Student Loan Blog : New York Times

Colleges Receive $70 Million in Anonymous Donations

Student Loan Girl — Wed, 29 Apr 2009 22:21:00 GMT

An anonymous donor is playing secret Santa with at least a dozen colleges and universities nationwide, but instead of giving $5 trinkets this Santa has left schools with $1 million to $10 million gifts, The New York Times reports (“Anonymous Donor Gives Millions to Colleges,” April 24, 2009).

Over the past two months the donor has given away $70 million to select schools. To remain anonymous, the donor employs a bank to contact the schools either with a call or letter that relays sentiments similar to what was written in one letter: “It is hoped that this will make a substantial difference to your students during these challenging times… enabling a more confident, sharper focus on their studies with improve career and life prospects.”

None of the school officials at the selected schools know whether the donations are coming from a man, woman, or organization, and no one seems to want to jeopardize their gift by speculating too much about the reasoning behind the donor’s selections. There’s a pretty clear consensus, however, that the schools share one common trait: they’re all led by women.

Lois DeFleur, president of Binghamton University in New York, is more than fine with this reasoning, if it is indeed the case, “The actions say, ‘I’m investing in an institution because it has achievements and I believe that with women leaders it will have future accomplishments.’ That’s pretty powerful in my view.”

The donations, which at some schools have been the single largest donation in the school’s history, have ranged from the $10 million given to Michigan State University, to the $1.5 million given to the University of North Carolina in Asheville. In return the donor has asked for complete anonymity and for the majority of the donation — 50 percent to 80 percent of the total donation in each case — to be used for financial aid.

The schools say they are extremely grateful for being chosen, particularly since higher education institutions across the country have seen an increasing demand for financial aid at the same time that state funding and endowments are drying up.

“In the best of times we never have enough scholarship money for students who have financial need,” said Susan Cole, president of Montclair State University in New Jersey. “In these difficult times, that is multiplied. The gift is incredibly important to us. I cannot adequately express the depth of our gratitude.”

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Student Loan Default Rate On the Rise

Student Loan Girl — Mon, 20 Apr 2009 23:02:00 GMT

Weighed down by job losses, limited job availability, and lower salary wages, college graduates — who leave school owing an average of $22,500 in student loans — are defaulting on their federal student loans at the highest rate since 1998 (“In Grim Job Market, Student Loans Are a Costly Burden,” The New York Times, April 18, 2009).

“When it comes down to making your student loan payment or buying gas to go to work, it isn’t a difficult decision to make sometimes,” said David Clark of College Assist, a national guarantee agency that helps its borrowers stay current on their college loans (“Student-Loan Debtors Get Breaks,” The Denver Post, April 12, 2009).

Student loan borrowers who fail to pay on their federal student loans could have 15 percent of their wages garnished, could lose their state and federal tax refunds, and could lose a portion of their Social Security benefits. And many borrowers have learned that, unlike other types of unsecured loans, student loans typically cannot be discharged in a bankruptcy filing.

But borrowers may be able to avoid taking the drastic step of filing for bankruptcy or avoid having the government seize their money by working out a repayment resolution with their lenders, Clark said.

“Once we can get someone on the phone, we have a 90 percent rate of curing an account and keeping it out of default,” he said.

Federal Student Loan Repayment Options

Deferment or Forbearance. Borrowers can postpone their student loan payments for three years if they become unemployed or if they provide proof of economic hardship. In deferment the government pays the interest on borrowers’ subsidized federal loans, but in forbearance borrowers are responsible for any interest that accrues on all of their federal student loans.

“Students may not fully appreciate just how much [deferment or forbearance] increases the size of the loans,” said Mark Kantrowitz, publisher of the financial aid website FinAid.org. “That’s why deferments and forbearances should mainly be used as a method to solve a temporary problem.”

Extend the terms. Graduates can extend the terms of their loans, thereby lowering their monthly payments, although in doing so they could ultimately pay double the interest what they would have originally paid. Graduates can switch back to their original loan terms at any time.

Income-based repayment. Beginning this July, eligible federal student loan borrowers can enroll in an income-based repayment plan that will limit their monthly loan payments to 15 percent of their discretionary income — income that is above 150 percent of the poverty line — and that will forgive borrowers’ remaining loan balances after 25 years of repayment.

