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Continued turmoil in the nation’s financial markets has affected more than just mortgages — lenders are pulling out of the student loan business, causing financial aid officers more anxiety than they are used to.
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Financial Aid Assistant Judy Trocinski, goes over a Free Application for Student Aid form with a student Thursday in her office at Southeast Technical College in Winona.
(Photo by Melissa Carlo/Winona Daily News) |
Hit particularly hard have been two-year community colleges and technical schools. Minnesota State College-Southeast Technical, which has campuses in Winona and Red Wing, Minn., hasn’t been able to avoid the mess. This spring, four lenders — 40 percent of MSC-ST’s preferred lenders list — dropped the school, meaning students will have fewer options to chose from when they pick a lender.
A number of national lenders have dropped out completely of the Federal Family Education Loan Program, the most common type of student loans that include Stafford and PLUS loans. Other lenders, most notably Citibank, have ended their lending relationship with two-year colleges, like MSC-ST, to focus on more selective four-year universities.
“My first thought at the time was, ‘My gosh, what will we do if we don’t have any lenders?’” said Anne Dahlen, financial aid director for MSC-ST.
Dahlen and financial aid experts in the region are quick to state that no student at any school, including MSC-ST, will be left unable to secure student loans in the fall. The volatility in the credit market has raised enough warning bells to cause officials to ensure students are more aware of the loan market’s situation.
The Minnesota Office of Higher Education advised students at the end of May to not wait to investigate loan options and to secure a lender as soon as possible, even if their loans aren’t finalized.
For large institutions like Winona State University, which generally carries 20 preferred lenders for students to chose from, having three or four drop the school can go unnoticed. But for a school like Southeast Tech, which carried only 10 lenders and now has six, students will now have fewer choices for their loans.
Financial aid administrators have worried about what would happen if things got worse.
“A bank rep called me, and the first thing I said was, ‘You guys have to still do loans’,” Dahlen said.
But colleges received a bit of good news on the lending front June 10, when Sallie Mae, the nation’s largest provider of student loans, reiterated its commitment to the federally subsidized student loan program. The former quasi-governmental-turned-private corporation squelched earlier fears it would limit its involvement in the market, stating it would provide loans to “all students at all schools who need a federal loan to pay for college.”
“When I saw Sallie Mae was threatening to leave, that was a little scary,” said Kathy Ruby, president of the Minnesota Association of Financial Aid Administrators and director of financial aid for St. Olaf College. “Their staying in made people feel a little better.”
Though officials said with confidence that no eligible student will be denied a loan because of a lack of lenders, students will see some tangible effects when they apply for packages this year. To differentiate between loans that have rates set by the government, lenders have historically offered benefits such as fee waivers to students to entice their business.
Some banks that have continued to stay in the student loan business have cut or reduced those benefits to maintain profit margins.
“It was a very big deal for us to think about how this will affect our programs and the students,” said Sandra Drexler, vice president of consumer and business banking for Associated Bank. “We did have to reduce them to make sure we keep our program active.”
Great Lakes Higher Education Guarantee announced June 4 it would discontinue its federal default fee waiver for loans guaranteed on or after July 1. Great Lakes is secured by MSC-ST as its “lender of last resort,” a provider that guarantees students receive loans if other programs decide to drop the college.
Having to even consider using a lender of last resort is foreign territory for many veteran financial aid officers.
“I have been working in financial aid since 1990, and never had to deal with a lender of last resort before,” Dahlen said.
Many schools have grown frustrated with the turmoil, and have decided to bypass private lenders by offering loans directly to students through the U.S. Department of Education. Dahlen said MSC-ST is not yet considering the move, but two St. Paul schools, Macalester College and the University of St. Thomas, recently announced they will offer direct loans in the fall. They join the University of Minnesota and over a dozen public and private universities in the state that offer loans directly. Ruby said St. Olaf is considering becoming direct lenders.
Students that had loans with lenders who dropped their school will need to secure new loans. The effect on students with multiple lenders should be minimal, Drexler said, and they still have the option to consolidate those loans into one.
Ruby said the confusion of multiple statements can put students in a difficult place.
“The conventional wisdom is the more lenders you have, the more likely you are to default,” Ruby said.
With the reduction in loan options, more students may be forced to take out private loans, which have higher interest rates and less attractive conditions.
“It isn’t a positive thing when a lender gets out of the business,” said Melinda Voss, public affairs director for the Minnesota State College and University system. “But it’s too early to tell whether this situation will worsen to the point where it affects our students.”
