Student Loan Corp. Loves Loans, Hates Students

(MoneyWatch)  One of the scary things about the Great Credit Crunch of 2008 is that the contagion of lending fear could spread from mortgages to other activities dependent on debt - such as credit cards, home equity loans and even student loans.

And now, halfway through April, exactly that seems to be happening.

We'll allow the analysis to the students who have the most at stake in this news:

The drought in capital markets for student loans may affect the ability of financial institutions to offer federal and non-federal loans, but will likely hit private lenders like Sallie Mae - who rely on the capital market in order to secure loans - the hardest.

And now the Student Loan Corp., a publicly traded company that is 80 percent owned by Citigroup, is suspending lending to students whose educators it deems as unworthy. It's also planning to withdraw from the Federal Consolidation Loan markets.

Why? Because near-term profits are more important than financing the education of a new generation who could generate new profits.

SLC said that beginning May 1, it will withdraw from the Federal Consolidation Loan market and will stop lending at schools where loans with lower balances and shorter interest-earning periods are less profitable.

Is this is the worst possible time to be cutting back on student loans? Probably. But if those students were thinking hard about their futures, they might be putting some of their money in the stock of Citigroup. The majority owner of Student Loan Corp. rose almost 3% today. And SLC itself rose more than 10 percent!

If that keeps up, students won't have to take out loans. They will just have to buy stock in a company controlled by one that has made so many mistakes in the mortgage market that it is willing to deprive students of an education they deserve.