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Program to Offer NY Students Low-Cost College Loans

Student Loan Girl — Wed, 17 Dec 2008 23:36:00 GMT

Despite New York’s $15 billion budget deficit, Gov. David Paterson announced he is creating a student loan program that would allow New York college students to borrow $350 million in low-cost private student loans directly from the state, reports The New York Times (“Governor to Unveil a Low-Cost Student Loan Program,” Dec. 15, 2008).

State officials say the new student loan program, meant to help the state “retain the best and the brightest young minds,” will offer lower rates than most private student loans — potentially as low as 8 percent. Interest rates will be adjusted annually based on market conditions.

Paterson plans to allocate $50 million in state funds to jumpstart the program and $10 million each year thereafter — a key recommendation of the Commission on Higher Education. The commission studied New York’s higher education system for more than a year and found that the state’s 1 million college and graduate students had taken out $2 billion in private loans, and that those students often paid as much as 12 percent on their loans, double the interest that students paid in states with low-cost student loan programs.

Paterson hopes the loan program will help ease the financial challenges that face students now that lenders have tightened their credit criteria and as public and private colleges consider tuition increases to cope with state budget cuts. To help balance the state budget, Paterson has proposed increasing tuition at the City University of New York and the State University of New York.

“One of the big problems in the student loan program is that it is drying up,” said Jeffrey Gordon, a spokesman for the budget division of the governor’s office. “People who were able to get loans last year can’t get them this year.”

Under the loan initiative, students at two-year colleges would be eligible to take out a maximum of $20,000 in loans, while undergraduates at four-year institutions could borrow up to $50,000. New York students pursuing both an undergraduate and graduate degree would be capped at borrowing a combined total of $70,000 in private student loans.

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Student Loan Providers Get More Help From the Government

Student Loan Girl — Thu, 13 Nov 2008 22:39:00 GMT

In a move intended to avoid a shortfall in student loans next year, Congress has expanded the government program to buy federally guaranteed student loans from private lenders.

Under the updated loan-purchase plan, the Education Department can now buy lenders’ student loans with origination dates between Oct. 1, 2003, and July 1, 2009, The New York Times reports (“U.S. Buying More Loans to Students,” Nov. 8, 2008). The original buyback parameters only allowed lenders to purchase loans made for the current academic year and for the 2009–10 academic year.

Federal officials say that as much as $60 billion in student loans may be eligible for purchase under the new expansion.

“We were able to provide stable, reliable funding for students this school year,” said Education Secretary Margaret Spellings. Now the government is taking action to avoid problems in student loans for next year, she said.

Expanded Program May Solve Liquidity Problem

Many lenders were initially unable to participate in the student loan buyback program because the original version of the program only allowed lenders to sell loans on the secondary market that were generated prior to 2008.

The economic conditions during the current academic year have made it difficult for lenders to secure the financing needed to make new student loans that would be eligible for sale through the buyback program. Unable to sell their loans, lenders were then forced to carry their loans on their books.

“They have these government-guaranteed loans and nobody wants to fund them,” said Sameer Gokhale, a financial analyst for Keefe, Bruyette & Woods in New York. “The government is agreeing to buy more of the loans to give more liquidity.”

The Education Department hopes that the new initiative will provide lenders with the required funds to generate new federal and private loans next year, as lenders may be more likely to participate in the program once they can free up billions of dollars in loans under the new requirements of the buyback program.

“We need to do everything we can to prevent students from becoming the next victims of the financial crisis,” said Sen. Edward Kennedy, chairman of the Senate Education Committee. “Next year, we need to take a closer look at these programs to insulate them from fluctuations in the market so students’ ability to access loans is not threatened.”

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Paying for College Gets More Challenging For Families

Student Loan Girl — Thu, 23 Oct 2008 00:42:00 GMT

Paying for college definitely isn’t getting any easier.

“It just seems like it’s really hard, because it is,” says Diana Jacobs, a mother of twin, college seniors, whose husband recently lost his job, forcing the family to go from borrowing modestly to maxing out their student loan amounts (“In Downturn Families Strain to Pay Tuition,” The New York Times, Oct. 16, 2008).

