Student Loan Industry Shrinks by 3 Banks
Three banks pulled out of the Student Loan industry this week citing higher risks and more difficulty in making profits from dropping interest rates. M&T, HSBC and TCF Financial group, which represented about half a percent of the 2006 100 billion dollar plus student loan market are packing it in.
M&T spokesman Phil Hosmer said two factors drove the Buffalo-based bank’s decision: difficulty in reselling the loans on the securities market, and reduction from $28 billion to $4 billion in the federal subsidy for the loans. Interest rates, set by the federal government, also are set to fall from 6.8 percent to 3.4 percent in 2011.
“It makes it more difficult to make a profit and reduce your risk,” Hosmer said.
3 banks give up on student loans — Page 1 — Times Union - Albany NY
The inability to securitize student loans definitely spells a problem for potential borrowers and students as well as people looking to refinance their existing student loans. Mix into this the problems with the mortgage industry and if people start defaulting on mortgages, their student loans may not be far behind. Many people will definitely watching this market for signs of another crisis the early exit of some banks may just be a mattress topper hiding a problems underneath.
