Student Loan Blog : economy

Attention Freshmen and Transfer Students: Colleges Still Have Openings

Student Loan Girl — Thu, 07 May 2009 22:25:00 GMT

Almost 260 colleges and universities around the country still have openings for students, and most of these schools still have ample financial aid available, according to survey results from the National Association for College Admission Counseling (“NACAC Survey: Space and Financial Aid Still Available for Students On College Campuses,” May 2009).

Results from this year’s NACAC annual survey, Space Availability Survey: Openings for Qualified Students, indicated that schools still have spaces available for both freshmen and transfer students who may have not been accepted to their first choice schools or who have yet to apply to college. And, 97 percent of the institutions said they had housing space remaining.

The survey, conducted shortly after the May 1 “decision date” deadline, by which many schools require students to confirm their attendance and submit deposits, is designed as a tool for families, counselors, and teachers to help students who have not yet completed the college admissions process.

More than 70 percent of the 258 NACAC member schools that, in the survey, said they still had spaces available were private institutions. Many of these schools had anticipated lower enrollment numbers this fall after a separate survey found that the recession was forcing one out of six students to change their college plans (“Will the Economy Really Change Students’ College Plans? Signs Say Yes,” The Chronicle of Higher Education, April 24, 2009).

That survey, conducted by the College Board and the higher-education consulting firm the Art & Science Group, indicated that 41 percent of students were seriously considering a public college closer to home over a private institution.

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2010 College Enrollment Numbers May Not Be So Bad, Survey Reveals

Student Loan Girl — Thu, 02 Apr 2009 21:51:00 GMT

Although school administrators across the nation are reporting an increase in applications, they’re worried about just how many college students will actually enroll in their institutions this fall as families continue to tighten their budgets amid this recession, reports Inside Higher Ed (“Parents’ View of the Economy,” March 30, 2009).

However, a new survey of parents of college students indicates that while administrators’ concerns are valid, the economy may not have affected parents’ finances as much as educators originally thought, particularly among parents whose children are entering their freshmen year. Eduventures, an organization that tracks higher education trends, surveyed 7,000 parents with college-age children at a mix of 19 public and private colleges and universities.

Eduventures found that a majority of parents with freshmen — about 66 percent — said the downturn won’t affect how they will finance their children’s education this upcoming fall.

Overall, relatively few parents told Eduventures that they would not enroll their children in college due to lack of funding, although some parents indicated that they might choose to enroll their children in less expensive institutions to cut costs.

Of those parents with students at private schools, less than 12 percent indicated that their children were considering transferring to a less expensive school, and nearly 7 percent said they would encourage their children to take some classes at a community college. Of these same private school parents, less than 3 percent indicated that their students wouldn’t be returning to college in the fall, and less than 0.5 percent said that their children were considering dropping out of college permanently.

The numbers were only slightly different for parents whose children attend public colleges, with almost 9 percent saying that their children may have to consider transferring schools and less than 3 percent who believed that their children would need to look at dropping out of college. Nearly 6 percent of these parents thought that their children would need to live at home instead of on campus this fall.

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Connecticut Credit Unions Begin Offering Low-Interest Student Loans

Student Loan Girl — Wed, 17 Dec 2008 00:04:00 GMT

To help ensure that Connecticut students continue to have access to higher education in today’s economy, Governor M. Jodi Rell recently announced a new $17.5 million initiative that will help students obtain college loans at interest rates as low as 5.75 percent, reports TheDay.com (“Lending a Hand,” Dec. 14, 2008).

The new program, a partnership between the governor’s office and the Credit Union League of Connecticut, enables both incoming and current college students to take out loans at rates between 5.75 percent and 6.0 percent from approximately 18 state credit unions, with funds partially guaranteed by the Connecticut Health and Educational Facilities Authority (“Governor Rell Announces New College Student Loan Program With State Credit Unions,” StamfordPlus.com, Nov. 18, 2008).

“Household budgets are already strained by the effects of our struggling national economy,” Governor Rell said. “Many families have seen the funds they set aside for college evaporate — and they are now hard-pressed to come up with tuition for their children.”