To meet her sons’ college expenses this year, Jacobs pressured the twins’ schools to increase their financial aid offers — each school offered $3,000 more in aid. And for the first time, Jacobs told her sons that she wouldn’t be able to assume their student loan debt, leaving the twins to take out their college loans in their own names.

“We all came to that consensus, but I hate it,” Jacobs said. “I hate for them to come out of school with $20,000 in student loans.”

The Jacobs family is not alone. The current economic conditions have made it even more difficult for families to afford the continually rising cost of college: unemployment is rampant, the cost of living is increasing, and home values are declining, making it more difficult for families to get home equity loans to help fund college expenses.

Slow Economy Causing Widespread Financial Challenges

Economic times have become so challenging that a recent survey of nearly 3,000 parents found that 62 percent of families plan to use student loans to help pay for college expenses this year, up from 53 percent just a year ago, according to Fidelity Investments’ College Savings Indicator.

The survey also revealed that parents may meet only 21 percent of the total cost of their children’s college education this year, down from 24 percent last year.

Families’ financial challenges have led to a 10-percent increase in financial aid applications this year. Aid administrators are concerned that this increased demand for federal financial aid — from 12.3 million applications last year to 13.5 million this year — may be too much for the government and schools to handle, now that more than 100 private, third-party lenders, citing reduced profit margins and increased difficulty finding investors, have left the federal student loan program.

Making the federal financial aid problem worse, states are facing widespread budget shortages and cutting back on the financial aid funding they give to colleges and universities, and schools’ own financial aid funds are dwindling due to disappointing returns on their endowments.

The economic downturn has also forced private student loan lenders who offer credit-based private student loans, which help families fill the gap between federal financial aid and the total cost of attendance, to rapidly adapt to changes in the credit markets. In recent months, these lenders, to avoid having borrowers default on their loans, have tightened their credit criteria, causing students who had previously borrowed on their own to need cosigners this year.

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New York May Soon Have Its Own Low-Interest Student Loan Program

Student Loan Girl — Wed, 23 Jul 2008 19:33:00 GMT

New York is one of the few states in the country where college students do not have access to a low-interest, state-backed student loan program, according to a report by the New York State Commission on Higher Education (“Final Report of Findings and Recommendations,” June, 2008).

The report, the result of a year-long study conducted by a commission appointed by former governor Eliot Spitzer, addresses a number of concerns related to New York's higher education system, including the lack of a state-backed student loan program.

Students enrolled at more than 1,000 public and private postsecondary institutions in New York — including the State University of New York, the largest public university system in the country, and the City University of New York, the nation's largest urban college network — have fewer low-cost financing options than students in many other states across the country.

One commission member estimates that students attending schools in New York pay an average of 9 to 12 percent interest on their loans while those in Texas, for example, pay only 6 percent (“Paterson Set to Embrace Student Loan Plan,” The New York Times, July 21, 2008).

If New York governor David Paterson has his way, the state’s college students may soon be able to complete their degree without being burdened by excessive student-loan debt. Paterson intends to heed one of the report’s chief recommendations, the institution of a low-cost state student loan program, with a petition to state legislators to implement such a program.

Paterson will also consider several other recommendations from the report:

Hiring 2,000 new faculty members
Establishing a $3 billion research fund
Expanding articulation agreements for seamless transfers between colleges by 2011

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All Veterans Qualify for In-State Tuition at Ohio Colleges With New GI Promise Legislation

Student Loan Girl — Wed, 16 Jul 2008 22:19:00 GMT

Ohio governor, Ted Strickland, recently announced the implementation of The Ohio G.I. Promise, the first plan of its kind in the nation to extend in-state tuition rates to all veterans who attend an Ohio state public college or university on the GI Bill, according to an article in The New York Times (“Ohio Gives Veterans In-State Rates at Public Colleges,” July 9, 2008).

Just last month, President Bush signed the new national GI Bill which will double veterans’ benefits and allow soldiers to receive the equivalent of full scholarships at any public university or college in the state they reside.

