College Loan Corp. Focuses on Portfolio After Funds Cut OffOne of the U.S.'s largest student-loan companies is suspending the remaining part of its student-lending business.
In a letter addressed to college financial-aid officers, College Loan Corp. Chief Executive Cary Katz says the company will "cease all private loan disbursements, effective immediately," because it lost its funding.
"Regrettably, our financing from a large New York bank was abruptly canceled yesterday," reads the Sept. 4 letter.
Brian Jones, a CLC spokesman, identified the bank as Citigroup Inc.
While CLC knew its line of credit was up for renewal this year, Mr. Jones said the cancellation was "unexpected" at the start of a school year, when it had around 9,000 applications from students pending. Those applications, Mr. Jones says, have been canceled, and students are being notified.
Citigroup declined to comment on the matter.
The moves follow CLC's announcement earlier this year that the lender would stop disbursing federally backed student loans. The San Diego-based company originated some $1.5 billion in federal student loans in fiscal 2007, an amount that made it one of the country's top 10 lenders to students, according to the U.S. Department of Education. Mr. Jones says the company will continue to manage its existing loan portfolio.
Private lending is a fast-growing sector of the student-loan market. As borrowing limits on federal loan programs have fallen behind annual tuition increases, more students have turned to lenders such as CLC for costlier -- and riskier – private student loans. Undergraduates borrowed $14.5 billion in private loans in the 2006-2007 school year, up 11.5% from the year-earlier term, according to the nonprofit College Board.
But the recent credit crisis has led to instability in the student-lending industry: 138 lenders have now exited from federal student loans or private loan programs, says Mark Kantrowitz, publisher of FinAid.org, who has been tracking developments.
For example, this summer, Wachovia Corp. said it would stop making private student loans to undergraduate students. Brazos Higher Education Service Corp. announced in July that it will stop accepting federal loan applications for the 2008-2009 school year.
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