Rell said under the program, which is a first for the state, loans are made available to families who wouldn’t typically qualify for traditional student loans as well as those who have depleted their financial resources and are struggling to find a way to cover college costs.

Credit Unions Uniquely Positioned To Offer Student Loans

To participate in the program, which will run for a full year and may be further extended depending on demand and available resources, credit unions must have allocated a minimum of $100,000.

At Ledge Light Credit Union, one of the participating institutions, students may borrow up to $35,000, and in some instances, defer their principal and interest for several years while attending school, said Bruce Fafard, president and CEO of Ledge Light. Fafard pointed out that many of his customers who had previously expressed interest in student loans from his institution may now be able to get the financial help they need.

With many of the conventional sources of college student loans disappearing, said Jim Metcalf, Ledge Light’s vice president of marketing and business development, “There's a big need out there for exactly what we’re rolling out.”

The governor says helping Connecticut families obtain loans for college is one of the ways in which the state maintains one of the most educated labor forces in the nation, a factor that may ultimately help the state attract more business, create more jobs, and improve its economy.

“This program will be another financial resource for our families and it will serve important needs that in many cases are currently unmet by existing loan programs,” Rell said.

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Two-Year Schools Waiving Tuition For Laid-Off Workers

Student Loan Girl — Tue, 09 Dec 2008 23:17:00 GMT

Typically, when the economy is down, enrollment is up at the nation’s community colleges. However, in the current economy, in which the unemployment rate is at a record high, Americans who find themselves recently unemployed can’t afford to further their education even at inexpensive local institutions.

In an effort to help, some community colleges in Pennsylvania are waiving tuition for local residents who were recently laid-off, reports Inside Higher Ed (“The Jobless Discount,” Dec. 5, 2008).

Reading Area Community College in Reading, Pa., extends a waiver to local residents who have been laid off within a year of applying to the school. The waiver, which represents a potential savings of $962, is valid for one semester to qualified students for up to 13 credits.

The tuition waiver benefits both students and the institution, since RACC students will get financial assistance furthering their education in the hopes that they’ll continue their education and become paying students once they’re employed, said David Zimmerman, a career services officer at RACC.

“It’s good will, and it’s good PR,” Zimmerman said. “It helps the community and helps people get back into the work force.”

This year, participation in the tuition waiver program is higher than in previous years, Zimmerman said. He speculates the closing of two local business plants owned by the Hershey Company and Tyco Electronics Corporation may be contributing to the spike in interest.

Tuition Waivers May Cost Pa. School $100,000 in Lost Revenue

Northampton Community College, located in Bethlehem, Pa. announced that starting next semester it would begin waiving tuition for those who were recently laid off due to plant or local business closings.

Under the waiver, qualified students will be able to take a maximum of 12 credits at a reduced cost beginning in January 2009. Students would be required to pay $28 in fees per credit, for a total savings of $900. The number of students allowed to enroll under the waiver program would be limited to the number of empty seats available in each class section.

Northampton President Arthur Scott said offering a tuition waiver may cost his school more than $100,000, because the school isn’t adding sections or other resources to accommodate for students who take advantage of the waiver, meaning the waiver isn’t considered an institutional expense, but rather lost revenue.

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College Students May Be Sheltered From Down Economy, for Now

Student Loan Girl — Fri, 14 Nov 2008 22:01:00 GMT

Regardless of how long the economy remains in crisis or whether or not this crisis becomes a recession, the effect on students will likely be minimal, at least in the short-term, says Fred Ruppel, economics professor at Eastern Kentucky University (“Student Body May Be Safe From Economic Crunch for Now,” The Eastern ProgressOnline, Nov. 6, 2008).

“Students should be well insulated,” Ruppel told The Eastern ProgressOnline, especially financially independent students who tend to finance their college education with student loans or rely on financial aid to pay for school. “The best place to be during a recession is in school.”

Ruppel points out, however, that students who rely heavily on their parents for financial support could be adversely affected by the downturn in the stock market, now that families’ portfolios may have taken a hit.

Jay Adkins, a sophomore at Eastern, still fears that the $700 million government bailout may be a sign that financing for education is in trouble. “If Freddie Mac and everything else is falling apart in the market, who knows if my student loans are going to be secure?”