Under The Ohio G.I. Promise, veterans, their spouses, and their dependents who are residents of any state may attend one of the Ohio’s 36 colleges and universities at the same in-state tuition rate enjoyed by legal Ohio state residents.

The move to implement the G.I. Promise bill is to attract more veterans to Ohio’s public colleges, which have experienced declining enrollments over the last several years, and to add some 230,000 students to the state’s school system over the next decade.

“If we are able to attract veterans to Ohio, we can link them and their families to internships, co-op and other opportunities, and if they get good jobs here, we’ll have Ohioans,” said Eric Fingerhut, chancellor of the Ohio Board of Regents. “We want veterans to know Ohio wants them to come here, and that we think they’re incredibly valuable high potential students.”

To meet the needs of the much-anticipated growth in veteran enrollments at Ohio colleges, Fingerhut told the Times that the state school system will significantly enhance the infrastructure that caters to military veteran students.

“We already have a number of very good programs, which we’ll be expanding, to provide the type of counselors, advisers, and mentors who can work one on one with veterans to help them make the transition to civilian life and navigate the academic environment,” he said.

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Harvard Professor Urges Students to Consider Public Service Over Wall Street

Student Loan Girl — Wed, 25 Jun 2008 19:53:00 GMT

A Harvard University education professor is challenging undergraduates at elite colleges to forgo high-paying consulting and finance jobs, for careers in public service.

The professor, Howard Gardner, is leading seminars at Harvard and, Amherst College in Massachusetts, and Colby College in Maine, to encourage undergraduates to reflect more seriously on the connection between their education and their aspirations, according to an article in The New York Times (“Big Paycheck or Service? Students Are Put to Test,” June 23, 2008).

“Are Ivy League schools simply becoming selecting mechanisms for Wall Street?” Gardner asks.

Gardner’s question has college officials at these schools contemplating whether too many of their top students, some of whom might otherwise choose to enter professions that aren’t measured by financial success, are choosing money over their ideals.

“We’re in the business of graduating people who will make the world better in some way,” says Anthony Marx, president of Amherst College. “That’s what justifies the expense of the education.”

Corporate Jobs Hold Big Appeal for College Graduates With Student Loans

Some universities, like Amherst, Harvard, Tufts University, and the University of Pennsylvania, are so concerned about corporate America’s hold over new graduates, that they have expanded their public service fellowship and internship programs.

This year Tufts announced it would pay off college loans for graduates who choose to work in the public-service sector. And officials at Harvard, Penn, Amherst, and a number of other colleges tell the Times that one reason they have begun offering financial aid packages that offer more grant money than student loans, is so their students don’t feel pressured to pursue lucrative careers just to be able to pay off their college debt.

While colleges and universities are taking steps to give graduates more freedom in choosing a career path by offering expanded financial aid, some students still prefer the safe, financially secure route.

Akshay Ganju, who wanted to become a doctor when he enrolled at Harvard four years ago, recently accepted a full-time job with Bain & Company, a global management consulting firm. The generous salary, he says, will make it possible for him to pay off his college loans.

“I don’t think the point of our education is to make us rich,” Ganju said. “We all feel we want to do something meaningful beyond just accumulating wealth.”

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U.S. Reinstates 7 Fulbright Grants to Students in Gaza, Future of Other Students Accepted Abroad Uncertain

Student Loan Girl — Fri, 13 Jun 2008 21:45:00 GMT

The U.S. Department of State recently reinstated seven Fulbright Grants awarded to Palestinian students after withdrawing the awards when the students were denied permission to leave Gaza, according to an article in the Jerusalem Post (“State Tells Court It May Allow Study Abroad,” June 2, 2008).

Israel has imposed a travel ban on all Palestinian residents of Gaza for security reasons following attacks by the militant anti-Israeli group Hamas. However, now the U.S. government is assuring the Fulbright scholars that the American Consulate in Jerusalem is working closely with Israeli officials to ensure that the students obtain their proper exit permits.

The ban on Palestinians leaving the region “is part of a policy of closure and collective punishment that is trapping 1.5 million civilians,” said Sari Bashi, director of Gisha, a non-profit organization in Israel that facilitates the free movement of Palestinians.

