WASHINGTON -- An investor group that has been nibbling away at the student loan maret has bankers increasingly worried that it will take bigger bites out of the business, leaving banks with little more than crumbs.

The lending venture, CollegeCredit, was founded with the U.S. Department of Education's blessing in 1990.

Sponsors include the Student Loan Marketing Association, the government-chartered corporation that originated the idea; the College Board, which sponsors college entrance tests and collects student financial-aid data, and the Teachers Insurance and Annuity Association of America.

Small Start, Big Potential

In what some bankers view as a dangerous encroachment by a huge investment pool, TIAA makes the loans and Sallie Mae buys them.

So far, the venture has remained modest. Its originations are a mere $2 million out of the $13.5 billion guaranteed-student-loan market. And to assuage nervous bankers, it promised to lend no more than $150 million through the end of this year.

But as the expiration date of that voluntary cap approaches, bankers see signs that the group's appetite will grow.

One indication, they say, is that CollegeCredit is bringing in a new participant, the College Retirement Equities Fund, an affiliate of TIAA. Right off the bat, it has $50 million available for new loans.

CollegeCredit, critics warn, could corner the market because it can underprice the banks. Sallie Mae, as a government-sponsored enterprise, can obtain its funds at less than banks pay.

Also, the College Board can provide a data base that bankers believe enables CollegeCredit to spot the most creditworthy borrowers early on.

An expansion of CollegeCredit "would make it difficult economically for lenders like commercial banks to continue to participate" in the student loan program, said Mary F. Bushman, vice president for government relations at AFSA Data Corp., Fleet Financial Group's student loan subsidiary.

Out to protect their market, the Consumer Bankers Association and the American Bankers Association are mounting a challenge to the participation of College Retirement Equities Fund.

To participate in the investor group, CREF must obtain permission from the Securities and Exchange Commission, whose rules prohibit it from participating directly in an investment with an insurance provider like TIAA.

The ABA and consumer banking group have asked the commission to hold public hearings on the College Retirement Equities Fund's petition. The two trade groups believe a hearing would make it more difficult for the Securities and Exchange Commission to grant the exemption.

If the request for a hearing is denied, CollegeCredit's petition would be automatically approved.

Sallie Mae, which runs the secondary market in student loans, has played down bankers' fears that CollegeCredit would skim the best loans from the gauranteed-loan-pool.

"I don't see how it will force banks out," said Sallie Mae's director of corporate communications, Gisela Vallandigham, noting how small CollegeCredit's penetration has been to date.

Separately, the Consumer Bankers Association saiad a survey of 52 of its members, which originated $3.4 billion in student loans last year, showed a decline in loan for attending schools with high default rates. Seven of 10 respondents said they had restricted such loans, compared with three in 1989.

Also, 86% said the legislative and regulatory process is not responsive to the needs and problems of the student loan program.

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