Friday, October 10, 2008

Albion's Money Woes
Endangered financial aid
Student loan options become scarce
By HOLLY SETTER
Editor-in-Chief

In recent months, the national news has been flooded with negative information about the economy. Banks seem to be falling one after another like dominoes, while Congress worked to negotiate a $700 billion bailout to keep the remaining companies afloat. Amid all of the talk of golden parachutes and sub-prime mortgages, students may be wondering how much this actually affects them.

A lot, according to John Nickless, assistant director of financial aid and loan coordinator. 

“What’s going on in Washington directly affects (students),” Nickless said, citing changes in the number of lenders available, changes in lending criteria and the availability of consolidation loans for those about to graduate.

Beginning with the suspension of the MI-Loan program on Feb. 15, 2008, several of Albion’s recommended alternative, or private, loans have disappeared. Since the start of the school year, private loan companies Campus Door, Education Finance Partners and My Rich Uncle all stopped accepting applications, according to Nickless.

Nickless said that he  knew of at least one student who applied with Education Finance Partners and was approved for loans, but later receive letters saying informing them that no loans would be made this year.

“They had to go out to other lenders and get loans there,” Nickless said.

Nickless does not believe that any students were unable to return to Albion due to Education Finance Partners backing out on their loans. Many are still facing problems, however.

“The original loan amount I was approved for was lowered to the point where it was short,” said Alan Gessinger, Scottsdale, Ariz., senior. “(Albion) hasn’t asked for more money yet, but I will probably have to find a way to pay for it.”

Should students be unable to secure private loans, however, they shouldn’t look to Albion to provide additional assistance.

“We’re pretty tight in terms of how much Albion grant we can give,” Nickless said.  “Just because a family can’t get a private loan, that does not increase their financial need.  It won’t make them eligible for more need-based aid.”

Financial aid packages from Albion are structured around the student’s ability to pay, and each student is assigned a certain level of demonstrated financial need for the point where that ability stops.

Nearly 25 percent of Albion students rely on private loans, according to Nickless, a number that is comparable to that of other Michigan liberal arts institutions. Roughly 30 percent of students at Alma take out private loans, 50 percent of Hope students and 17 percent of students at Kalamazoo, according to financial aid officials at each institution.

Chris Brown, the director of financial aid at Alma College, said that they have experienced trouble with lenders similar to that at Albion.

“We have had problems with companies leaving the lending business,” Brown said. “Not so much with students ‘in the pipeline’—students who had their paperwork in order and on time, but we have dealt with five lenders leaving the market.”

Students at larger state schools rely less heavily on private loans. At Michigan State, only about 6 percent of students take out private loans; at University of Michigan, it is 8 percent of students.

The types of loans available to students have also changed with the market crisis, according to Nickless.

“Campus Door was one that was willing to make loans to students without a cosigner,” Nickless said. “You didn’t have to qualify for it. You could just sign up and the money would be there. Those days are definitely over.”

Loan troubles are not limited to the private loan market, either. Federal loans, such as the Stafford, Perkins and PLUS loans have also been affected. Nickless cites the removal of Federal loan subsidies as the reason for a number of banks, including Comerica and TCF, leaving the loan market.

“On top of the credit crunch, Congress passed a law last year that cut lender subsidies, which is a contributing factor to why Comerica and other lenders have gotten out of the federal loan market,” Nickless said. “They basically have made student loans unprofitable and so, private loans aside, even having the Federal loans available is looking cloudy for us.”

Beyond the lenders themselves, the companies that provide guarantees to banks to make private student loans, known as guarantors, are also feeling the pinch.

“The Education Resource Institute (TERI) was a company out of Boston who was the original non-federal student loan guarantor,” Nickless said. “They have the longest track history of student loan repayments, and their default rate was very low. This year, they filed for bankruptcy and have stopped making that type of loan.” 

Loan security is, in part, determined by having assets backing the loan, according to Nickless, such as the house and property for a mortgage or a vehicle for a car loan.

The overall debt load of graduating seniors is a concern for Nickless as well.

“What worries us in the financial aid world is how much debt students are graduating with, compared to their parents,” Nickless said. “Fifteen years ago, I got off pretty easy. My student loan payments were a pain, but what I graduated with versus what the average student graduates with now doesn’t even compare.”

Federal loan consolidation programs, usually made available to graduating seniors as a way to make their debt more manageable, are becoming few and far between, according to Nickless.

“In the federal world, almost all lenders have stopped doing loan consolidation,” Nickless said. “The federal direct loan program—which is essentially the Department of Education acting as a bank—(is) still doing loan consolidations, but that’s it.”

There are no consolidation programs available for private loans.