As fears of a recession swirl, Texas students face the specter of a shrinking student loan industry, the president of a nonprofit private university association said Monday.
Carol McDonald, president of Independent Colleges and Universities of Texas Inc., testified about the state of the student loan market at a hearing for the Senate Subcommittee on Higher Education. She said the severity of the problem will likely not be known until this fall but that lenders are already more selective about the types of institutions and students they serve.
McDonald said her organization expected students to encounter obstacles obtaining loans at community colleges and less selective regional and private colleges, where students are more likely to default or make uneven payments.
Henry Urick, assistant director of student financial services, said a few small lenders, or "hometown lenders," have withdrawn from serving the University. These lenders served no more than a dozen students.
"These were localized, small banks that may have offered their loans more as a service to the community than for business reasons," he said.
Only one large lender, the College Loan Corp., has withdrawn from serving UT students.
Jason Briseno, financial aid supervisor at Austin Community College's Rio Grande campus, said that in addition to the College Loan Corp., only two other lenders have stopped serving ACC students.
Usually, these lenders will sell their loans to another institution, Briseno said. He advises students to stick with these new lenders and, if possible, remain with one institution throughout their college careers. Students rarely seek out private loans, but 30 percent to 40 percent seek out federal loans. ACC's financial aid office encourages students to exhaust all scholarship and grant opportunities before looking for loans.
The shrinking student loan market is, in part, a result of wider economic problems stemming from the fallout of the housing bubble. Finance lecturer Michael Brandl said a sense of uncertainty has prevailed in financial markets.
"What's happening is banks are not even willing to lend to each other, much less something as risky as a student loan," he said.
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