Despite Credit Crisis, Most Students Have Found Loans
Private Lenders' Pullouts Have Caused Some Last-Minute Frenzy

By Susan Kinzie
Washington Post Staff Writer
Sunday, August 31, 2008

The national credit crisis has caused confusion and some last-minute scrambling for college students and their parents, but most of them have been able to borrow the money they need to pay for school.

Students, schools and analysts who monitor lending said it's good, if surprising, news, given the financial turmoil in the credit markets.

"We haven't had a single student turned down for a loan," said Melissa Gregory, college director of financial aid at Montgomery College. She was surprised, especially because earlier this year some banks announced that they would no longer lend to students at community colleges.

More than 130 lenders have pulled out of the student loan market, according to Mark Kantrowitz, publisher of finaid.org. That included some dramatic departures late in the summer, just when tuition bills were going out.

"What's especially challenging this year," said James Boyle, president of College Parents of America, "is that the [college] financial aid offices are themselves sort of reeling from various lenders dropping out . . . it's difficult for the financial aid offices to keep pace, let alone for parents to understand it."

Federal aid has remained by far the biggest source of loans. But during the past decade, the private market rose dramatically. Now, however, many banks have adopted stricter rules, trying to lower their risk, so the hardest-hit are students who don't have credit, have poor credit, or don't have someone to co-sign a loan.

Some financial aid officers see a bit of a bright side to all of this: It could make families more apt to choose federal loans, which offer more protections than private loans, such as deferments, more-flexible payment plans and loan forgiveness options.

Congress and the Department of Education stepped in to help federal loans this year by cutting the rate on certain loans for some students with low incomes, by letting undergraduates borrow more money from a federal loan program, and allowing the department to buy loans from some lenders to ensure that federal loans are available.

Kantrowitz estimated that 98 percent or more of students nationwide won't have any issues, although many of the lenders have not gotten the money from the Department of Education, so there is a chance for problems in the next couple of weeks. Schools won't know for sure until this semester's bills are paid.

Still, at the University of Virginia, Georgetown, Catholic, Johns Hopkins, Howard and the University of Maryland, school officials said they hadn't heard of students unable to get loans for the fall semester.

At American University, Brian Lee Sang, director of the financial aid office, said there were some reports of students having trouble, and at George Washington University, one or two dozen students in the law and medical schools had to find new loans quickly when NorthStar Education Finance suspended its loans. The lender then announced last week that it would fund some on a limited basis, and the financial aid office worked with those students to find other loans.

But there was a frantic nature to loan applications this season, adding to the uncertainty. One lender serving the University of Maryland had said it might not be able to make loans, only to come through with funding a week before school started.

"Everyone's worried about it," said Stewart Carlson, a sophomore at GWU; her family was able to afford tuition, but she saw friends stressing about loans and turning down private schools for cheaper in-state universities at home in Seattle.

At Trinity Washington University, where many students come from families in the District who don't have a lot of money, administrators have been worried, particularly for students with weak credit histories. At Northern Virginia Community College, two of the five lenders the school had been recommending dropped out. But officials at both schools said students were receiving the loans they needed. In fact, at Northern Virginia, the school will have 5 percent more students this fall, and the volume of loans is expected to double over last year.

It has been significantly worse for career colleges, where many of the students are working adults with low incomes and without parents or others to co-sign a loan, said Bob Cohen, senior vice president at the Career College Association.

The federal intervention has helped, he said. And some career schools began loaning money themselves.

For those who don't have credit or help from relatives, who are now more likely to get turned down, the options are more confusing and less appealing, including private loans that pile on costs.

"A lot of students are ending up going with loan providers that have extremely high interest rates because they don't mind taking on people that are a higher risk," said Carmen Berkley, president of the United States Student Association.

To get federal aid, students need to fill out an exhaustive form that some families never get through.

Despite the last-minute uncertainty, a Sallie Mae-Gallup survey last week found that two-thirds of polled students with loans would have found a way to pay for school even if they hadn't received the aid.

Last year, Sophie DeMartine wasn't worried about the cost of college and picked the school with the international affairs program she wanted, turning down full scholarships at state schools at home in Florida. This year, after her father's business slowed because of the economy, she wasn't sure she would be able to come back to George Washington University.

"It looked iffy there, for a while," she said.

But she got enough financial aid to swing it, and even, in the end, avoided having to take out loans.

Her roommate last year was really worried that her loans wouldn't come through and she wouldn't be able to pay tuition, DeMartine added as she waited to help freshmen move in. "But she's here, too. I just saw her!"