Newspaper article THE JOURNAL RECORD

Banks Deal with Leaving Student Loan Business

Newspaper article THE JOURNAL RECORD

Banks Deal with Leaving Student Loan Business

Article excerpt

BancFirst will soon be divesting itself of student loans, which means a lot of cash on hand that needs to be loaned, Executive Vice President Jay Hannah said.

"The sun has set on the era for us to provide guaranteed student loan financing instruments," Hannah said. "It's the winding down of a product line that had profitability connected to it for us. ... We have enjoyed a great deal of liquidity at BancFirst, and now with that asset pool we'll have some additional liquidity."

"We'll be looking to make loans in other sectors. We do know that we're always interested in small business and midlevel corporation loans. We're interested in consumer loans and home mortgages, a variety of standard lending products," he said. "We'll be building on those lines."

Arvest Bank starting dealing with that challenge earlier this year, Executive Vice President Becky Franklin said. The company has sold $94 million in student loans over the last 12 months.

"There's really no substitution for guaranteed student lending," she said. "We have to replace that with commercial loans, consumer loans and credit cards. We're trying. We'd love to expand on that kind of lending, and if the economy cooperates with us maybe that will happen."

Under legislation pushed through by the Obama administration, the federal student loan program this year is being consolidated and private lenders cut out of the process of guaranteed loan initiation. Officials said the government will save money by making loans directly through the Department of Education and eliminating the need for federal backing.

New loans haven't been made through the Federal Family Education Loans since June 30. And financial institutions that have been involved in such loans for years now face a choice of the potentially expensive decision to maintain service of existing loans as they are paid off and dwindle in volume or cutting those portfolios entirely and moving on to a new product line.

Virginia-based Sallie Mae, or SLM Corp., the nation's largest student lender, has been restructuring and severely cutting jobs in response to the new law. And Citigroup Inc. announced earlier this year that its 80-percent stake in Student Loan Corp. would be sold to Discover Financial Services.

Hannah would not discuss numbers related to his bank's student loans other than to say, "We have been involved with over 15,000 students a year on 40-plus campuses across the state." The portfolio is significant even though government-backed student loans carry a low interest rate.

In March, Oklahoma-based Arvest Bank announced ahead of the June cutoff that the company would leave the student loan business. …

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