States That Don’t Need Stimulus Funds to Benefit Anyway

Student Loan Girl — Thu, 19 Feb 2009 18:35:00 GMT

While some states whose colleges are starving for money due to budget cuts are eagerly awaiting their share of the federal economic stimulus bill, the states that don’t need the stimulus money, or may not want it, may be getting it anyway, reports The Chronicle of Higher Education (“Some States Get Stimulus Whether They Need or Want It,” Feb. 16, 2009).

Under the $54 billion “State Fiscal-Stabilization Fund,” the portion of money states receive will be based on their population and not based on the state’s level of need or whether the state’s facing significant reductions in higher education spending. Several smaller states that are currently experiencing severe budget crises will not get enough money to address their financial needs, while several larger states will get much more than their budgets call for.

For instance, Nevada, which has a population of almost 2.5 million, is facing a $1 billion budget gap — a figure that represents 38 percent of the state’s general fund, the Chronicle reports. Even though Nevada Gov. James Gibbons intends to cut approximately one- third of funding for state colleges, the state will only receive about $400 million from the stimulus bill, leaving a staggering $600 million shortfall.

Oklahoma, on the other hand — a state with 3.6 million people and a $309 million budget shortfall, representing only 4 percent of the state’s budget — will receive $579 million from the fund, resulting in a $270 million surplus.

And Arkansas, which isn’t projected to face a state budget shortfall in either the current or following fiscal year and won’t have to make any cutbacks in higher education, will receive $445.7 million from the stabilization fund.

Governors to Decide How to Spend Funds

States are directed to spend almost 75 percent of their stabilization funds on public schools and colleges in order to restore budget cuts, update facilities, and prevent layoffs, the Chronicle reports. But the remainder of the funds will be given to state governors to be allocated at their discretion for high- priority educational needs, including construction projects for colleges.

Those states that aren’t experiencing cuts in the area of higher education may still choose to allocate the money for higher education construction projects, which could help stimulate state economies and reduce unemployment rates by providing work for contractors and builders. And states that spared higher education by making cuts in other areas may use their stimulus money to makeup for those deficits they created.

Some states, however, may not accept the federal stimulus funds at all. South Carolina, for example, has said it will refuse the money even though lawmakers cut 18 percent from the state’s higher education fund last year, the largest percentage reduction in the nation.

“We’re getting into a danger zone with our country’s borrowing,” said Joel Sawyer, Gov. Mark Sanford’s spokesperson. “It’s something that, sooner rather than later, may have some very negative effects on the value of the American dollar.”

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State-Based Loan Agencies May Not Offer Student Loans, Despite Government Intervention

Student Loan Girl — Fri, 20 Jun 2008 23:18:00 GMT

Just this year, some 112 student loan lenders have cut back or ended their participation in the federal and private student loan markets, including nine state loan agencies, who have each issued slightly different responses to the industry’s changes, according to The Chronicle of Higher Education (“Some State Loan Agencies Say They May Stay on the Sidelines This Year,” June 12, 2008).

After the passage of the Ensuring Continued Access to Student Loans Act, which was intended to aid ailing student lenders, state-based student loan agencies in Kentucky, Missouri, and New Hampshire — often the largest student loan providers in their states — have said they will resume lending again sometime this year.

However, the Missouri Education Loan Authority says it will no longer be able to offer borrower benefits like the .25-percent interest rate reductions for those who make automatic monthly payments, or interest rates as low as .25 percent for graduates who gain employment in the state after school.

With over $12 billion in federal student loans, the Pennsylvania Higher Education Assistance Agency, the largest state lending entity in the country, will reduce grant awards to 160,000 low-income students by approximately $500 each, but is still unsure whether it will re-enter the student loan market in 2008.

The other five state-loan organizations in Indiana, Iowa, Massachusetts, Michigan, and Montana that have exited the federal program, say they’re also uncertain if they will start re-issuing loans this year, as they are awaiting clarification on loan servicing regulations under the new law. Many of these state-based lenders question whether they can continue afford to lend through the federal student loan program in light of the recent credit crunch and the elimination of federal subsidies to lenders last fall.

While industry insiders say that the new law is “a good first step,” Will Shaffner, director of business development at the Missouri Higher Education Loan Authority, believes that the federal rescue plan doesn’t go far enough. He said it doesn’t ease the longer-term problems both public and private lenders see with the federal program.

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Student Loan Blog : Eric Kelderman

States That Don’t Need Stimulus Funds to Benefit Anyway

State-Based Loan Agencies May Not Offer Student Loans, Despite Government Intervention