The UTD Mercury

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A total of 79 institutions have stopped issuing federal loans to UTD students in recent months, leaving many without a lender.

This is just one of the many aspects of the ongoing financial downturn ignited last year by the crisis in the subprime mortgage market. Recently, the Federal Deposit Insurance Corporation (FDIC) announced the failure of California-based IndyMac Bank on July 11, the largest American bank failure since 1984. On July 18, Citigroup Inc. posted a quarterly loss of $2.5 billion. Three days later, Wachovia put its losses at $8.9 billion.

The exodus began late last year and has included Frost Bank and Legacy Bank, two of UTD's 10 largest lenders.

"It's been gradual," said Cathy Coursey, interim director of financial aid. "Beginning about a year ago, we've seen a pretty steady stream of lenders leave the market."

Coursey estimates that 10 percent of UTD students have been affected since the withdrawals began. The UTD Office of Financial Aid has sent letters or emails to about 1,700 students, notifying them that their lenders have left the market. Students are advised to select a different lender.

"So far, students have just had fewer choices," Coursey said. "There has been no problem with availability."

The Federal Family Education Loan Program (FFELP) encourages private institutions to provide federally guaranteed loans to student borrowers. Because it sets low interest rates and limits on the amount that can be borrowed, student lending is often unprofitable. Banks often use student loans to attract customers to more lucrative products such as business or home loans, according to James Hubener, Assistant Director of Financial Aid.

The industry has suffered blows in recent months that have further discouraged lending. Normally, banks raise money by packaging their loans and selling them to investors on a secondary market. With the continuing downturn in the credit market, demand for these debt-backed securities has decreased dramatically, leaving banks without the money necessary to provide additional loans.

Adding to trouble on the credit market, Congress passed a bill in July 2007 that reduced subsidies to lenders by $19 billion over five years.

"We speak in the industry of 'before subsidy cuts' and 'after subsidy cuts,'" Hubener said. "The world changed with that legislation."

A statement released by Frost Bank upon its withdrawal from the market on May 13, 2008 describwed the federal student lending program as "no longer a sustainable model under current law...We hope that Congress will one day restructure the student lending program in a way that encourages financial institutions to participate."

With continued weakness in credit markets, Hubener would not speculate whether more lenders will leave the industry.

"Is it still possible that others will pull out in the future?" Hubener said. "Right now, it's impossible to say."

Hubener insists that students will face no trouble accessing loans. If enough private companies leave the market that loans become scarce, the school can turn to Texas Guaranteed Student Loans Corporation (TGSLC). TGSLC is a non-profit company established by the Texas legislature to be the guarantor of FFELP loans and state universities designated 'lender of last resort.'

"If we get into that situation, which we don't anticipate, we can always go to them for funds," Hubener said.

Access to federal money is part of a deeper concern for students. The amount of loan debt carried by graduating UTD students rose 34.4 percent between 2000 and 2006, according to university records. Despite this mounting debt, students are still struggling to pay for their education.

"I'm pushing $30,000 in debt right now," said Nick Rustin, a junior in literary studies and education. "I'm right at the cusp of not having enough money this semester. I'm wondering where I'm going to get the money to live."

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