Student Loan Crunch May Have Lasting Impact
ROBERT SIEGEL, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
Today is the day many high school seniors must make a fateful decision: where they're going to college. May 1st is the traditional deadline for accepting or rejecting offers of admission and financial aid packages.
A year ago, students who needed to borrow money for college had little trouble finding it. This year the credit crunch has forced dozens of private lenders to pull out of the federal student loan program. Congress and the Bush administration have agreed on emergency legislation to make sure there's enough money to cover loans this year.
But as NPR's Claudio Sanchez reports, turmoil in the student loan business has already had a huge impact on students' future plans.
CLAUDIO SANCHEZ: This should be one of the happiest days in 17-year-old Marla Johnson's(ph) young life. A straight-A student, she's already secured about $16,000 in scholarships, and she's just been accepted to an elite pre-med program at Susquehanna University.
Ms. MARLA JOHNSON (Student): I'm stressed out. Currently I'm going to school full time and I'm working three jobs. So it's just still not enough, you know.
SANCHEZ: That's because her tuition and fees total $20,000 a year. Her parents are willing to help but Marlowe is still going to need a loan or two. Her classmates at SciTech High School in Harrisburg, Pennsylvania are scrambling for money as well. And what they keep hearing is that loans for college are going to be harder to get than ever.
Mr. EMANUEL GARCIA (Student): It's just crazy right now because the waiting is what's keeping me so anxious.
SANCHEZ: Emanuel Garcia, 18, is looking at $12,000 in tuition and fees. He's not sure if he's going to get the loans he needs, so he has decided on Plan B - attend the local community college. Others like Kiana Pain(ph), also 18, have decided to put off college for a year. Two schools accepted Kiana, but she needed $13,000 and couldn't imagine her mom qualifying for a loan.
Ms. KIANA PAIN (Student): My mom is a single parent, one income. It's just hard on her. And she tries to make it seem like it's okay, and I know it's not. And I know that I can't do anything to help her.
SANCHEZ: These are all high-achieving students who've been accepted by top schools. Some will be the first in their families to attend college. So they line up every day to check in with their guidance counselor, Deedra Pai(ph). She's spending lots of time in the phone these days trying to squeeze more financial aid out of schools. It's never been this bad, says Pai.
Ms. DEEDRA PAI (Guidance Counselor): Are students just going to give up and not go to school? Are they going to drop out or just, you know, go to the community college down the road, which is still a good option, but when we have students graduating first in the class and they're being accepted to these elite schools, then they cannot go, you know, I think we need to take a look at the picture and see what we can do to make some changes.
SANCHEZ: In the last 10 months, $8 billion worth of student loans has dried up. Dozens of private lenders, nonprofits, and even state agencies either scaled down or stopped making loans. And though other lenders have stepped in, the instability in the student loan markets, both real and perceived, has hit everybody like never before. Dr. Phil Day is president of the National Association of Student Financial Aid Administrators.
Dr. PHIL DAY (National Association of Student Financial Aid Administrators): I've been around and working in various positions in post-secondary education for over 30 years, and I don't recall ever being faced with a similar circumstance, a similar situation. This is different, and it is very troublesome.
SANCHEZ: Day says the supply of money for student loans was stable until the subprime mortgage crisis forced private lenders to shift billions of dollars to cover their losses. Other lenders pulled out because the government cut subsidies for student loans. This raised fears that the demand for federally guaranteed student loans would exceed the supply, and that has had a domino effect.
State agencies have been especially hard hit. At Penn State University, for example, financial aid officials were stunned when the state's biggest provider and guarantor of student loans, the nonprofit Pennsylvania Higher Education Assistance Agency, or PHEAA, announced it could no longer issue federally guaranteed loans.
Mr. BOB SCHNEIDER(ph) (Financial Aid Officer): It's really scary.
SANCHEZ: Bob Schneider is director of financial aid at Penn State.
Mr. SCHNEIDER: I mean, I think what really - I'm not sure that we've seen the end of this. We don't know almost from one day to the next what's going to be available. I was - in fact, I was working with a student just a few days ago, but I found out that the lender that they had gone through went bankrupt.
SANCHEZ: At Penn State alone, over 40,000 students loss access to $238 million worth of loans when PHEAA pulled out. The university has since severed its ties to PHEAA and will now become a direct lending institution, which means students can bypass private lenders and borrow money directly from the U.S. Department of Education through Penn State.
Mr. SCHNEIDER: Office of student aid. This is Bob. May I help you?
Unidentified Woman: I got my award letter...
SANCHEZ: Schneider and his staff are now fielding calls from lots of students who realized that even if they get the maximum amount of federal aid, they're still going to need a private loan that the government does not back up, loans that require good credit and will probably come with higher interest rates and fees.
With a peak borrowing season just beginning, Congress and the Bush administration have acted to make sure students will have access to a healthy supply of cash. The government estimates that over $7 million students will need to borrow about $70 billion for college this fall. The question is: Will it be enough?
Claudio Sanchez, NPR News.