Bank of America announced on Friday that it would stop making student loans next month through the Federal Family Education Loan program, becoming the latest lender to pull out of the guaranteed-loan program in advance of expected legislation to end the program entirely. According to the Reuters news agency, Bank of America, the program’s fourth-largest lender, said in a letter to colleges that it would continue to service existing guaranteed loans. Legislation to end the program passed the House of Representatives in September; a showdown is looming over the bill in Senate.
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One Response to Bank of America to Pull Out of Guaranteed-Loan Program
atana09 - November 9, 2009 at 9:23 am
And this is a tactic which has been used before. During the Bush administration several of these corporations threatened to pull out as a tactical lever to get the millions of liquidity payments provided by the Fed. People with short memories usually credit TARP/TARF as being the first big financial sector sugar and cake payoff, but the FFELP corporations have been playing that card for a generation. Now there is a small possibility that this massive form of corporate welfare might be at risk, all the old tactics will come out with enhanced announcements. The other factor behind their decision is that given the economic troubles, which has combined with the tradition of student lending premised being on selling debt to economically weak populations; they know that this game is up just as much as the sub prime mortgage festival. A 580 billion dollar bubble (estimated amount of student debt in the US) is close to imploding and obviously BOA and etc are backing away from additional engagement. Playing the game from both sides really, pulling back and at the same time playing to keep a presence in the same toxic field. Servicing existing loans, well not surprising as they have their market share of the educational debtors generation by the throat. Even if they default under massive numbers due to economic collapse there is no where the troubled borrowers can go, and no means to escape that noose because of slanted laws and regulations written to favor educational lenders interests. Plus the past student loan regulations still have the government paying for defaults, and even then the troubled student debtors can be still attacked from all sides ie its not uncommon for fees in such events to go well past 30%. Plus keeping this captive population is a political lever against reform. Of course they’ll continue to service existing guaranteed loans. Senate, that’s where BOA, SMC, NNC and etc will use all their influence (which is very entrenched the USDOE for example is still literally an outpost of their making) and the Senate has historically been much easier to co-opt. For all his flaws, in this debate it is very unfortunate that Senator Kennedy has passed. He was one of the few the educational lending cabal couldn’t buy or control and possessed enough public standing to be heard when he spoke about the long term and excessive problems in the US educational lending system.