Lender loses $6.9 million, cuts jobs
By: Bryan Coplin
Issue date: 2/28/08 Section: News
The Missouri Higher Education Loan Authority recorded its only loss in its 27-year history, MOHELA announced in late January. During the first half of the fiscal year, MOHELA lost $6.9 million. To offset part of its losses, MOHELA will cut 23 jobs, said Ray Bayer, Jr., chief executive and executive officer.
Less than 10 percent of Webster University students use MOHELA.
Other lending giants, such as Sallie Mae and Nelnet Inc., have posted losses as well. Both have lost more than MOHELA, and have laid-off hundreds of employees between them. Sallie Mae reported a loss of $1.6 billion in the fourth quarter of the fiscal year on Jan. 23.
It will become more expensive for students to borrow money over time, said Jon Gruett, director of Financial Aid at WU. This will primarily affect students entering college, as lenders are reducing borrower benefits. Loans will always be available through the federal government. However, alternative loans offered through banks or other lending companies that are not part of federal loan programs will
raise interest rates and fees, Gruett said.
The average WU undergraduate student leaves with a debt of $18,400. WU graduate students have an average debt of $30,620 at graduation, Gruett said.
Sallie Mae has lost the majority of its money from lending to students who cannot pay back their loans. Students from schools with low graduation rates caused 60 percent of losses, even though they accounted for only 15 percent of the loan pool, reported the Chronicle for Higher Education. These students tended to cause problems because many of them did not graduate. This group of students then had difficulty repaying loans because they were disproportionately poor. A lack of training or higher education also contributed to their inability to pay, said the Chronicle for Higher Education.
This reflects the sub-prime mortgage crisis, which has led in part to the overall credit crunch the economy is experiencing. This has led to a decrease in confidence in the economy at large. The Federal Reserve has tried to remedy this and offset inflation by decreasing interest rates.
Like the sub-prime mortgage lenders, Sallie Mae has given credit to high-risk borrowers who are likely to default on
their loans.
Lenders to students are citing the College Cost Reduction Act as a reason necessitating rate changes. The College Cost Reduction Act seeks to make college more affordable while protecting higher education from market forces, reported the St. Louis Business Journal. The law went into effect in October; it cut tiny government subsidies to student loan providers and doubled fees to original loans.
This hurt lenders like Sallie Mae by raising their costs. Student loans are a low profit return, but lenders were able to make a profit by lending to large numbers of students.
Less than 10 percent of Webster University students use MOHELA.
Other lending giants, such as Sallie Mae and Nelnet Inc., have posted losses as well. Both have lost more than MOHELA, and have laid-off hundreds of employees between them. Sallie Mae reported a loss of $1.6 billion in the fourth quarter of the fiscal year on Jan. 23.
It will become more expensive for students to borrow money over time, said Jon Gruett, director of Financial Aid at WU. This will primarily affect students entering college, as lenders are reducing borrower benefits. Loans will always be available through the federal government. However, alternative loans offered through banks or other lending companies that are not part of federal loan programs will
raise interest rates and fees, Gruett said.
The average WU undergraduate student leaves with a debt of $18,400. WU graduate students have an average debt of $30,620 at graduation, Gruett said.
Sallie Mae has lost the majority of its money from lending to students who cannot pay back their loans. Students from schools with low graduation rates caused 60 percent of losses, even though they accounted for only 15 percent of the loan pool, reported the Chronicle for Higher Education. These students tended to cause problems because many of them did not graduate. This group of students then had difficulty repaying loans because they were disproportionately poor. A lack of training or higher education also contributed to their inability to pay, said the Chronicle for Higher Education.
This reflects the sub-prime mortgage crisis, which has led in part to the overall credit crunch the economy is experiencing. This has led to a decrease in confidence in the economy at large. The Federal Reserve has tried to remedy this and offset inflation by decreasing interest rates.
Like the sub-prime mortgage lenders, Sallie Mae has given credit to high-risk borrowers who are likely to default on
their loans.
Lenders to students are citing the College Cost Reduction Act as a reason necessitating rate changes. The College Cost Reduction Act seeks to make college more affordable while protecting higher education from market forces, reported the St. Louis Business Journal. The law went into effect in October; it cut tiny government subsidies to student loan providers and doubled fees to original loans.
This hurt lenders like Sallie Mae by raising their costs. Student loans are a low profit return, but lenders were able to make a profit by lending to large numbers of students.
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