By Kim Ukura
Last week's article explained how student loans work and what the current problems in the student loan market are. This article consists of interviews with three financial aid directors to see if and how the student loan market problems are affecting them.
Alexandria Technical College
Alexandria Technical College is a two-year college that offers more than 45 associate degree programs. Alexandria Tech students choose between four different types of loans -- Stafford, SELF, PLUS, or alternative loans.
Gary McFarland, Director of Financial Aid, said that the recent lender dropouts did not affect students ability to borrow Stafford or PLUS loans. Additionally, he reiterated that, "alternative loans could be affected with a raising of the bar as to what constitutes credit worthiness."
Schools generally have two different lender lists - one that students use to borrow their federal loans from and another that lists options for alternative loans.
The school had four big bank lenders on their preferred lender list, the list for federal student loans, and McFarland said all of them would continue for next year. However, US Bank, one of the big lenders, will no longer make alternative loans to two-year colleges, so will not be on the alternative lender list.
On average, ATC students take out about $500,000 in alternative loans, and McFarland did not anticipate that number would be much higher.
"Students may have to search a little harder but I see no problem with alternative loans for next year," he added.
Concordia College, in Moorehead, is a four-year, private liberal arts college of about 2,8000 students.
The estimated cost of attendance for 2008 - 2009 is about $30,000. In 2007 - 2008, students received about $17,000 in financial aid. Students commonly make up this difference with private loans, college savings, or other payment plans said Jane Williams, Concordia College Director of Financial Aid.
Students applying for financial aid complete a FAFSA form, and are then awarded their financial aid package. If students choose the federal Stafford Loan, they then select a lender and sign a Master Promissory Note, Williams said.
During the 2007 - 2008 school year, Concordia College had nine lenders for students to chose from for the Stafford, PLUS, and private, alternative loans. Three of those lenders have since discontinued offering some or all of the loans, Williams said. Students taking loans from lenders who have dropped out of the program will need to select a new lender and sign a new Master Promissory Note.
"The 2008-09 Concordia College lender list includes six lenders who are in the top nine originators of Stafford Loans during the past two years, so students will have plenty of options," she added.
Last year, about 26 percent of Concordia College students applied for private alternative loans. As with other schools, Williams reiterated that student may have more difficulty finding a credit-worthy cosigner for loans because of the more stringent regulations in the private loan market.
However, Williams also added, "Because Concordia College has such a low default rate on Stafford Loans (1.1 percent is the most recent federal calculation), lenders are very unlikely to refuse to process loans for our students."
The student loan default rate is the rate at which students begin to repay their loans and meet the requirements necessary for repayment in a given year. A low default rate like the one Concordia has means that students are successful at repaying their loans, which makes it more likely lenders will continue to work with a particular institution.
University of Minnesota, Morris
The University of Minnesota, Morris, is not affected by the problems in the student loan industry in the same way because UMM is a direct loan institution, which leaves private banks and lenders out of the financial aid process.
UMM switched to direct loans in the 1998-99 school year as part of an effort to provide for students and stay in line with the rest of the University of Minnesota system, Jill Beauregard, UMM Director of Financial Aid, said.
Under the direct loan system, students borrow their federal loans directly from the Department of Education, rather than a bank like they would at other institutions. Loans from the Department of Education are not sold at any time. When borrowing from schools that are not direct loan institutions, students choose which bank to borrow from, and lenders have the option to sell or split loans.
"This can be confusing for students, to figure out who owns their loans, and their loans could be split up," Beauregard explained. "We're happy we went with the direct loan system."
Students who will be at UMM in the fall, and who are relying only on federal loans, should not be affected by the larger problems in the student loan market because UMM federal loans do not come from private companies.
However, Beauregard said UMM and other direct loan schools were still concerned about the problems with schools that use lenders for their federal loan programs.
"We're concerned about the market," she said. "If the FFEL program goes under, there is no market to keep fees competitive and low for students.
Additionally, students that go to direct loan schools but need to take out additional private loans will be affected.
"We've heard that credit checks will be harder, and students will more often be required to have their parents co-sign on the loans," she explained. "This year, there may be more credit denials and more stringent requirements."
Beauregard went on to explain that the problems in the student loan market more often effect middle-income students. Low-income students can often make up the difference in college cost through grants and other financial aid, while high-income students often rely on help from their families for money or co-signing loans. However, middle-income students lack some of this accessibility, which may make student loans more difficult to come by next year.
It appears that financial aid directors at various institutions are not immediately concerned about students' ability to borrow money through various federal loan programs. However, changes in the larger financial market may impact students and families' ability to borrow private alternative loans if money through college financial aid is not enough.