Two more lenders have stopped lending, PHEAA from Pennsylvania and MOHELA from Missouri.
*PHEAA
From the Chronicle of Higher Education: “Pheaa Temporarily Suspends Federal Student Loans
The acting chief of Pennsylvania’s student-loan agency told state legislators on Tuesday that his
agency would temporarily stop making new loans through the federal guaranteed-student-loan program,
the Associated Press reported.
James L. Preston, acting president of the Pennsylvania Higher Education Assistance Agency, or Pheaa, said the agency had decided two weeks ago to suspend loans made outside the state, and now had decided also to suspend in-state loans, effective March 7.
The decisions stem from a credit crunch that has created turmoil in the bond markets. “Right now, it’s not profitable for us at all to finance” federal student loans, Mr. Preston told state lawmakers in Harrisburg, Pa., during a hearing on Pheaa’s budget. Instead, he said, the agency will steer prospective borrowers to banks that are still participating in the
federal program.”
* MOHELA
From the St. Louis Business Journal: “MOHELA suspends private lending, loan consolidation
The Missouri Higher Education Loan Authority (MOHELA), Missouri’s student loan agency, has suspended its loan consolidation and private lending services as the market for auction-rate securities backed by student loan debt continues to dry up. The changes could make it more difficult and expensive for Missouri students to finance their college educations.
An unprecedented financial squeeze on MOHELA and the student loan industry at large made cuts in products and services necessary, said Will Shaffner, MOHELA’s director of business development.
The difficulty can be traced back to the national subprime mortgage fiasco and the credit crunch it triggered last fall. That mess began spilling over into the student loan industry about six months ago as wary investors lost confidence in asset-backed securities — even those outside the mortgage market.
MOHELA is a state-chartered entity that issues bonds to raise money to buy student loans from originating banks and provide lower-cost services. Those bonds are usually sold in the form of auction-rate securities, which treat long-term debt like short-term holdings. Every week to 35 days, holders of those securities can sell them in bank-managed auctions that reset the interest rates on the securities for new buyers.”