Ruppel refutes Adkins’ concerns that the credit crisis will significantly impact student loans any time soon, but he says it may make getting a car loan more difficult for first-time buyers, which could be particularly problematic for students who rely on automobile transportation to get to school. “There’s less money for loans, with a lot more qualifications,” he said.

However, Ruppel does caution that the longer the economy falters, the more it will impact students and graduates. Whitnee Centers, a junior at Eastern, says while gas prices have declined, making her commute cheaper, less people are eating out, and, as a server, her tips are currently down 20 percent.

The economic crisis may have the greatest long-term impact on college graduates, Ruppel says. If the economy fails to create jobs, graduates may begin their professional career with bleak job prospects.

Adkins says, “If my parents know people who are getting laid off and are losing their jobs, who knows what jobs there will be available when I graduate?”

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In Declining Economy, Student Loans May Be More Difficult to Secure

Student Loan Girl — Tue, 04 Nov 2008 22:27:00 GMT

Students are finding it increasingly challenging to find the money they need to pay for college as the credit crisis continues to hamper student loan providers’ ability to fund new loans, reports MustangDaily.net, the college newspaper of California Polytechnic State University (“Student Loans Harder to Come By in Uncertain Economy,” Oct. 30, 2008).

In 2007 alone, Cal Poly lost almost 25 percent of its student lenders, leaving many families scrambling to find a new student loan provider.

“Last year (Cal Poly students) borrowed through 76 different lenders,” said Lois Kelly, the school’s director of financial aid. “Nineteen of those lenders are now declining to make any student loans. That is a substantial number of lenders no longer in the market.”

With fewer lenders serving the school, Kelly says students will have a harder time finding a student loan provider that will “be there for them” until they graduate.

To date, more than 100 lenders have stopped issuing federal student loans and 37 lenders have stopped offering private student loans due to a reduction in federal subsidies and a lack of funding to make new loans.

Lending Problem Affecting Students Nationwide

A recent study conducted by the National Association of Independent Colleges and Universities revealed that out of the 500 institutions surveyed, nearly 50 percent reported that some of their students were dropping out of school or switching to part-time status because students couldn’t get college loans and couldn’t afford tuition costs without them.

“We lost a large portion of our freshman class who were unable to secure a private loan and whose parents were either denied a PLUS loan or could not take one,” said an unidentified NAICU survey respondent.

Of the students who were denied a student loan and chose to remain in school, many turned to credit cards, which are generally more costly, to help pay their tuition expenses.

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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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Proposed Bailout for Massachusetts Student Loan Authority Uncertain

Student Loan Girl — Sat, 16 Aug 2008 01:42:00 GMT

A third attempt to generate liquidity for the Massachusetts Educational Financing Authority may be too little too late for some 40,000 Massachusetts college students, reports The Boston Globe (“Student Loan Authority May Not Get State Aid,” Aug. 14, 2008).

In late July, MEFA announced that it wouldn’t have enough money to fund any new private student loans this fall after it was unable to launch a bond offering in time.

With proposals from both the state’s governor and treasurer fizzling out, the student loan agency is attempting to raise about $400 million in funds from large investors through a new bond offering on the public market — a deal that, if completed, wouldn’t be finalized until September.

But bonds issued by student loan lenders are having a hard time finding buyers, as investors remain cautious in the wake of the collapse of the subprime mortgage market and the ongoing resulting credit crunch. According to The Boston Globe, the issue of $350 million in student loan revenue bonds just completed on August 7 by the Higher Education Student Assistance Authority of New Jersey was the first successful student loan bond issue since May.

Several Solutions, Few Viable Options

Soon after MEFA announced that it was suspending its private loan program, Gov. Deval Patrick asked that the Massachusetts state pension fund purchase $50 million of the planned upcoming MEFA bond offering, but the request has been rejected by State Treasurer Timothy Cahill. The pension fund’s executive director has said this direct purchase of MEFA bonds would violate the fund’s investment policies.

