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Credit Crunch Extends to Student Loans
Investors balk on bonds key to students, museums, cities
By Jim O'Neill
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Posted Feb 13, 08 8:27 AM CST
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(Newser)
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A huge new group of borrowers—from students to museums to local governments—are about to find their credit drying up, as the subprime meltdown that has already cost banks $100 billion continues to spread, reports the Wall Street Journal. In the last few days, investors have backed away from buying something called auction-rate bonds, which in turn caused the Michigan's student loan authority to stop making loans yesterday.
They’re not alone. Investors are shunning the securities—which change hands and interest rates continually in auctions—because of surging credit fears. The $325-billion auction-rate market is at a standstill. “I think this is a wave of panic,” said one analyst. Among yesterday's $10 billion in failed auctions—more than 100 of them—were Carnegie Hall and student loan authorities in Mississippi and Montana.