One of the nations largest student loan operations announced this week that it will suspend making federal-guarantee loans starting next month, according to the New York Times.
The move by the Pennsylvania Higher Education Assistance Agency is evidence of the widespread impact of tightened credit markets. The College Loan Corporation has announced it is leaving the federal loan program, and the Missouri Higher Education Loan Authority has temporarily stopped offering private loans and federal consolidation loans.
Auctions of securities tied to student loans have failed to excite money-market investors and Congress has reduced subsidies to lenders, further escalating the problem.
Widespread lack of confidence in the capital market has spilled over into other asset classes, driving up our cost of borrowing and denying us the capital needed to fund new student loans, said James Preston interim chief executive of the Pennsylvania lender.
Members of Congress have asked the departments of Treasury and Education to see if these changes will make is more difficult for students to borrow.