Cahill has suggested an alternative solution, in which the state would back the MEFA bond offering, using taxpayer funds as collateral. But this initiative would require approval by the state legislature, which isn’t scheduled to meet until October.

Of the ideas lobbied so far as possible ways to help MEFA regain its financial ability to offer student loans, the proposal with the most potential, put forth by some of the state’s colleges and universities, may not go into effect until next year.

This plan would reinstate a participation fund, phased out several years ago, in which schools set aside up to 6 percent of the loan amounts their students take out through MEFA. These stockpiled funds serve as a type of insurance for bondholders and may provide a draw for otherwise reluctant potential investors.

Though most Massachusetts students have already begun pursuing other financing options, Cyndi Roy, the governor’s deputy press secretary, says that the administration is continuing to work with the state’s loan authority.

“Governor Patrick put a serious, viable proposal on the table,” said Roy, “and he remains actively engaged with MEFA on that and any other solutions that will help 40,000 Massachusetts families send their children to college this year.”

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Governor Launches Website to Help Massachusetts Families Find Student Loans

Student Loan Girl — Thu, 07 Aug 2008 11:32:00 GMT

Massachusetts Gov. Deval Patrick has set up a financial assistance website to help the 40,000 families who were previously served by the Massachusetts Educational Financing Authority to find a new student loan provider for the 2008–09 academic year, following MEFA’s announcement on July 28 that it was suspending its private student loan program.

The news that MEFA would no longer be offering private student loans came just weeks before fall tuition payments are due and a mere three months after the state agency suspended its federal student loan program, citing the troubled economy and continuing fallout from the collapse of the subprime mortgage market. MEFA’s announcement last week marks the first time in the lender’s nearly 30-year history that it won’t be able to provide any student loans, federal or private.

The governor’s new student loans website gives borrowers an overview of student loans and the different types of student loans still available, provides links for families to compare the interest rates being offered by certain private student loan lenders, and brings together information on scholarship resources.

“It is critical for our students to be able to pay for the colleges of their choosing,” said Gov. Patrick. “I have directed my team to make available a list of resources to help students and their families locate the information they need to finance education this fall and beyond.”

Late yesterday, Gov. Patrick also made a move aimed at restoring liquidity to MEFA, asking the Massachusetts pension fund to invest $50 million in the state student loan agency by buying MEFA bonds — MEFA would use the proceeds from the bond sale to finance new student loans. The governor intends to approach Boston College, Harvard, MIT, and the University of Massachusetts, among other schools in the state, about making similar investments.

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Massachusetts College Students Lose Funding Source for Student Loans

Student Loan Girl — Tue, 29 Jul 2008 20:41:00 GMT

For the first time in its nearly 30-year history, The Massachusetts Educational Financing Authority won’t be offering student loans this fall to the 40,000 borrowers it serves, according to an article in The New York Times (“Agency in Massachusetts Is Stopping College Loans,” July 29, 2008).

Citing the troubled economy and fallout from the subprime mortgage crisis, MEFA dropped out of the federal student loan business in April, but by June said it would continue to offer private student loans.

The nonprofit student-loan authority, which provided more than $500 million in college loans to Massachusetts students last year, announced on Monday that it would no longer be feasible to offer private student loans. MEFA made the announcement following news that the authority’s bond insurer faced a possible credit-rating downgrade that would have increased the cost of floating new debt.

”It’s really the capital markets. It’s a global situation,” said Jessica Belt, a MEFA spokeswoman. “We’re looking at other options. It’s uncharted territory for everyone, not just MEFA.”

MEFA joins the list of 50 other nonprofit organizations, state agencies, banks, and private lenders that have dropped out of the student lending business this year. Belt says that while it is unclear when the agency will be able to secure new funding, it hopes to rejoin the market in time to help students with their tuition bills for the spring semester.

In the meantime, MEFA has set up a hotline to help families secure other college funding sources.

MEFA will continue to run its other educational programs, including U.Fund, a college savings plan that families can use to pay for tuition, fees, room and board, and books at 80 Massachusetts colleges and universities.

