Will Your Student Loan Be Secure?
How Northeastern’s decision to end third-party lending applies to BU

This week, officials at Northeastern University announced that their institution will stop providing Stafford and PLUS loans from third-party lenders, and will instead steer students to direct loans from the federal government. The change, prompted by concerns about the student loan industry following the subprime mortgage lending crisis, is intended to protect students from uncertainties and fluctuations in the private credit market. Several student loan providers, including the agencies for New Hampshire and Pennsylvania, have left the private loan industry in the past few months.
BU Today spoke with Christine McGuire, the executive director of financial assistance at Boston University, about how the market will affect BU families and what borrowers from third-party lenders can do to feel secure about their financing.
BU Today: Can you explain why lenders are bowing out of the private loan industry?
McGuire: Lenders that are getting out of the student loan business are doing so primarily because the federal government cut subsidies on federal Stafford loans to private lenders. These cuts make government loans less profitable for private lenders participating in what is known as the Family Federal Educational Loan Program (FFELP). Boston University does not participate in FFELP, and students borrow federal Stafford loans directly from the government — therefore, BU students are not affected by lenders leaving FFELP.
If BU students are not involved in FFELP, where are their loans coming from?
Seventy percent of all loans certified by Boston University for educational expenses are funded directly through the U.S. government and therefore are not affected by the lender-credit crisis. We’ve been doing for the last 12 years what Northeastern just decided to do.
That isn’t everything out there, however; the other 30 percent of loans certified are private credit-based loan products, trying to get funding in the credit market. Some have it, some don’t. The most sensitive of these is the Massachusetts Educational Financing Authority (MEFA), an agency many BU families choose for third-party loan financing.
WBUR reported yesterday that MEFA is having trouble securing financing for all of its loans. Won’t that affect BU students?
It sounds scary, but we have confidence in the future of MEFA — it is financially very stable with a large portfolio of loans in good standing, and we’re cautiously optimistic that MEFA will secure the funding to allow BU families to continue to borrow through their programs. It’s a state authority with a great history and a solid financial foundation. Are we concerned and cautious and making sure that we’re on top of what MEFA’s up to? Absolutely, but I’m still confident.
What about the lenders reducing their involvement in the industry — how will that affect BU students?
Borrowers from BU are, and will continue to be, viewed favorably with respect to a lender’s willingness to offer competitive private loans. Our students graduate, and have very low default rates. The last cohort of Federal Direct Stafford Loan borrowers to enter repayment, from the year 2005, has a 0.6 percent default rate on a base of 4,761. The size of BU also presents a favorable market for lenders.
If you look at this from a long view, this is a great market for lenders to be in; nationally, these are great loans, people have low default rates, and education is always a great investment. I think financing will still be available.
If students have a loan from a third-party lender, what can they do to make sure their funding is secure?
It’s a little soon for people to be applying, but I think we can encourage families to check in, if they’re a returning borrower, with the company they’ve borrowed from in the past. They can find out if the terms are changing for new loans, and if they’re able to apply early, they can try.
If students want more general information about loans and financial aid, they should go to our Web site to look at payment plan options, online calculators, and other tools designed to assist families in navigating the financing of a BU education.
Jessica Ullian can be reached at jullian@bu.edu.
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