But just last week, the education committee of Israel’s Parliament met to consider further student movement out of Gaza, with many members commenting that they were horrified by the policy that keeps students from leaving the area. The committee petitioned Israel’s Defense Ministry to revisit its policy and to report back in a couple of weeks.

In the meantime, only the seven Fulbright scholars are permitted to travel out of Gaza. Unlike Fulbright recipient Abdulrahman Abdullah, who told the New York Times that he can’t “be truly happy until the 600 or so Gazans with grants to study abroad also get out,” the remaining Gaza students who have been granted acceptance to schools outside the region face an uncertain fate regarding their education (“State Dept. Reinstates Gaza Fulbright Grants,” June 2, 2008).

Bashi said that while her organization supports the decision to let the seven Fulbright recipients leave, “Gisha calls on Israel to allow all Palestinian students accepted to universities abroad to exercise their right to leave Gaza and access education, in order to obtain the tools they need to build a better future in the region.”

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Yale University to Increase Undergraduate Enrollment by 15 Percent

Student Loan Girl — Thu, 12 Jun 2008 21:36:00 GMT

Last week, Yale University president Richard Levin announced that the school will be increasing its undergraduate enrollment by 15 percent to 6,000 students, according to an article in The New York Times (“Yale to Expand Undergraduate Enrollment by 15 Percent,” June 9, 2008).

Levin says Yale College, the school’s undergraduate program, will begin to admit a larger percentage of students from its pool of about 20,000 applicants to satisfy the university’s “desire to expand the student population.” Characteristically, Yale College admits fewer than 10 percent of its applicants.

“We have a long queue of highly qualified applicants who collectively would allow Yale to make an even greater contribution to society if more [students] could be educated here,” Levin wrote in a letter to Yale students, faculty, staff, and alumni.

The last substantial increase in the student body occurred in 1969, when Yale began admitting women. Since then, undergraduate enrollment has fluctuated between 5,150 and 5,350 students.

To support Yale’s expansion plans, the school will increase its fundraising campaign goal from $3 billion to $3.5 billion to pay for the construction of two new residential colleges that will connect the school’s science facilities to the rest of campus.

“The new colleges have the potential of making the whole campus seem smaller, more effectively linking Science Hill with the historic center,” Levin’s letter said.

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Banks Become More Selective, Leaving Some Colleges Without Student Loans

Student Loan Girl — Tue, 03 Jun 2008 00:49:00 GMT

Students at community colleges, for-profit universities, and other less competitive institutions may have trouble finding a lender willing to offer them federal student loans as some of the nation’s biggest banks pare down the list of schools they serve, according to an article that appeared today in The New York Times (“Student Loans Start to Bypass 2-Year Colleges,” June 2, 2008).

Citibank, JPMorgan Chase, PNC, and SunTrust are no longer offering student loans to certain colleges — schools that the banks have determined tend toward higher default rates, fewer borrowers, and small loan amounts that make business less profitable.

More than 6.2 million — over 40 percent — of the nation’s undergraduates attend community colleges. These students, according to the College Board, borrow an average of $3,200 a year.

In late May, Citibank, one of the nation’s largest providers of student loans, announced its student lending division, the Student Loan Corporation, would temporarily suspend lending to schools whose borrowers tend to have college loans with “lower balances and shorter periods over which we earn interest.” Citibank also announced it would cease lending to schools it anticipated to have minimal loan volume.

“The logic is so flawed, that for us to have volume with them in the future, we have to have had volume with them in the past,” said Korey Compaan, financial aid director at William Jessup University in Rocklin, Calif. To deny federal student loans to students based simply on the college they attend, he said, is “totally and completely unethical.”

Sallie Mae and Nelnet have recently reaffirmed their commitment to offering federal college loans regardless of the institution a student attends. And Wells Fargo has contacted financial aid administrators at schools dropped by Citibank to express a willingness to lend to their students.

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Elite Korean Schools Prep Students for American Ivy Leagues

Student Loan Girl — Sat, 10 May 2008 17:11:00 GMT

South Korea has some 103,000 students studying at American colleges and universities, outnumbered only by students from India and China, nations which have more than 20 times the population of South Korea, writes Sam Dillon of The New York Times (“Elite Korean Schools, Forging Ivy League Skills,” April 27, 2008).

