Greater risks caused by the credit crisis, along with a law change that will lower profits, convince TCF to jettison program.
After 20 years in the market, TCF Financial is leaving the college loan business, in the wake of financial market turmoil and a change in federal law that pecked away at profits.
A change in federal law last year reduced government subsidies to student lenders by $20 billion over the next few years. But TCF said a bigger challenge came when the bank no longer was able to resell student loans in financial markets.
Debt markets where primary lenders sell off bundles of loans to secondary lenders all but froze a few weeks ago with the spread of fears in financial markets. At the end of 2007, TCF was holding $156 million in education loans that it wanted to sell.
The combination of lower subsidies and greater debt kept on its own books led TCF to exit the business.
"That kind of reduces our yield and increases our risk," said Jason Korstange, a TCF spokesman.
Korstange said the bank revealed its decision this week to give students plenty of time to seek other lenders in advance of the next school year.
Two other banks also left the education loan market this week: HSBC Bank USA, a unit of London-based HSBC Holdings PLC, and M&T Bank Corp. of Buffalo, N.Y.
Together with TCF, they rank among the 50 largest providers of federal student loans, lending a combined total of more than $560 million of the $119.2 billion made in loans in the 2006 federal fiscal year, the last tally available.
Dow Jones News Service contributed to this report.