are sold to or serviced by one of these entities.
The growing cutbacks have prompted major concern in Congress, with lawmakers urging Treasury Secretary Henry Paulson and Education Secretary Margaret Spellings to work with government-backed lenders, such as the Federal Financing Bank, Federal Home Loan Bank system and Federal Reserve, to increase liquidity in the market.