“Going to U.S. universities has become like a huge fad in Korean society, and the Ivy League names — Harvard, Yale, Princeton — have really struck a nerve,” said Victoria Kim, a Harvard University graduate who attended Daewon Foreign Language High School in South Korea.

Secrets to Their Success

Those attending Kim’s alma mater have become notorious for achieving outstanding success — all but a few of the 133 Daewon students who applied to selective American schools this spring were accepted, Dillon says.

The school’s formula is a relatively simple one.

Administrators place South Korea’s top-scoring middle school students who want to attend an American university in special English classes.
These English-specific classes focus on teaching composition skills which are critical for taking American standardized tests and producing college admissions essays.
The school emphasizes unceasing study during rigorous 17-hour days.

Stringent Standards, Requirements, and Fierce Study Habits Produce Results

At schools like Daewon and its rival, the Minjok Leadership Academy, the requirements of students are much different than those at the average U.S. high school or even most U.S. prep schools.

The admissions process resembles those used by American colleges and universities. Just one admission requirement of Daewon’s students is fluency in at least two foreign languages besides English. And both Daewon’s and Minjok’s academic years are one month longer than those of American high schools, Dillon says.

Grueling days filled with hours of studying are commonplace. Students’ often start at 6 a.m. followed by hours of English-based and South Korean-based curriculum. Classes end at 7:45 p.m., but the bell indicating the end of study hall doesn’t ring until 10:50 p.m. and even then teachers still end up receiving emails from students until 5 a.m.

Kim Hyun-kyung, a 17-year-old Daewon student, views each day as an accomplishment.

“I feel proud that I’ve endured another day,” she told the Times.

To drive home how seriously the school takes studying, at one time a banner hung on one of the Minjok buildings that read: “This school is a paradise for those who want to study and a hell for those who do not.”

Families Push Just as Hard as Schools

The expectation of excellence doesn’t end with teachers and administrators.

“Most Korean mothers want their children to get 100 on all the tests in all the subjects,” said one student’s mother. Her daughter, a recent Daewon graduate, learned this lesson from watching her older sister being scolded for getting anything less than a perfect score on her tests.

If statistics are any indicator, all that studying and pressure to do well may be paying off for many of these students.

Sixty-seven Daewon graduates achieved perfect 800 math scores on their SATs, Dillon said. And, the average combined SAT score (verbal and math) for Daewon students was 2203 out of 2400. As a basis for comparison, students at Phillips Exeter, the prestigious New Hampshire boarding school, scored 2085 on average on their combined SAT scores.

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Bear Stearns Takeover Leaves Business-School Students Scrambling

Student Loan Girl — Mon, 14 Apr 2008 19:13:00 GMT

BearStearns CEO, Jimmy Cayne, seems to have been the only former Stearns employee to make it out of the JPMorgan Chase buyout relatively unscathed — at least in non-CEO terms — walking away with $61.3 million in sold shares. Even though, in his own high-priced executive world, Cayne took his buyout at a massive loss: Just a year ago, his entire Stearns portfolio was valued at almost $1 billion.

Former Bear Stearns employees, along with Cayne, saw the value of their shares plummet 85 percent in the buyout to a mere $10 a share. Bears Stearns shares were trading at about $67 two weeks before the buyout and as high as $170 a year ago.

Now add to the list of people adversely affected by the Stearns debacle, business-school students whose full-time job and summer internship offers from Bear Stearns have recently been rescinded, according to a BusinessWeek article by Alison Damast (“Bear Stearns Rescinds Job Offers,” April 3, 2008).

A spokesman from JPMorgan Chase won’t disclose how many job offers to soon-to-be college graduates and MBAs have been affected by the dissolution of the firm, at least 12 students at New York University’s Stern School of Business have already received their unhappy phone calls from the company.

According to The New York Times, the final count of rescinded job and internship offers will tally in the dozens (“J.P. Morgan Said to Withdraw Bear Job Offers,” April 3, 2008).

