Shelley Saunders, Vice President of Strategic Services at American Student Assistance, recently participated in the Roundtable Financial Aid Podcast, "Paying for College in Uncertain Times," hosted by the Student Loan Network. Panelists answered audience questions on the state of student loans today and financial aid.

The following is an excerpt from the beginning of the discussion. You can listen to the entire podcast (52 minutes) at Financial Aid Podcast.com

Christopher Penn, Student Loan Network, Moderator: "In the summer of 2007, Congress passed a piece of legislation called the College Cost Reduction and Access Act. Among the many things this legislation did was to greatly reduce the profitability of federal, government student loans for the banks and companies that issued them on behalf of the government.

The net effect of the legislation, of part one of this story, is that a number of federal student loan companies, for-profit and non-profit, have stopped issuing federal student loans. These include some very familiar names, such as College Loan Corporation, National Education, Brazos Higher Education, NextStudent, Washington Mutual, and many more.

The second part of the story begins almost three years ago, when lending in the mortgage industry got out of control. Mortgage lenders were writing loans to people who could not afford them, and then securitizing the loans to investors.

As a quick primer, securitizing loans works like this. If I have $100 and I loan that to Justin, ordinarily I'd be out of the $100 until Justin paid me back. However, if Gail, Maria, Susan, and Shelley all bought IOUs from me for $25 each, I'd have the $100 plus change to lend again. Over time, as long as Justin repaid his loan, Gail, Maria, Susan, and Shelley would get paid back too, plus interest.

I could do this over and over again, lending, selling IOUs, lending, and so forth, and as long as everyone paid back their loans on time, I could do this indefinitely, lending out the same $100 over and over again.

The problem began in earnest last summer, when this game of lending and selling off loans broke down, due to borrowers not being able to make their mortgage payments. In our example, Justin stopped being able to pay, so suddenly, I had to cover Gail's, Maria's, Susan's, and Shelley's loans out of pocket. Obviously, if I did that a whole bunch of times, I'd have to cover that same $100 loan over and over again, and I'd go broke pretty fast.

The economy is in a place today where mortgage borrowers are not able to pay, and the banks that made the loans are having to use all their money to pay back the investors who bought IOUs. As a result, they don't have the cash to make new loans, and that impacts all loan types, from mortgages to student loans of every kind.

So we've got a double whammy - the federal student loans are not profitable for companies to offer, and private student loans, non-government student loans are becoming less available because banks don't have the money any more and are less willing to lend."

Listen to the entire podcast (52 minutes) at Financial Aid Podcast.com