March 28, 2008

M&T Bank, Among Others, Stops Giving Student Loans

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College acceptance letters are finally rolling in and, after grueling examinations and endless applications, high school students can finally rest easy — but not quite so fast. Several large banks — including M&T Bank, which has a large presence at Cornell — have dropped out of the Federal Family Education Loan Program.
The bank’s move to leave FFELP — through which certain colleges have chosen to provide federal student loans — decreases the selection of lenders for students who require financial aid. While the consequences for students have become more serious than expected, prospective and current Cornell students need not worry, since Cornell participates in a direct loan program in lieu of FFELP.
“Cornell delivers Stafford Loans directly from the federal government through the Ford Direct Loan program, not through banks and FFELP,” said Thomas Keane, director of financial aid for scholarships and policy analysis at Cornell. “The federal government will continue to make funds available.”
[img_assist|nid=29191|title=No repayment here|desc=M&T Bank, along with a number of other banks stopped giving federal student loans recently.|link=node|align=left|width=|height=0]Students may receive financial aid in the form of grants, which are not repaid, or federal student loans, which are. Each university chooses whether to offer its student loans through FFELP or the Direct Loan Program, but generally, the benefits to students are comparable through either.
“Interest rates and deferment provisions are the same to the student, and there’s just one repayment provision that’s different,” Keane said.
Cornell chose to join the Direct Loan Program when it began in 1994 because the program allowed students to work with the school, which in turn works directly with the federal government, which provides the loans. At that time, FFELP was more inefficient, although it has improved since, according to Keane. Nevertheless, students must choose a guarantee agency, a home bank and a lender, which would supply the loan in this case.
Although M&T Bank carries a noticeable presence on campus, Cornell students will not be impacted by its decision to drop out of FFELP.
“[Students] who have private education loans from M&T will not be affected by this at all,” said Kent Wissinger, M&T spokesperson.
Those institutions that do not participate in the Direct Loan program, “about 20 percent of the postsecondary school market,” according to the National Association of Student Financial Aid Administrators (NASFAA), will be impacted in that their students will have fewer lenders to choose from. The actual implications of this, however, are not yet clear.
“I don’t think lenders dropping out will impact other schools as much as it will impact student choice of lenders at those schools … But several of the large lenders have made renewed commitments to FFELP, such as Citibank,” said Keane.
While many banks continue to take part in FFELP, over twenty lenders have suspended their participation since last fall, according to Mark Kantrowitz, publisher of, a student financial aid website. Just yesterday, Zions Bank, the largest Utah-based bank, dropped out as well, according to The Salt Lake Tribune.
“The student loan program became too risky for [M&T] and other large banks that have pulled out. I’ve been told a lot of other larger banks will also be getting out,” said Wissinger.
According to Wissinger, Congress slashed $20 billion in federal subsidies paid to lenders in the College Cost Reduction and Access Act last year, reducing profitability while increasing risk since the amount of money that lenders could recover was also decreased. Eventually, the risk outweighed potential profit gains for M&T, so it dropped out of FFELP.