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Credit crunch hits student-loan market

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Kai Ryssdal: Students and parents watching the headlines might be worrying about how they’ll pay for college, because a non-profit heavily involved in the student loan market has filed for bankruptcy as Marketplace’s Amy Scott reports.

Amy Scott: The Education Resources Institute — TERI for short — is like an insurance company for private student loans. If borrowers can’t pay, TERI covers the losses. It also insures pools of student loans that are sold to investors in the form of bonds.

Luke Swarthout follows the business for advocacy group US PIRG. He says two forces hit TERI hard: as the economy has slowed, more borrowers are defaulting on their loans and the subprime and credit turmoil has killed investors’ appetites for these loan packages.

Luke Swarthout: There’s also just a more general unwillingness to buy securitized assets just because of a general uncertainty about their value.

For borrowers, all this could make it harder and more expensive to get private student loans. Lenders like CIT Group have stopped making student loans altogether.

Sameer Gokhale is an analyst with investment bank Keefe Bruyette and Woods. He’s hoping the federal government will come to the rescue by lending money to private student lenders until the market bounces back.

Sameer Gokhale: If that doesn’t happen and there are other disruptions, I think students should in fact have some sort of contingency plans in place just in case they don’t get the funding they need to go to school for the fall semester.

But students and parents shouldn’t panic, other say. Only an estimated 8 percent of undergraduates rely on private lenders, federal loans are still available and last week, Senator Ted Kennedy introduced a bill. It would increase the amount students can borrow under the federal program.

In New York, I’m Amy Scott for Marketplace.

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