Students Left Out in the Cold

When JPMorgan announced its takeover of failing Bear Stearns on March 16, the status of the student jobs and internships was still uncertain. It wasn’t until April 2 that students who were offered positions in the investment banking, sales, and trading and research units of the former company were notified about the fate of their job and internship positions.

Over the next few weeks, as the school year draws to a close, these students will be frantically trying to nail down offers for replacement positions.

“I’m not sure what we are all supposed to be doing now with the few weeks before start-dates, but I would imagine that, like me, the other 25 or so students who were to start as associates are all in a mad scramble to figure out what the future holds,” one student told BusinessWeek.

In the meantime, students who had their full-time job offers rescinded will be allowed to keep their signing and relocation bonuses and will also be able to use JPMorgan’s career-service resources.

And for those students who will no longer be interning with the company this summer, JPMorgan has offered a full 10 weeks’ pay if they find a new summer position with a nonprofit organization instead.

To Fear or Not to Fear the Economy

Although Bear Stearns is the only investment firm so far this recruiting season to withdraw already-extended job offers, fears about the current state of the economy and its effect, in particular, on the financial-services sector have left business-school students and administrators wondering about the security of jobs and job offers with other firms.

To some, the rescinded Bear Stearns offers recall the results of a similar economic downturn in 2001, Damast writes, when several companies that had hired students were forced to scale back.

Tom Kozicki, board president of the MBA Career Services Council, says he believes the Bear Stearns situation doesn’t necessarily foreshadow what lies ahead for the financial industry, but is definitely something business students need to keep in the back of their mind as they prepare for this particularly shaky job market.

“It sounds like the shoe has dropped. I think it’s unfortunate, but I don’t think it comes as a surprise to most people,” Kozicki told BusinessWeek. “The economy is shaky, [Fed Chairman Ben] Bernanke has indicated that he thinks we are going into a recession and I think that students need to be prepared for some uncertainty in the market.”

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Financial Industry Woes Affecting Commercial Education

Student Loan Girl — Mon, 10 Mar 2008 06:02:00 GMT

The current credit crisis, combined with recent legislation cutting federal subsidy payments to student loan companies that make federally guaranteed student loans, has begun to take a noticeable toll on commercial education companies.

The past few months have seen student loan companies pulling back on now-unprofitable federal student loans and tightening credit restrictions on their private student loans.

With investors fearful that the dwindling availability of student loan financing will lead to lower enrollment numbers, chains like ITT Educational Services, Corinthian Colleges, Inc., and Career Education Corporation have seen their shares fall between 30 and 55 percent since November, according to a New York Times article by Jonathan D. Glater (“As Lending Tightens, Education Could Suffer,” Feb. 19, 2008).

The Push and Pull of Commercial Colleges

These commercial schools, largely offering hands-on instruction in applied areas such as health care, computers, the culinary arts, and automotive repair, would typically expect to see growing enrollment during an economic slump like this one. Layoffs and a flagging job market tend to push individuals back to school, and plunging interest rates make student loans less costly for those needing to finance their education.

In the current economy, however, with lenders in every sector afraid of the kind of credit exposure that led to the subprime meltdown, consumer interest rates on everything from home loans to student loans have stayed steady, despite cuts to interest rates by the Federal Reserve totaling 1.5 points since December.

Commercial colleges typically charge higher tuition than public two-year institutions. Compounded by the fact that these schools have lower graduation rates and tend to be more likely to attract those who would be regarded as risky borrowing prospects — low-income students with poor or unestablished credit histories — potential students may not be able to get enough of the funds they need to attend one of these commercial college programs.

Since federal student loans carry borrowing limits, the higher tuition means that commercial education students must often look to private student loans to supplement their federal aid.

But with student loan companies tightening borrowing restrictions on their private student loans, and with several no longer offering federal student loans at all, these commercial ed students may find themselves increasingly unable to secure the financial aid they need.

Schools Seeking Ways to Adjust to Market Changes

As student loan companies withdraw from the federal student loan market and enforce stricter credit standards on their private student loans, the commercial college chains have begun exploring alternatives to help their students pay for classes, in order to keep their enrollment numbers from plummeting.

