Citigroup will stop lending money to students at certain schools because a new law and turmoil in the bond market have choked the profitability of student lending, the bank said Wednesday.
The New York-based bank's Student Loan Corp. subsidiary on May 1 will stop issuing loans to students at schools where profits have not been satisfactory. Citi did not say how many schools fit this description.
The bank will also stop issuing federal consolidation loans, or refinancing outstanding student debt into a single loan.
Sallie Mae, the nation's biggest student lender, stopped issuing consolidation loans this month, and other lenders like CIT Group Inc. have shuttered their student-lending businesses altogether.
Last year's College Cost Reduction Act, which cut subsidies to student lenders and forced them to shoulder a greater share of losses from defaults, has eaten into student lending profits, Citi said.
That legislation was the reason a team of investors including Bank of America Corp. and JPMorgan Chase & Co. bailed out of a $25 billion deal to buy Sallie Mae. Also, with investors balking at buying student debt, raising cash for the loans has become more difficult, Citi said.
Many student lenders package their loans into bonds and sell them to investors. With investors avoiding credit risk, the student loan bond market has shriveled.
News Source:
http://www.chron.com/
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