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Credit crunch goes to college
Private loans used for school may be harder to come by
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Published: April 25, 2008
Paying for college next year should not be a major worry for most area students and parents despite the tightening national credit squeeze, financial-aid officials said yesterday.
However, the forecast for private loans is dimmer for people with poor credit scores, too much credit-card debt and those attending colleges with low graduation rates, including some for-profit and career colleges.
About 15 percent of undergraduates rely on private loans, financial-aid groups said. The percentage is significantly higher for graduate students and professionals.
And there are no guarantees that the same amount of federal financing will be available to future students and parents, the groups said.
Most federal-loan resources should be available, even though at least 43 lenders have left programs in recent months in response to their own financial issues, the financial-aid groups said.
"Alarming reports about disruptions in the credit markets that are affecting student loans have many families worried that student loans won't be available this fall," according to a press release by the National Association of Student Financial Aid Administrators, based in Washington. "To date, the association is not aware of any student being denied a federal student loan due to market conditions."
But Phil Day, the president and chief executive of the group, cautioned that some students and parents will struggle to secure a student loan once the peak application period begins next month.
That's because demand for securities backed by student loans has plummeted recently, with investors growing nervous about securities backed by mortgages, student loans and other debt.
"You may see more lenders decide to suspend or pull out of private loans or the federal programs because student loans can be their least-profitable loans," Day said.
Campus Partners, a financial-services company based in Winston-Salem, said Wednesday that it had suspended all private-loan originations, effectively immediately. The private loans comprise a small percentage of its servicing portfolio.
"We searched high and low for financing for these loans and have come up empty-handed like others in the industry," said Michael Carey, the chief executive of Campus Partners. "We will continue to look for financing, and the more we find, the better position we will be in to turn the private loans back on."
Campus Partners services more than 600,000 student loans, including the federal Perkins program, which is geared toward low- and middle-income individuals, for more than 400 colleges and universities, including several in the Triad. The Perkins loans are provided from a revolving fund made up of federal contributions, matching money from the schools and repaid student loans.
Carey said that students and parents are not the only groups feeling the credit squeeze. Campus Partners is evaluating its work forces in Winston-Salem and Rockville, Md., because of the decision. It has 125 local employees.
"We're just another victim of the capital-markets crisis right now," Carey said. "There is an expectation that there will be some reduction in staffing in Maryland and North Carolina."
The shrinking availability of private loans is expected to affect students attending private colleges more because federal loan programs typically don't provide enough to pay for all tuition and fees.
For example, the Perkins loans are available for up to $4,000 annually for undergraduates and up to $6,000 for graduate students.
Wake Forest University lists on its financial-aid Web page the projected total cost for undergraduate students for 2008-09 at $49,820, including $36,975 for tuition and fees and $9,945 for room and board.
"We have been assured by our lending partners that both federal- and private-loan monies will be available to our students," said Bill Wells, the financial-aid director at Wake Forest. "And, our partners do include some of the largest lenders in the industry."
By comparison, Appalachian State University says on its financial-aid Web page that the projected total cost for undergraduate students for 2008-09 is $9,894, including $4,534 for tuition and fees and $3,400 for room and board.
Lori Townsend, an assistant director for financial aid at Appalachian, said that the lenders that Appalachian uses "remain involved in the federal family of loans."
The issue of limited student-loan resources has drawn the attention of the Bush administration.
On Wednesday, the Bush administration backed a bill that would give the U.S. Education Department the authority to buy loans from student lenders to ensure that they have access to capital and can keep issuing loans. The nation's biggest student lender, Sallie Mae, has pushed aggressively for federal aid.
The availability of student loans is pivotal, considering that only 32 percent of families have confidence that they will achieve their college-savings goals, according to the College Savings Confidence Index released recently by OFI Private Investments, a subsidiary of Oppenheimer Funds.
"There's always a reason for concern when lending choices are taken away," said Raymond Solomon, the director of financial aid at Winston-Salem State University.
"We know that many students will have to pay some fees, such as the federal default fee, that some lenders have absorbed in the past. Those fees can reach into the hundreds, if not thousands, which mean there will be less money actually available for their education.
"Most colleges that don't have huge endowments will be touched by this if this trend continues, as will the high-need student and the middle-class student," Solomon said.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
■ The Associated Press contributed to this story.
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