Zions halts student loans

Deseret News (Salt Lake City), Mar 28, 2008 by Laura Hancock Deseret Morning News

Zions Bank, one of the nation's biggest lenders of federally backed student loans, plans to stop making some of those loans.

The bank told financial-aid offices of the state's colleges and universities this week that no more loans would be made after March 31.

Zions' departure from the Stafford and PLUS loan programs -- administered through the Utah State Board of Regents' financial arm, the Utah Higher Education Assistance Authority -- comes as other lenders nationwide also have stopped or suspended participation in the loan programs. The lenders who are no longer making loans represent almost 10 percent of Stafford and PLUS loans, according to FinAid.org, a financial-aid publication. PLUS is the abbreviated name of Parent Loans for Undergraduate Students.

For Zions Bank, changes with the federal College Cost Reduction and Access Act, which became law Oct. 1, made the loans unappealing.

The law mandated "various cuts in lender subsidies, increases in loan origination fees by lenders paid to the U.S. Department of Education, and things that make it really financially untenable to stay in that business," said Rob Brough, Zions Bank's executive vice president of communication. "Our hope is, as we continue to work with our delegation back in Washington, to get changes made so it again can become viable for us to be in that business."

Brough said he did not know the volume of Stafford and PLUS loans that Zions has made each year.

"Anyone that has a loan with us, there will be no change at this time," he said. "We're just not taking new applications."

Meanwhile, Zions Bank is developing a private loan program for college students this spring, to be ready for students in the fall.

"We are in the process of developing alternative student-loan products," Brough said. "We realize there's an ever-increasing need."

Utah undergraduate and graduate students and their families will still have 20 other banks and credit unions from which to apply for Stafford and PLUS loans.

David Feitz, executive director of the Utah Higher Education Assistance Authority, said that Zions would typically lend about $70 million a year in federal student loans. Feitz's agency processes about $350 million in Stafford and PLUS loans each year for Utahns attending state colleges and universities, or students from Utah attending out-of-state schools.

Mark Kantrowitz, publisher of FinAid.org, said that Zions Bank's student-loan volume typically exceeded its loan origination amount, suggesting the company was selling some loans to other financial institutions.

For instance, in the 2005 fiscal year, Zions made $149 million in Stafford and PLUS loans but recorded on their books only $85 million, according to U.S. Department of Education data obtained by Kantrowitz.

Many lenders make student loans for customer-service purposes, but such loans have never been profitable, and it's typical for companies to resell them, Kantrowitz said.

Zions ranked No. 61 among financial institutions in the United States in total student loan origination volume and No. 97 in the amount of student loans on its books, Kantrowitz said.

E-mail: lhancock@desnews.com