If you thought the credit crunch was a financial phenomenon confined mainly to Wall Street, think again. Among its real life effects is that college students are no longer able to get student loans. Example, Pennsylvania’s Higher Education Assistance Agency has stopped giving student loans as a result of the frozen credit markets. Normally, it would sell bonds to investors to finance the loans it gives to students for college. Now the PHEAA has been unable to sell its bonds and has had to stop giving student loans. Instead, it’s referring families to various private banks which may or may not lend the money. This is a rolling problem cropping up in the states – not just Pennsylvania. (E.g.: Michigan http://media.www.michigandaily.com/media/storage/paper851/news/2008/02/14/Government/Student.Lending.Woes.Worry.u.Officials-3210042.shtml)
As reported by the Pittsburgh Tribune-Review: “The agency and other lenders say they had a hard time raising money because of investors’ skittishness about the subprime mortgage crisis. PHEAA could not sell its bonds at auctions.
“It is an unusual thing, something I’ve never seen,” said Linda Stesney, managing director of Moody’s Investors Service in New York. “We’re in a very different market environment.”
PHEAA, for example, had planned to lend $500 million to about 140,000 students. Keith New, the agency’s spokesman, said those students now will have to get loans from one of about 400 other lenders. His agency, however, will continue to guarantee and administer existing loans.”
PHEAA press release: http://www.pheaa.org/about/media/2008/February_27_08.shtml