College Students Should explore loan options early, Courtney says
COLLLEGE
New London Day
Erin Kutz
Boston University Washington News Service
April 4, 2008
WASHINGTON – The sub-prime mortgage epidemic has required Americans to stay on guard in all areas of financing—even student loans, says U.S. Rep. Joe Courtney (D-Conn.).
“The liquidity challenge to the financial markets really is still an issue for all kinds of lending,” he said in a telephone interview this week. “People are kind of sleeping with one eye open.”
Students should start exploring their loan options as quickly as possible, Courtney said he told students Monday at the University of Connecticut.
“We sing from that missal book every year, but it seems to potentially be more of an issue this year,” said UConn financial aid director Jean Main, who helped organize the event. “We wanted to be proactive and felt it was important to be out ahead of this.”
Some lenders involved in the Federal Family Education Loan Program, a network of private lenders who work with the government to give loans to college students and their parents, have pulled out, said Mark Valenti, president of the Connecticut Student Loan Foundation, an organization that guarantees loans made by the Federal Family Education Loan Program and issues loans itself.
Valenti said other companies are helping to fill the gap left by lenders who have left the industry. Private lenders not backed through the program also can offer student loans, but come with tighter credit standards and higher interest rates, Valenti said. This option may be virtually closed to students with poor credit, though.
Valenti said his organization was investigating other options for financing student loans.
Main had no figures yet on how the drop in lenders would affect UConn students, because the school typically processes loans in July and August. About 90 percent of its loans are through federal programs or the Direct Loan system, in which the U.S. Department of Education does the lending directly. The rest of the loans are made directly by private lenders.
“We don’t want to scare people,” said Judith Greiman, president of the Connecticut Conference of Independent Colleges. “I don’t want people to say, ‘Oh my god, there’s no money to go to college.’”
There are still 2,000 lenders participating in the Federal Family Education Loan Program, but Greiman suggested students start exploring their lending options early so they can be prepared once their financial aid decisions arrive.
Lawmakers have begun exploring options for expanding the Direct Loan program in the event that the lenders who have pulled out of the student loan market are an indication of a broader trend.
In 1998, the U.S. Department of Education established a program to provide capital to lenders in need. In February Rep. George Miller (D-Calif) and Sen. Edward Kennedy (D-Mass.), chairmen of their respective chamber’s education committees, sent a letter to the Department of Education requesting the administration take similar action “so that recent activity in the credit markets does not adversely affect students’ ability to secure federal student loans in a timely manner.”
“At this point, we’re not happy that the administration is coming up with solutions,” Courtney said. “It’s not like we’re asking them to do something unprecedented.”
Kennedy introduced on Thursday legislation that would allow the Department of Education to provide capital for Federal Family Education Loan Program lenders that are struggling, expand federal loan amounts for students and guarantee lenders on a college-wide basis. Miller and Rep. Ruben Hinojosa (D-Texas) introduced a similar bill in the House Thursday, legislation Courtney said he supports.
With the country unsure of how far into an economic downturn it truly is, it is hard to say whether student lenders will be forced out of the market, Courtney said.
“From our perspective, we’re in pretty good shape for the fall,” Valenti said. “I do have concerns that if it goes well beyond the fall we’ll struggle.”
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