Mass. Student Loan Nonprofit Runs Out Of Cash
MICHELE NORRIS, Host:
It is a bad day for many Massachusetts college students. Just weeks before tuition is due, a state-run nonprofit lender says it cannot provide student loans this fall. That's because of troubles in the credit market. And it leaves some 40,000 students scrambling to find other loans. As NPR's Tovia Smith reports.
TOVIA SMITH: Boston College senior Melissa Roberts thought her biggest issue going into school this year was going to be finding money to decorate her new dorm room. Now, two weeks before bills are due, she's going to have to find some 40,000 thousand dollars to pay her tuition since the loan she'd been counting on has basically disappeared.
MELISSA ROBERTS: My first reaction was one of panic because most of my tuition is paid for in student loans.
SMITH: For the past two years, Roberts has been getting loans from the Massachusetts Educational Financing Authority, or MEFA, and those deals will be hard to match. The nonprofit that serves Massachusetts residents and others who go to school here has traditionally offered some of the best rates anywhere. Last year, fixed-rate loans were at 6.3 percent, available even to students with less-than-perfect credit scores. Now, Roberts says, she's bracing herself for the kind of variable-rate loans she'll get from a private lender.
ROBERTS: I mean, with interest rates going through the roof, this is something that's going to affect your financial stability for the rest of your life. And it's a big decision to make when you're 20 years old.
SMITH: Especially for a student like Roberts who expects to graduate with a $168,000 to pay back.
ROBERTS: It's really scary for me to think about it. It makes me sick to my stomach.
SMITH: Colleges have been busy fielding panicked phone calls and trying to reassure students.
BERNIE PEKALA: What we're saying is it's one of those choices, it's disappointing but not devastating.
SMITH: Bernie Pekala is director of Boston College's Financial Aid Office. He's advising students to look for federal loans first and then go looking for private lenders. And like many schools now, he said he's willing to be flexible with students suddenly struggling to pay their bills.
PEKALA: We're A, going to advise them, and B, if they need extension, we're very willing to give them an extension.
SMITH: The announcement from MEFA hits hard, but it was not entirely unexpected. Late last year, the authority began to feel the contagion or domino effect of the subprime mortgage crisis and said it could no longer make federally backed student loans. Now, MEFA executive director Tom Graf says the agency cannot raise the funds for private student loans either.
TOM GRAF: We did see some brightening in the market a month or so ago, but certainly, there'd been some signs of light that made it impossible, as of today, for us to secure funding for the fall semester. I mean, we are not giving up, but really, it's an issue bigger than us.
SMITH: Indeed, MEFA is just the latest of more than 100 lenders around the nation who've been forced out of the student loan business.
MARK KANTROWITZ: It's a pretty big hit to the student loan industry. It's not a healthy industry at this point.
SMITH: Mark Kantrowitz writes about the student loan industry. He says even though student loans are typically low risk, investors want nothing to do with them.
KANTROWITZ: When investors got burned with the subprime mortgages, they became gun-shy of every single type of securitizations including student loan. Everybody's pulling back from these investments, which mean less money available to lend the students.
SMITH: Kantrowitz says that will likely get worse before it gets better. Congress has recently increased eligibility for federal loans and many colleges are stepping up their own loan programs, but that may not be enough to offset the fact that education loans are no longer as cheap or easy to get as they used to be.
Tovia Smith, NPR News, Boston.
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