Rising college costs could generate $20 billion a year in loans

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Student loan debt could be rising. File photo for D.C. Occupy protest 2011 by AP

SNL Financial is predicting the cost for higher education will leave students about $15 billion to $20 billion a-year short in funds opening the door for a small number of big lenders to profit on student loan originations.

In a post election analysis if the student loan market, SNL found that Sallie Mae, Discover and Wells Fargo are the dominant private lenders in the market since the U.S. Department of Education started making direct loans, instead of allowing private lenders to offer government-backed ones in 2010.

For the current school year, $108 billion in federal direct loans were originated and $7 billion private loans, SNL said, citing Standard & Poor’s data.

While there continues to be a demand for education, which allows schools to increase prices, debt burdens and defaults by newly-minted grads is taking its toll and presents challenges for the lending market, schools and students. Much of the problem remains the job market, where the youth of America are getting pummeled as they seek entry level career-building jobs while facing competition from experienced workers who were washed out of other positions by the bad economy and are now starting over themselves.

The concern going forward is whether continued defaults and lagging jobs will squeeze credit availability and ultimately erode the employment situation in universities which will have to make choices about what courses of study are most profitable and in demand as well as what price to charge.

Despite the headwinds, SNL predicts the gap between what students have to fund their education and what it costs, will be about $15 billion to $20 billion a year, leaving a sizable market for the key players.

And there continues to be a secondary market for these loans, including the legacy ones that were backed by the government, SNL said.

Sallie Mae’s portfolio alone for the third quarter totaled $171.9 billion, of which 23.4 percent was private education loans and 76.4 percent legacy government-backed loans.

Rob Varnon

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