The United States’ economic recession has affected millions. With the fall of Wall Street, global investment institutions and banks, many Americans are stuck wondering what will happen next. College and university students are concerned as well. SMU students whose tuition is paid for by student loans are questioning how they will be affected.
“I’m nervous that I won’t be able to get the same amount of loans I have in the past,” said SMU junior Ana Cardoze. “I’ve heard so much on the news about everything happening and it’s scary for students like me who rely on loans to go to school.”
Will the economic crisis and credit crunch harm students dependent on financial aid?
The answer is yes, but don’t be too alarmed.
The U.S. Department of Education will provide more than $83 billion in student aid to assist students’ higher education, which accounts for nearly 60 percent of all student aid. Students will still be able to apply and, depending on their economic status, most likely receive the necessary financial aid. However, lenders are taking precautions on what kind of student receives loans.
David McMahon, a 12-year veteran of Fannie Mae, said that lenders are going to be more cautious in handing out loans. “It’s going to affect students getting new loans because the credit is tighter,” he said.
Sallie Mae, the largest provider of educational loans in the United States, lost $1.6 billion in the fourth quarter of fiscal 2007 and has set aside $575 million to cover bad loans. Sallie Mae CEO Albert Lord said the company is shying away from lending to students it considers unlikely to graduate or attending schools with inferior graduation rates.
In addition, credit crunches associated with a recession may increase rates for new student borrowers. This could dissuade students from taking loans because their debt will be higher.
“I went to SMU through scholarships, grants and loans and will be paying off my loans for a long time,” said 2002 SMU graduate Cassandra King. “The rates are already so high that I would be greatly concerned to see an increase. It would definitely have made me think twice about where I went to school.”
Private lending companies, another important source of student loans, are having a harder time borrowing money from their usual entities because banks simply aren’t giving out as much money. The Education Resources Institute Inc., TERI, the nation’s largest insurer of private student loans, filed for bankruptcy court protection on April 7, 2008.
On Oct.1, 2008, U.S. Secretary of Education Margaret Spellings delivered a speech entitled “Educating America: The Will and the Way Forward” at the John F. Kennedy Jr. Forum at Harvard University in Cambridge, Mass.
“The average private school graduate leaves college $20,000 in debt. One in 10 carries $40,000,” she said. “This often closes the door to opportunities like public service or teaching. So does the current credit crisis, and I hope Congress will pass a financial rescue plan that ensures that private student lending is not disrupted. I know they can do it, because we came together last spring in a bipartisan fashion to ensure that federal student aid was available this school year.”
As a private school, SMU students will most likely be affected more than state schools because of the higher tuition, but students who rely on loans to pay for school shouldn’t panic. Loans are available, they’re just going to be a little more difficult to attain. Students must watch rates as they may increase. Students should also make sure their credit scores are high because lenders, such as Sallie Mae, are taking a much closer look at borrowers. SMU students can visit the Laura Lee Blanton building and talk to a financial aid advisor in order to figure out the best plan to finance their education.