Corinthian, Career Education, and ITT have all announced efforts to find new lenders, make arrangements to preserve student loans, and expand their own lending programs.

These moves, writes Glater, point to “how dependent this sector of education is on student loans and how vulnerable the industry could become if credit woes continue to make it harder for lenders to raise capital.”

Lending Lockdown Could Begin to Affect More Students

Ultimately, the student loan crunch may reverberate beyond just commercial colleges.

“So far, problems have yet to be felt by most students,” Glater acknowledges. “But some in the lending industry have begun to warn that there may be fewer borrowing options, even for traditional students, in the fall.”

In the meantime, Michael Dannenberg, director for education policy at the New America Foundation in Washington, D.C., suggests that students who are already having trouble qualifying for the private financing they need for a commercial education consider less costly two-year community colleges that have open enrollment.

Or, as Glater offers, these students may look to enroll in one of the commercial schools that charges lower tuition, which could be covered entirely by federal financial aid.

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Harvard’s Aid to Middle-Class Families a Signal for Change

Student Loan Girl — Thu, 03 Jan 2008 15:03:00 GMT

In December Harvard University announced it would begin offering increased financial aid to students of middle and upper-middle class families. Those families earning between $120,000 and $180,000 will only have to pay about 10 percent of their income, or no more than $18,000 of the $45,600 traditionally charged for tuition, Jonathan D. Glater of the New York Times reports (“Harvard’s Aid to Middle Class Pressures Rivals,” Dec. 29, 2007).

For a school like Harvard, with a $35 million endowment, the gesture is reasonable, and other schools have followed suit: the University of Pennsylvania, Pomona College, Swarthmore College and Haverford College. But smaller liberal arts schools are beginning to find similar cost-cutting discounts to be less than feasible.

Schools Fail to Financially Compete

Harvard’s competitors are finding that the Ivy League school’s change in financial aid policy is affecting their students as much as its own. Small, but competitive liberal arts schools have been receiving comments from concerned parents and students asking for equivalent financial aid offers.

“Harvard has started to redefine the financial aid landscape, and it’s redefined it in a way that is quite beneficial to the wealthiest institutions,” Dean of Admissions and Financial Aid at Bryn Mawr, Jenny Rickard, told the Times. “It’s just a handful of schools that can really respond this way, but it leaves others kind of pulling their hair.”

William D. Durden, president of Dickinson College in Pennsylvania, says his school is one of the many finding it difficult to compete.

“A lot of us are going to be under huge pressure to do these things that we just can’t do,” he tells the Times.

Durden, along with other college president’s like himself, say Harvard’s move could also end up taking away financial aid opportunities from low-income students, making tuition pricing seem even more arbitrary, and causing schools to raise already increasing tuition costs to account for the additional financial assistance.

College Costs at the Heart of the Issue

Harvard officials made their decision in part because they noticed students from middle-class families were simply not applying. Although Harvard allows almost any student from a household making less than $60,000 to attend the school almost for free, Harvard’s Dean of Admissions William R. Fitzsimmons noticed that his school was missing out on some “exciting” middle and upper-middle-class students, most likely because of the school’s high price tuition.

“People were voting with their feet,” Fitzsimmons said in the Times article.

But others see Harvard’s efforts as capable of reversing admissions trends. Donald E. Heller, director of the Center for the Study of Higher Education at Pennsylvania State University, says an increase in middle-class students to Harvard could bump out lower-class students from the school’s acceptance pool.

Some of the arguments surrounding Harvard’s recent tuition discounts are turning into the chicken and the egg type discussions. While some officials have used Harvard’s move as an example of why schools need additional federal funding, others fear that parents and students will point their fingers back at the institutions arguing that they’re clearly charging too much for an education.

“It will educate those parents into thinking, ‘Eighteen thousand dollars a year is what we ought to be paying; why should we have to pay any more than that?’” the president of Ursinus College, John Strassburger, asked in the Times article.

And perhaps that’s where the real problem lies: college affordability. There’s no saying when and if college costs will ever be overhauled, but in the meantime it looks like the only people winning in this situation are those Harvard students whose families make just the right amount of money.

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