Q: I'm a high school senior and will need loans to go to college. What does the recent economic news mean for the student loan market?
A: Actually, this particular bail out means nothing to the educational loan niche of the lending market - there will be pressure now, from some quarters, for the fed to take more aggressive action in the student lending domain. What's more important is the legislation that Congress rushed into law in May of this year - now that was an educational lending bail out, that mostly went unnoticed at the time. Under the May legislation, which has already taken effect, the Education Department is now eligible to buy a large percentage of student loans from the lenders. As the system has traditionally worked, the lenders make the loans, but then turn them around, package them up into securities, and sell them to investors - which, in turn, generates new money for the banks to make more students loans with. As you probably know if you've been keeping track of the news, those kinds of asset based securities have fallen out of favor with investors, who have seen way too many packages of similar mortgage-based loans go bad, so the educational lenders were getting stuck with loans they never had any intention of carrying on their books. That's why so many lenders abandoned the student loan market - there was no one to sell their loans to. With the Department of Education now able to buy large quantities of these loans, the mass exodus from the educational lending market has slowed. Of course, CampusDoor was a Lehman Brothers company, so there goes another lender... By the way, the same May law also authorizes the Department of Education to make more direct loans - but they remain a lender of "last resort". Either way - the May legislation was a necessary move to resuscitate the student loan business, and so far, at least, things seem to be holding together. Today's news should not have much of a direct effect on the educational lending market. Trust me on this - the government needs to find a way to keep the money flowing so that our young people can afford to obtain an education - whatever the eventual terms of the solution, there will be money available for you when it's time to attend college. I hope that helped - good luck to you!