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Feeling the Pinch of Rising Food and Gas Prices, Students Flock to Food Banks

Student Loan Girl — Tue, 29 Jul 2008 19:42:00 GMT

The rising cost of food and gas has become so taxing for some students that food banks in college towns are beginning to see an influx of students, according to an Associated Press article (“Struggling College Students Turn to Food Banks,” July 26, 2008).

The University District Food Bank located in a college neighborhood near the University of Washington campus has seen a 25-percent increase in demand and now serves about 150 students a week.

And the Community College of Denver, which runs its own food-assistance program for students, asked the school this year to double its annual budget to $3,000 to account for a 50-percent increase in demand.

With food prices rising 5 percent in the past year — the highest increase in nearly two decades — and gas prices topping four dollars a gallon across the country, “more and more, it’s just the typical traditional student, about 18 to 22, that’s feeling this crunch,” says Larry Brickner-Wood, director of the Cornucopia Food Pantry at the University of New Hampshire.

Doug McManaway, a University of Washington student, says that after paying for rent he only has $100 left to spend on food for the rest of the month. A food bank may be his best option, he says, although “it kind of grosses me out.”

“But if my parents say, ‘No, we’re not going to give you any more money,’ ” McManaway says, “[food banks] may be a last resort.”

While food stamps are another option for students, qualifying for the program is a more complicated and restrictive process than getting in to most community food banks, which most often just ask students to provide a student ID to prove they live in the area.

To be eligible for food stamps, college students generally must be on public assistance benefits, work at least 20 hours a week in a state or federal work-study job, and take care of a dependent household member under the age of 6. Students who are enrolled in employer-sponsored job training classes may also be eligible.

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Community Colleges Eliminate Friday Classes to Help Students Cut Gas Costs

Student Loan Girl — Tue, 20 May 2008 02:54:00 GMT

Several two-year schools with large numbers of commuter students have reduced the length of their academic week from five days to four in an effort to reduce their students’ commute and help them save money on gas.

Making class sessions longer, these schools have been able to cancel classes one day a week, mostly opting for Fridays. This move has allowed their students, who are typically low-income and often work part-time jobs or support families while going to school, to eliminate one round-trip drive out of their weekly schedules.

Meridian Community College in Mississippi recently decided to extend its four-day week — already planned for the summer schedule — into the fall semester as well, according to a story in Inside Higher Ed (“Dropping a Day to Save on Gas,” May 19, 2008).

MCC president Scott Elliot told Inside Higher Ed that 90 percent of Meridian’s students drive themselves to class, and over half of those students commute an average of 30 miles round trip. By his initial estimates, based on earlier gas prices, which have continued to rise, these students will save at least $200 a semester on gas under the new class schedule.

The school plans to try the four-day-week schedule for at least one academic year before evaluating its effectiveness with focus groups and surveys.

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As Food Prices Rise, Cost of Campus Meal Plans Going Up

Student Loan Girl — Sat, 10 May 2008 01:05:00 GMT

College students may see a sharp spike in the cost of their on-campus meal plans this fall, due to rising food prices, according to a story this week in The Chronicle of Higher Education (“Soaring Food Prices Have Campus Dining Halls Squeezed,” May 6, 2008).

Several schools have already announced that they intend to increase their meal-plan prices next year, and it’s likely that many more schools will follow:

• Louisiana State University	7.0% increase
• Clemson University	6.0% increase
• University of Miami	4.5% increase
• Ohio University	3.5% increase

In an attempt to avoid huge deficits and stay within their budgets, college food-service operations across the country are getting creative with their meal plans and coming up with unique solutions to contain their costs.

Louisiana State University, for instance, will focus on reducing the portions of its meals.

At Ohio University, the school will focus on marketing meal plans to off-campus students in an attempt to increase overall revenue. In addition, food-service staff will be baking items like cookies, pizza dough, and rolls, from scratch, instead of using premade products.

Rich Neumann, director of dining services at OU, estimates that baking from scratch will save the school almost $100,000 each year alone.

One of the simpler, if more manipulative methods is the one implemented by Western Washington University for one week last month. The school simply removed trays from the dining halls so that students couldn’t carry as much food.

The strategy worked.

According to the director of WWU’s dining services, the dining halls saw a 34-percent reduction in waste when the institution went trayless.

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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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