Bank of America cuts back on student loans

[marmar]

Bank of America cuts back on loans
Ends private finance program for students

By Beth Healy
Globe Staff / April 18, 2008


Bank of America Corp. yesterday said it would no longer offer private student loans, adding to the cascade of lenders pulling back in various parts of the college loan market.

more stories like thisThe bank, the third-largest student lender in the country, extended $900 million in private student loans last year. Bank of America said it would continue to offer loans that are guaranteed by the federal government, which make up 85 percent of its $6 billion student lending business.

Sandra Dunleavy, head of Bank of America's student loan business, said in a statement that the bank "remains committed to helping parents and students finance a college education through the federal student loan program," including Stafford and Plus loans. But bank executives declined to discuss the move further.

Bank of America's decision came 10 days after the company it relies on to stand behind its private loans - The Education Resources Institute Inc., or Teri - filed for bankruptcy protection. The way Bank of America and many other large banks have handled private student loans was to get a Teri guarantee and package the loans as securities, through Boston-based First Marblehead Corp., and sell them to investors. That cleared the way for new bank funds to be available for student loans.

Teri is reorganizing and aims to continue its business, but its troubles have further spooked a student loan market that began having problems last fall. The market for selling securitized student loans evaporated last October in the wake of the subprime mortgage crisis that hurt most credit markets. Even assuming the securitization market comes back eventu ally, those loans can't be turned into attractive investments without a guarantee from the likes of Teri to take over any loans that go bad. ......(more)

The complete piece is at: http://www.boston.com/business/personalfinance/articles/2008/04/18/bank_of_america_cuts_back_on_loans/

[MrModerate]

1. All lenders are spooked -- a serious downturn could turn . . .

Prime borrowers into subprime defaulters in a flash. And, of course, the federally backed loans allow them to charge usurious fees ultimately funded by taxpayers, so why would they stop those?

[notesdev]

2. BofA has its own problems

It will be lucky to remain in the position to lend in ANY market, forget about just student loans.

The economics of the education market are all messed up, anyway - it costs far too much for the value provided. People are graduating by the millions with degrees in subjects that will afford them no help whatsoever in the real world, way too many soft subjects and not nearly enough math, science, and engineering. One nursing student does more to help the economy and the country as a whole than ten Humanities majors, but the financing regimes do not seem to have a way to take that into account.

Graduating a student in a non-career field and expecting him to pay back a massive debt afterwards is like giving a massive home loan to someone whose income can't be verified. It doesn't make sense and is likely to bite all parties in the butt in the end.

[MrModerate]

6. I don't buy your contention that humanities degrees aren't . . .

loanworthy. If that was the case all we'd fund would be vocational ed. The economic benefits of a broadly educated population are manifest, whether a newly minted humanities graduate can step into a 200k/pa job or not. The whole point of student loans was that you had forever to pay them off, giving even my friends with theatre degrees (!) a fighting chance.

[mcctatas]

3. My loans were delayed this semester because my original

lender stopped doing them. Alot of lenders stopped issuing new ones, but my lender didn't honor the ones that they granted in August of 07. I had to choose a different lender and sign a new MPN. Thank God I graduate this summer!

[orleans]

4. my daughter is going to have to get student loans.

is stafford is the best to apply for?
perkins?

i don't know shit about this anymore.

[mcctatas]

5. It's pretty easy now...

you just fill out a FAFSA online, and they determine what loans you are eligable for.