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Education money in short supply
The credit crunch that knocked mortgage lenders to their knees three months ago now has the education lending market in its cross hairs.For thousands of Fairfax County students banking on some form of financial aid to get through college, that isn't particularly good news.
"We're certainly seeing the impact of a bad economy," said Ed Irish, director of financial aid at the College of William & Mary. "There's been a fairly sharp increase in the number of people applying for aid, but there isn't a lot of additional money out there. I suspect next year is going to be even tougher for a lot of people."
With fewer private lenders, tougher standards and higher loan rates, more prospective borrowers are being turned away and students who borrowed in the past have seen the terms of their loans change dramatically.
"It's a seller's market, and the seller doesn't have a lot of inventory right now," said Yvonne Hubbard, director of student financial services at the University of Virginia. "The students that will take the biggest hits are the ones with those private loans that are tied to the LIBOR [London Interbank Offered Rate]. Those rates are way up and some of these kids are struggling to pay those loans back."
Like mortgage lenders, many student loan companies were criticized in recent years for loose standards that saddled students with huge debts they had little chance of paying off.
As a result, student loan defaults have risen to record levels. The nation's largest student lender, Sallie Mae, has reported losses of more than $2 billion in the last year alone. Although the U.S. government guarantees lenders will be reimbursed for federal student loans, the bulk of Sallie Mae's losses were from private student loans, which aren't guaranteed.
Left holding the bag for those shaky loan practices are many of today's college students.
"Some of the kids who qualified for a loan a year or two ago may not get that money this year," said Brad Barnett, a senior associate in James Madison University's financial aid office. "We've already had several students walk in and say they'll have to drop out if their loan doesn't come through very soon. We've seen some of that in past years, but nothing like now."
At George Mason University, financial aid director Jevita DeFreitas is as concerned about Virginia's state budget problems as she is about the health of private lenders.
"George Mason receives $11 million from the commonwealth for grants every year," DeFreitas said. "The administration at George Mason has always been committed to financial aid programs and giving educational opportunities to every student that deserves one. I just hope Gov. Kaine feels the same way."
One thing each financial aid directors agree on is that many loan-related problems can be overcome with timing and preparation.
"My first piece of advice [to a high school senior] would be to apply early for any form of financial aid," Irish said. "That means getting it in by February 1st, not late April or May. I'm also encouraging kids to go after scholarship and grant money. There are opportunities there that people often overlook."
James Madison's Barnett agreed, but cautioned that scholarship options will take a hit in the near future.
"A lot of scholarship dollars are based on endowments," Barnett said. "As the economy takes a turn for the worse and account values drop, schools have less money to award. It's definitely an option, but it's getting much more competitive."
Contact the reporter at scahill@timespapers.com
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