Trouble ahead for student loans?

Economic Commentary (Cleveland), May, 2008 by Ergungor, O.Emre

The market for student loans may differ in some respects from other financial markets, but private lenders are the primary source of funds. As in other markets, the incentive to lend those funds comes from the ability to make a profit. But recent turmoil in financial markets is affecting all of the factors that contribute to the profitability of student loans, leading to speculation that the availability of such loans will fall.

Spring is a stressful time for college-bound high school seniors and their parents. Those who receive the thick envelope from colleges do not always have a thick wallet to pay their way through college. Thus they join the late-spring ritual of applying for student loans. The reliance on student loans to pay tuition and other expenses is...