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Student-Loan Borrowers Face Credit Crunch of Their Own
By JANE J. KIM
February 5, 2008; Page D3

Originally Posted by http://online.wsj.com/article/SB120218149138343367 .html

Despite the Federal Reserve's latest rate cuts, lenders are raising rates and fees on some student loans -- and making others harder to get.

In recent months, average rates on private student loans have increased by about 0.5% to 1%, says Mark Kantrowitz, publisher of FinAid.org. Last month, for example, MRU Holdings Inc.'s MyRichUncle raised some rates on its private student loans, following College Loan Corp. and SLM Corp.'s Nellie Mae, which raised rates on their private student loans last year.

SLM's Sallie Mae and First Marblehead Corp., another big provider of private student loans, told analysts that they expect to change the pricing on their private loans to reflect market conditions. Last week, First Marblehead told analysts that it was tightening its credit criteria to focus on "high-quality borrowers" and was "in the process of increasing fees and rates that borrowers will pay."

Some borrowers, especially those with less-than-perfect credit, will likely have a harder time getting a government-backed federal loan, as lenders tighten up their standards and pare back their offerings in response to the credit crunch and recent legislation.

Last week, for example, College Loan said it will no longer provide federal student loans, while Nelnet Inc. recently announced that it would stop offering so-called consolidation loans and be more selective in all of its other origination activity. Consolidation loans, which allow borrowers to combine all of their federal loans into one to lock in a fixed interest rate and simplify and reduce monthly payments, are the least lucrative student loans for lenders.

Meanwhile, Sallie Mae -- citing higher levels of delinquencies and losses -- said it was tightening its credit standards and will cut back on private loans made to nontraditional schools and to borrowers with lower credit scores at schools with low graduation rates. The company also said it plans to reprice its private loans to reflect "market conditions," reduce borrower benefits and place less emphasis on its federal consolidation loans.

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