SPOKANE, Wash. -- Citing new rate-cutting rules and lowering of the guarantee, the $1 billion Spokane Teachers Credit Union is exiting the guaranteed federal student loan business effective this fall.
"I can't say for sure how many there are, but any number of banks and credit unions in Washington State and elsewhere are doing the same," said Steven Dahlstrom, president/CEO.
The government, he said, has long been ballyhooing the credit crunch and home mortgage mess as factors behind the pullout, but in reality current conditions are the result of continued moves by the Department of Education to fund more student loans, while, at the same time, driving out lenders.
Spokane Teachers, one of the largest student lenders in the state with a portfolio of $9.2 million, said it notified area colleges of the decision, and officials, including those at Washington State, Eastern Washington and Gonzaga, have begun looking to the government or other lenders.
Dahlstrom noted that Spokane Teachers' portfolio, with a current rate of 6.8%, has been declining since 2005 when it stood at $13.6 million as the Spokane CU finds itself competing with the federal government.
Dahlstrom noted that rates on two major federal loan programs will be ratcheted down to 3.4% by 2011. Meanwhile, the former 100% guarantee has already been lowered to 98% and will be reset again at 95%, all of which are factors negating Spokane Teachers loan participation.
The government dictates the rules, he said, "and they're good for students and in trying to reduce the cost of education" but not for lenders trying to make a profit.
Dahlstrom said that as an educational CU it was disheartening to drop the government program, but the Spokane CU had no choice without losing money. He noted that one of his largest competitors, Zions Bank of Salt Lake City, has abandoned guaranteed loans as well.