Issue Date: 5/19/08
Loan crisis hits campuses, especially small schools
By Tim Simmons
Lacey Mogy didn't know much about student loans when she enrolled this year at the School of Communication Arts in Raleigh _ except that she needed several if she was going to study digital film production.
Then her mother received a letter telling her that one of those loans won't be renewed next year. The lender is getting out of the student loan market.
Now Mogy is quickly learning about the link between the national credit crunch and the availability of student loans for fall.
The first lesson she learned is one that higher education leaders want to stress: The vast majority of students will be able to get the student loans they need before classes start in the fall.
But decisions by more than 50 lenders to scale back participation or drop out of the federally guaranteed student loan program has rattled Congress and triggered proposals to make sure student loan money keeps flowing.
The problem isn't the effect of losing 50 lenders: There are at least 2,000 that still participate in the government-backed loan program.
The problem is that no one can say for certain how lenders will respond to protracted problems in the credit markets.
"This is an issue today for students who rely heavily on private loans, which is a very small part of the market,"said Steve Brooks, director of the state Education Assistance Authority, which oversees most of the loans made in North Carolina. "But there is clearly a liquidity crisis that is making it more expensive for all lenders to do business. That could be a big problem if it persists."
Big universities would be the last to see disruptions in student loans, because their default rates are low and ties are strong between lenders and their financial aid offices, Brooks said.
But smaller, for-profit schools will be among the first to spot problems if the market tightens significantly.
"People are paying close attention, but it has not been an issue at this point," said Jack Henderson, president of the N.C. Association of Career Colleges and Schools. "We aren't seeing students who can't find the loans.
Then her mother received a letter telling her that one of those loans won't be renewed next year. The lender is getting out of the student loan market.
Now Mogy is quickly learning about the link between the national credit crunch and the availability of student loans for fall.
The first lesson she learned is one that higher education leaders want to stress: The vast majority of students will be able to get the student loans they need before classes start in the fall.
But decisions by more than 50 lenders to scale back participation or drop out of the federally guaranteed student loan program has rattled Congress and triggered proposals to make sure student loan money keeps flowing.
The problem isn't the effect of losing 50 lenders: There are at least 2,000 that still participate in the government-backed loan program.
The problem is that no one can say for certain how lenders will respond to protracted problems in the credit markets.
"This is an issue today for students who rely heavily on private loans, which is a very small part of the market,"said Steve Brooks, director of the state Education Assistance Authority, which oversees most of the loans made in North Carolina. "But there is clearly a liquidity crisis that is making it more expensive for all lenders to do business. That could be a big problem if it persists."
Big universities would be the last to see disruptions in student loans, because their default rates are low and ties are strong between lenders and their financial aid offices, Brooks said.
But smaller, for-profit schools will be among the first to spot problems if the market tightens significantly.
"People are paying close attention, but it has not been an issue at this point," said Jack Henderson, president of the N.C. Association of Career Colleges and Schools. "We aren't seeing students who can't find the loans.
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Harold Aranda
posted 8/18/08 @ 2:03 PM PST
"But decisions by more than 50 lenders to scale back participation or drop out of the federally guaranteed student loan program has rattled Congress and triggered proposals to make sure student loan money keeps flowing. (Continued…)
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