U.S. Bank to exit the federal student loan business

In light of the revelation that U.S. Bank will exit the business of federally subsidized student loans, I thought it timely to post two very relevant stories I wrote a while back:

Audit: Fifth Third Violated Federal Loan Laws
Bank denies charges, points to changes in legal interpretation
Kristy Conlin The News Record
Published: Sunday, January 11, 2009

Cincinnati-based Fifth Third Bank is under fire for violating federal laws prohibiting the use of financial incentives to market and secure federal student loans, according to a report that comes as the result of an audit conducted by the U.S. Education Department’s Inspector General.

Representatives for Fifth Third deny any laws were violated and instead insist the transactions in question, which involve student loan originators MSA Solution, Pacific Loan Processing and Law School Financial, were for the transfer of loans, not the marketing or solicitation of loans. According to Fifth Third, the buying and selling of existing loans is a common practice.

The Education Department is recommending disciplinary action against Fifth Third. Such action could include fines, removal of federal guarantees for the loans or removal of Fifth Third from the federal loan program.

(Read the full article here or here.)

Tuition rises, loan limits idle

Kristy Conlin The News Record
Published: Thursday, May 8, 2008

The student loan market is getting harder to navigate, thanks in part to the decision by some lenders to get out of the student loan business in addition to the growth of the alternative loan market.

Alternative loans (sometimes referred to as private loans) have risen in popularity in the last seven years and often come into play when there is a gap between educational costs and traditional financial aid.

The cost of tuition nationwide has increased 30 percent in the last five years, according to the American Association of State Colleges and Universities. The limit for freshmen borrowing via federally funded loans, however, is about the same as in the 1980s, according to Connie Williams, director of student financial aid at the University of Cincinnati.

"The lending industry saw a market there," Williams said. "We do have students who have larger loans, especially in their senior year when they've used all their federal grants."

(Read the full article here or here.)

*My take: First of all, I'm surprised this story is about U.S. Bank and not Fifth Third. I think U.S. Bank's explanation, as reported in Cliff Peale's article, is disingenuous at best. Of course they'd prefer to move to the private loan business - what banker truly wouldn't want to? Doing so allows for big interest dollars in the highly lucrative private/alternative student loan business. In any event this is bad news for students, students in the Tri-State area and across the country.

*Note to big time media: This story isn't over. The surface has only been scratched. You all have some digging to do.