Student Loan Dodgers

Citigroup, one of the nation’s largest lenders, has cut back dramatically on its participation in the Federal Family Education Loan program (FFELP). Students who had turned to Citigroup to underwrite the Federally guaranteed student loans in the past will need to find a new FFELP lender. The company’s student lending arm, the Student Loan Corp., fired 146 employers and Citibank, another subsidiary, has announced plans to eliminate nearly 30 positions in its student lending department.

Citigroup characterized the move as a demonstration of its ongoing strategic focus on providing the best possible management for the firm during tight economic conditions. Some of the challenges faced by FFELP lenders include substantial cuts in Federal subsidies to lenders who participate in the program. The loss of the subsidies takes on new meaning in light of the collapse of the secondary loan market, which many lenders used to fund their loan-making programs.

The cuts come at a bad time for students who are scrambling to arrange financing for student loans for the Fall semester. To ensure the long-term availability of funds, the Federal government has dusted off a never-used provision of the Higher Education Act, which called upon individual states to provide a “lender of last resort” for student loans. Most states do have higher education loan agencies, but have never participated as a “last-resort lender.”

Most state agencies are also suffering from the same funding problems that have beset FFELP participants. New Federal legislation enables states to find a guaranteed buyer for their college loans in the form of the US Department of Education, but that backing will not take place until the Fall of 2009. In the mean time, many state lenders have also temporarily ceased lending operations, hoping to ride out the latest financial storm.

Luke Livingston has found a novel way to repay his student loans. The Clark University graduate started a Web site in December that will trade ad space for Livingston’s student loan payment. Sponsormyloans.com will provide one month’s worth of advertising space to sponsor’s willing to pick up the $200 monthly tab for Livingston’s student loan debts. After a bit of publicity, Livingston’s student loan payment was sponsored for the month of January, and he’s hoping to carry his luck forward.

The site is not a “sympathy site” since Livingston trades ad space for cash. Not just any old ad will do, however. Livingston won’t accept obscene, offensive or “adult” oriented images on the ad space that surrounds his site. Advertisers are guaranteed an exclusive ad deal which includes all of the ad space on the site, and can change the ads as many times as they like during the month. Livingston has limited purchases to a minimum of one month and a maximum of three months per sponsor.

Livingston has a degree in communications, and works full-time, but says in his blog that he’s currently not making enough money to pay off his student loans. If his site is fully sponsored, however, he can pay off his college loans in about seven years. So far, Livingston’s site has been featured in Young Money magazine and on TheStreet.com. Livingston is hoping for more publicity and more advertising revenue from his site.

An interesting note, however. Livingston says that he can pay his student loans off in seven years, if the interest rates don’t change. It sounds to me like he could benefit from student loan consolidation.

Yet another large student loan lender has decided to reduce its federal student loan program options. The Student Loan Corp, which is 80% owned by Citigroup Inc, announced on April 16^th, 2008 that it would suspend lending federal student loans to certain schools and withdraw from the Federal Consolidation Loan market, effective May 1, 2008. The company is blaming higher costs for funding by the “continued disruption in the capital markets” and new federal law changes on the subsidies for the reduction in their student loan portfolio.

The Student Loan Corp. hopes the changes to only be temporary and hopes to return into the student loan consolidation market as the market improves and changes in congress take place.

So far over 43 lenders have dropped completely out of the federal student loan lending market or have suspended student loan consolidation lending until further notice. Some of the largest lenders include; Sallie Mae (SLM), Nelnet, NextStudent and CIT Group.

I’m sure it’s only a matter of time before my schools financial aid office is effected by all this craziness going on in the student loan industry.