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I haven’t really been paying attention to the student loan dilemma since the fed dropped the interest rates again, but not being in the educational sector doesn’t mean it’s not going to have impact on our economy nonetheless…

The economy is a living/breathing animal and any change in the environment is going to have ripple effects across the nation. When I first read the story about Brazos dropping out of the student loan business, I didn’t think much of it; so what I thought, there are hundreds of other places people can go to get loans for school. But as I read deeper into the story I found this part intriguing:

“Brazos Higher Education Service holds more than $15 billion in federally guaranteed student loans, including $7 billion it permanently financed through the sale of auction-rate securities. It is among 26 companies that stopped providing student loans through the Federal Family Education Loan Program according to Finaid.org, a student financial aid publication.”

Click the graph to the right to see how the Feds have bounced on their lending rate over the past 30 years…

The story above is dated March 24th and the piece that caught my eye was “26 companies” have stopped providing student loans. The latest rate cut was on March 18th, and this news is coming out on the 24th. That’s a little discerning to me. That means that 26 companies had to pull out of a previously “in the black” business and strike out on a new path to lending.

I wouldn’t say that the student lending business was necessarily “lucrative”, but more “PR courteous”. It’s a pretty simple formula:

• Feds loan money to lender at “x”%
• Lender loans money to student at “x” + 3%
• Lender pays back “x”% to Feds and keep 3%

The new formula changes it because:

• Feds now loan money at “x” - 3.75%
• Lender can’t loan money to student at “x” + 8%
• Student can find the deal better elsewhere still.

It’s just not feasible for some of the smaller lenders. Furthermore, some of the big boys are cutting back and trying to make ends meet now. Look at SallieMaes latest layout of over 1000 people.I still pay my money to SallieMae monthly and will until I’m 48 if I continue to pay the minimum amount due and it hasn’t affected me direct, but the economy is indeed a living/breathing beast; when we save the foreclosures, the lending business hurts. When you change “x”, “y” will certainly feel the impact. How do you see the student loans being affected in the near future? Are you applying for them now?

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