Why did T.H.E. temporarily suspend processing student loans?
Lower the Cost of Financing Higher Education.
For more than a decade, the capital markets have been the most efficient means of providing student loans. T.H.E. has leveraged these markets to return more than $200 million in student savings. Unfortunately, the severe market disruptions have been worsening each month. That prevents our funding partners from being able to commit to us (and many other lenders using these markets) for funds needed for new loans for the 2008/2009 lending season. To explain it in simple terms: student loan providers use the bond markets to secure money to lend to students, and these markets are currently frozen. Investors have become wary of these bonds in the wake of the sub-prime mortgage fallout — even though student loans don’t have the credit problems that mortgages have had and are backed by the U.S. government. As a result of these problems, we have no access to funding right now. While we wait for signs of recovery, we want to make sure we communicate what we know now to schools and borrowers. We are optimistic that funding sources will become available and enable us to make new loans for borrowers. However, the question is when – and we just don’t know the answer to that. If the answer is several weeks, there would be no interruption to our ability to serve the borrowing needs of students for the 08/09 lending season. If the answer turns out to be several months and we had not made the decision to temporarily suspend loan originations, this might cause even larger issues and disruptions for borrowers as expectations would have been created. The student loan industry is working with Congress, the U.S. Treasury, the Wall Street banks and others to try to find a solution for a problem that, for student loans, is simply a lack of investor confidence rather than any inherent credit problems or economic issues. Even though our short-term ability to make new loans is severely curtailed, T.H.E.’s low-cost operating model, exceptional customer service, practical borrower education and solid reputation leave us well positioned to recover quickly once confidence in the financial markets returns. We know you have to make short-term decisions now, but we ask for your patience and consideration for when these markets recover, we can return the next $200 million to students. We want to stress that T.H.E. will remain in the student loan industry. And we are here to help our current borrowers with any questions. We’re sorry that we can’t give you better news right now, but we feel an obligation to inform you of this now rather than waiting for a change in the markets to occur. As always, we’ll do our best to keep you informed.
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Total Higher Education Loan Programs www.theloanprogram.org 1-800-366-0604 ©2008 NorthStar Education Finance, Inc