Higher Ed Roundup: Week of May 12 – May 16

Credit Crunch Easing for Student Loan Providers?

Dept. of Ed Relaxes Preferred Lender Rules

Sallie Mae Computer Glitch Sends Credit Scores Falling

Report Illustrates Disparities Between States in Community College Use

Credit Crunch Easing for Student Loan Providers?

There were signs this week that the effects of the credit crunch on the student loan industry may be lifting. Nelnet, a Nebraska-based lender, successfully sold $1.35 billion worth of bonds backed by federal student loans this week with substantially lower financing costs than its previous sales. Industry experts took this as a positive sign that investors are becoming less wary of federal student loans, which have long been considered among the safest investments because of their implicit backing from the government. Nelnet’s sale follows on the heels of favorable sales of student loan bonds by JP Morgan Chase and the Rhode Island Student Loan Authority. The latter was the first successful “U.S. municipal offering backed by student loan revenue this year,” according to Bloomberg News. Speaking at a loan industry conference on Thursday, some investment banking officials expressed cautious optimism. “We’ve still got a long ways to go,” a Bank of America representative told the Chronicle of Higher Education. “But at least we’re headed in the right direction.”

Dept. of Ed Relaxes Preferred Lender Rules

Just months after the Department of Education put into place new regulations governing the relationship between colleges and federal student loan providers, the agency appears to be backing off to some extent. In a letter to colleges last Friday, a top Education Department official said that as a result of the credit crunch, some colleges may have trouble complying with the requirement that they recommend no fewer than three unaffiliated lenders to their students. In such cases, colleges will be allowed to recommend fewer lenders, as long as they make clear that they are not endorsing a specific loan provider. Under criticism from groups representing financial-aid administrators and the loan industry, the Department also reversed an earlier interpretation of the rules that would have blocked colleges from including affiliated loan providers on their preferred lender lists. As long as schools list at least three unaffiliated lenders, they now can add others that have the same owners. While college and lender lobbyists applauded the Department for being flexible, some advocates for students questioned whether the agency is relaxing the rules because the student loan scandals have receded from the headlines.

Sallie Mae Computer Glitch Sends Credit Scores Falling

Nearly one million student loan borrowers saw their credit scores plunge last weekend because a computer glitch at Sallie Mae caused their accounts to be coded as delinquent. On Friday, the student-loan giant mistakenly included borrowers who have taken advantage of graduated and extended repayment plans among those who have made only partial payments, leading the credit reporting firm Equifax to label their loans as overdue. As a result of the error, some borrowers’ credit scores dropped by as much as 100 points or more. A Sallie Mae spokesman said that the situation has been corrected and that borrowers should not face any penalties as a result of the snafu.

Report Illustrates Disparities Between States in Community College Use

States that charge lower tuition for community colleges have higher enrollment rates, according to a new report from the Rockefeller Institute of Government in New York. Average tuition in California, which enrolls more than 5 percent of its 18-plus aged population in community colleges was $674 whereas New Hampshire, which charges $5,614 annually, has a community college enrollment rate of less than 1.5 percent. In all states, the cost of attending a community college is less than attending a four-year college and in 18 states, the community college tuition was half that of a four-year school or less. States with the smallest population, such as West Virginia and Maine, posted the largest growth rates in community college enrollment between 2000 and 2005 (66.7 and 40.5 percent, respectively).