BancorpSouth announced earlier this month that it would no longer make new education loans to students or parents. Financial aid offices are sending notices to students of the change.
For the Tupelo-based bank, it was a difficult decision, said Executive Vice President Cathy Robertson, who oversaw the student loan department in the late 1970s and through the '80s.
"It's unfortunate that it had to happen since we've been in the business since the 1960s," she said.
BancorpSouth, the largest state-chartered bank in Mississippi, generated about $80 million in loans a year, the bulk of it in Mississippi. Robertson said BancorpSouth ended student loans in its other markets last year. The bank has locations in eight states.
But the FFEL (Federal Family Education Loan) Program's benefits have been shrinking for financial institutions, which provide funds that are guaranteed by the federal government.
Lenders are now paid a "commission" of about 2.21 percent for student loans, but the lenders also must pay a "lender default fee" of 1 percent.
By the time administrative costs and other expenses are deducted, many financial institutions are discovering the student loan business is more trouble than it's worth.
The tightened credit markets also have been no help, drying up a lot of education financing.
In addition, President Barack Obama has proposed to end the guaranteed student loan program in his 2010 budget and instead have students take out loans directly from the government through the Direct Loan Program.
For these reasons, Robertson said BancorpSouth had to determine "what was best for our shareholders and our best use of capital" and ended its participation in the student loan program.
Renasant Bank, also based in Tupelo, said it will continue to provide student loan options "as long as the FFEL program remains viable and student lending remains a profitable source for the bank," said Vice President John Oxford.
He said Obama's proposal "would most likely put banks out of the student loan business. However, there are budget amendments/legislation in both the House and Senate to keep FFEL in its current state."