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Art Hughes
St. Paul, Minn.

Another lender suspends offering federal student loans

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The credit crunch has claimed another Minnesota student loan lender.

St. Paul-based NorthStar Education Finance announced it is suspending federally backed college loans at least until the credit market improves.

NorthStar is one of almost three dozen student loan lenders that have exited the federally backed student loan business after having a hard time finding investors.

Spokeswoman Amy Krueger said the company intends to resume new business once confidence in the market returns.

"The sources that we normally use to fund our loans they're reaching capcity, because of the disruption in the credit markets, the capital markets," Krueger said. "And so we can't get to our funding sources and as a result of that we've had to stop accepting--temporarily--applications for new federal loans. We're still doing the private loans."

Last month Wayzata-based TCF Financial also announced a halt to federal college loans.

Nationwide, more than 30 lenders have stopped college loans in recent months. Education officials note almost 2,000 additional lenders remain in the market.