Loan Crisis Hits College

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The credit crunch has dried up the market for private loans. Students at selective schools are finding they can still get enough money to attend schools, but low-income students at lesser-known schools are having a harder time.

MELISSA BLOCK, host:

It's almost time for America's colleges and universities to open their doors for the new academic year, but they're still struggling with the national credit crisis. Financial-aid officers are scrambling to help students find lenders now that many banks have dropped out of the student-loan business.

But as NPR's Larry Abramson reports, the biggest problem for many schools is persuading students that money is available.

LARRY ABRAMSON: Lately, Sophia Henderson has been hearing the words a financial-aid officer dreads.

Ms. SOPHIA HENDERSON (Student Financial Resources Ombudsperson): In some of my counseling sessions, you have parents who are saying to the students, you need to take a year off because we can't afford to have you come to school this year.

ABRAMSON: Henderson is student financial resources ombudsperson at Pine Manor College, a small liberal arts school outside Boston. Two-thirds of the students there qualify for federal aid for low-income families.

In Massachusetts, newspapers have been full of stories about tight credit, particularly since the Massachusetts Education Financing Authority announced last month it could not loan any more money. Henderson has been working extra hard to persuade students: Don't give up; just look under every bushel for scholarship money.

Ms. HENDERSON: You know, there are billions of dollars in scholarship; we have scholarships for Latino students; we have scholarships for undocumented students, and so on and so forth.

ABRAMSON: Well-known schools like UC Berkeley or Amherst say their students are finding lenders that are still in the student-loan business. But lenders have dropped less prestigious schools because too many students there don't graduate or because the default rate on loans is too high. And even at schools that have found banks to make loans, the requirements for each student are much tighter. More students have to find a co-signer and Mark Kantrowitz, publisher of finaid.org, says they need higher credit scores.

Mr. MARK KANTROWITZ (Publisher, Finaid.org): So whereas last year you could obtain a private student loan with a FICO score as low as 620, this year you're going to have to have at least a 650 and in some cases a 680 or 700.

ABRAMSON: But the biggest problem may be a shortage of information. Federally backed money is still easily available. Congress gave the Department of Education temporary authority to keep that money flowing. The real problem has been with private loans. That's the money the families use to make up the difference when federally backed loans don't cover the costs. Rene Drouin of the New Hampshire Higher Education Loan Corporation says like his Massachusetts counterpart, he had to stop issuing about $70 million in private or alternative loans, which used to help 6,000 New Hampshire students attend college.

Mr. RENE DROUIN (New Hampshire Higher Education Loan Corporation): On the alternative loan side, you are not going to be able to finance those loans because those are, again, without any federal guarantees, So they're a high-risk loan, according to credit standards.

ABRAMSON: Private loans had been growing in importance as tuition rises faster than inflation, and Mark Kantrowitz of finaid.org says many lenders have dropped community college students entirely because they feel they aren't worth the trouble.

Mr. KANTROWITZ: Because the average aggregate balance at graduation is much higher at a four-year institution, so those loans are more profitable to the lenders.

ABRAMSON: Financial-aid officers are concerned that confused students looking for money will be the victim of student-loan scams. Stephanie Elias(ph) is with Curry College in Massachusetts.

Ms. STEPHANIE ELIAS (Curry College): There have always been organizations that take advantage of families when it comes to educational financing.

ABRAMSON: Pay me a fee even though your credit rating is lousy…

Ms. ELIAS: And I'll find you some funds. Exactly.

ABRAMSON: Right. Financial-aid officers say with some extra work, the number of students directly affected by the loan crisis should actually be very small. But they say the students who are likely to be left out are those most in need, those who are the first in their families to attend college.

Larry Abramson, NPR News, Washington.

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