St. Paul-based NorthStar Education Finance Inc. and CIT Group Inc. will stop making new loans to U.S. students after lending costs soared, reflecting the global slump in credit markets.
New York-based CIT, which quit originating private loans last year, said Thursday that it would no longer make government-guaranteed student loans. Nonprofit NorthStar will "temporarily suspend" processing applications for federally backed Stafford, Plus and Grad Plus loans, according to its website.
At least 40 lenders ceased writing at least some form of student loans as investors shunned bonds backed by the educational debt, according to UBS AG analysts.
Eligible borrowers will continue to get educational loans elsewhere, said Mark Kantrowitz, publisher of FinAid.org, a website that provides financial-aid information.
"It's just that they're going to have to hunt around more for a lender that's going to make the loan," Kantrowitz said in a telephone interview.
Sales of securities using student loans as collateral fell 65 percent in the first quarter, UBS wrote Tuesday in a report. That prompted some lenders to stop making loans.
"This list of 'departees' is likely to grow over the next few months," wrote the UBS analysts, led by Laurie Goodman in New York.
Kantrowitz predicted that the number of lenders will plummet to 15 or 20, from a peak of 2,000, "if there is no thawing of the capital markets or government intervention" by the end of June 2009.
