Will Efforts to Ensure School Loans Help Students?
LIANE HANSEN, host:
This is WEEKEND EDITION from NPR News. I'm Liane Hansen.
The ongoing war in Iraq, a flagging economy and concerns about healthcare reform are some of the issues that have dominated the political rhetoric so far this election year. One issue that hasn't received the same kind of attention from candidates is education.
Well, all this month we're going to focus on education. Standardized testing is one of the hot-button issues. And we'll examine that in a moment, but first, to the turmoil in the nation's student loan markets. Congress and the Bush administration have stepped in to ensure that college-bound students this fall will be able to borrow money for college. Dozens of private and nonprofit institutions have stopped making student loans in recent months because of the credit crisis and economic downturn.
NATASHA (Financial Aid Counselor, American University): Good afternoon, office of financial aid. This is Natasha. How many I help you? Okay.
HANSEN: At the financial aid office at American University in Washington, D.C., counselors are reassessing the way they help students get the money they need for school. Brian Lee Sang is director of financial aid. He says for the moment it's the private lenders who have been most affected.
Mr. BRIAN LEE SANG (Director of Financial Aid, American University): For fall, spring semester, you don't have students applying yet in vast numbers. But you're hearing it from the lenders, you see it from the lenders, that they are now changing their fee structures or you hear many of them dropping out of the business. They - we're no longer going to provide alternative loans, or we're no longer going to provide loans, period. And when you have fewer options, fewer lenders out there, when there's less competition, invariably the prices are often higher.
HANSEN: Brian Lee Sang says as a result, he expects it will be tough for students to receive private loans come this fall.
Mr. SANG: It's going to really, really dry up, and we don't normally see that until a little bit later in the summer as students are looking for alternative sources of aid to try to meet their bills. And I think students don't see it yet because they have not yet applied for those loans 'cause with continuing class, or even first-year entering students are not yet starting to look at alternative loans. And they'll see it, when they go to apply, that the credit criteria may have increased because the lenders are less willing to take as big a risk as they have in the past. It's going to be tough for students.
HANSEN: Here to talk more about the student loan crisis is NPR's education correspondent Claudio Sanchez. Claudio, I think first we need to know how the student loan program works.
CLAUDIO SANCHEZ: This year, Liane, there's about $85 billion worth of student loans and financial aid out there for students who want to go college, most of it subsidized by the federal government. Private lenders hold that money essentially, in most cases, because it is through private lenders that the federal government issues that money. And banks make a pretty good tidy sum or a profit on these.
Oftentimes though, there's a fixed rate. So students have access to lots of loans, or have had until now, and that program has been around for at least 40 years.
HANSEN: So the potential shortage of student loans, does that come from the fact that some of these private lenders are backing out?
SANCHEZ: Well, in the last ten months a lot of private lenders have backed out - up to 60 and counting. What that has done, of course, is limit the number of options that students have to borrow. We're talking about a loss of about $8.2 billion in the last ten months that have dried up essentially.
Now, that money has been replaced by other lenders who have come into the picture but that really, really made a lot of people nervous about whether that money was going to be available to students who were going to go to college this fall, because we're now at that peak season where people or parents, certainly families of students, are scrambling to get that money.
HANSEN: Yeah, it's that time of year you have to let colleges know whether or not you're actually going to attend. So, what's in the emergency legislation that Congress and the Bush administration agreed to this week? And what's in there to shore up the student loan program?
SANCHEZ: Well, what Congress passed this week was something called the Ensuring Continued Access to Student Loans Act of 2008 - long title - but very much necessary. Because what it does is it allows the federal student loan program to expand the amount of money that can be put, the cash flow that goes into this program. We're looking at, on average, let's say an increase of about $2,000 per student that is now going to be available; that's extra than what was there before.
But more importantly, it stabilizes the situation. It allows, it sends the message out there that the federal government really becomes - the U.S. Treasury, for that matter, becomes the lender of last resort. For states that have been reeling from the economic downturn, this means that they're going to be able to go directly to the federal government and say, look, our students need more money and the federal government is going to have to come up with it.
HANSEN: Do you really think it's enough to stabilize the student loan program?
SANCHEZ: Well, nobody knows because, again, we're not at that very, very peak of the demand for these loans. What it does do, though, is that, again, it stabilizes the situation, it makes people a little bit more confident. There's about seven million students that are going to be going to school this fall that are going to need loans. And the loan pot of money is about $70 billion this year alone.
Now, whether there's going to be enough of that to go around, who knows, because the demand, again, it fluctuates between now and August.
HANSEN: NPR's education correspondent Claudio Sanchez. Claudio, thanks a lot.
SANCHEZ: You're welcome.
HANSEN: In the coming months we will bring you updates on the student loan crisis as the story develops.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.