NorthStar Suspends Federal Student Lending Programs

The credit crunch is continuing to hit college funding programs hard as NorthStar Education Finance, Inc., a nonprofit lender based in St. Paul, Minnesota, announced that it is suspending its federal lending programs, though it will continue to make higher rate private loans.

As the 13th largest Federal Family Education Loan Program (FFELP) lender in the U.S., NorthStar has originated and continues to hold more than $5 billion in student loans for borrowers across the country.

“Our sources used for funding are reaching capacity and until the markets correct, we are unable to free up our funding sources and therefore we are temporarily suspending accepting new federal applications,” the company said in a prepared statement. “We are not exiting the program.  Even though our short-term ability to make loans is severely curtailed, T.H.E. (The Total Higher Education) loan program’s low-cost operating model, exceptional customer service, practical borrower education and solid reputation leave us well positioned to recover quickly once confidence in the financial markets returns.”

The loan program is continuing to accept new applications, process and fund private loans including the medical residency and relocation and bar prep loans. 

NorthStar did not return insideARM's calls.

In a recent survey by the National Association of Independent Colleges and Universities, more than 43 percent of the schools said that lenders are telling them that they plan to stop making private student loans ("More Lenders Plan to Drop Private Student Loan Programs: Survey," March 27). Of the lenders continuing to make these loans, more than 45 percent plan to enact stricter lending requirements.

About one-third of the lenders plan to reduce or eliminate borrower benefits, while 20 percent will increase interest rates. Private lenders accounted for more than 80 percent of all federal student loans in fiscal 2007, typically guaranteed under the FFELP.

In February, Michigan announced it was suspending its MI-LOAN student loan program, because of disruptions in the credit markets ("Credit Crunch Hits State Education Loans; Michigan Suspends Program," Feb. 20). In 2007, there were about 8,500 loans through MI-LOAN program that were valued at about $68 million.