Student loan applications increase with economic crisis
The economy has forced some students to choose less prestigious schools.
Jan. 30, 2009
An economy in recession and tightening criteria for student loans will make it harder for students to pay for tuition, which is expected to rise as schools lose state money or see fewer donations from private donors.
The average tuition cost for students this year was $6,585 for students attending in-state public universities and $25,143 for those at private institutions. But options for paying those costs are being hit hard by the falling market.
Last year, 60 major lending companies provided more than $20 billion in financial aid to students. This year, Finaid.org, a Web site that monitors the financial aid industry, says 39 of those lenders have stopped making student loans and the others have raised the standards for those who can get them.
The prospect of less funding from school scholarships and private loans has already caused a 10 percent increase in applicants for federal aid compared to this time last year.
Edie Irons, director of the California-based Project on Student Debt, said federal loans are readily available and that many students would qualify. Irons said her group estimates that only 8 percent of graduating college seniors in 2007 relied solely on private loans. She said this should offer families hope, but that the financial crisis will be trying for some.
"The main thing for students to know is that federal loans are still there," Irons said. "The number of students who rely solely on private loans is very small, but the reality is that the present economy has made college harder to afford."
Individual states are having problems offering help of their own to students. Parents sometimes use Section 529 plans, state-sponsored investment funds that see fewer taxes than regular investments, to help pay the tuition bills, but the plunge of the stock market has made those options less effective.
Mark Kantrowitz, president of the company that publishes FinAid, an online financial aid search engine, said the problems of the student loan industry have the same roots as other economic difficulties. "The credit crisis is responsible for a lack of liquidity in all forms," Kantrowitz said. "If it wasn't for quick action by Congress we'd be in a full-blown crisis."
Families of college students count on such aid to make college affordable. The College Board estimates that financial aid decreases tuition to an average of $2,900 per year at public universities and about $14,900 at private colleges.
Combined with a likely decrease in private scholarships as donations to civic groups and charity organizations decline, difficult economic realities are forcing some families to weigh the decision to either take on more debt for the future, or to aim for less prestigious, more affordable schools.
The federal government is one remaining source of aid for students. It is still offering student loans, with some increases recently passed by Congress and more included in the $825 billion stimulus package that passed in the House of Representatives on Wednesday.
In spite of the economic crisis, the government has authorized about $95 billion in loans, grants and work-study programs to help about 11 million students pay for college. Annual limits for Stafford loans, which are available to students regardless of their family's income, were also increased by $2,000.
MU Financial Aid Director Jim Brooks said his office has not seen a large increase in students, mainly because of the increased federal aid.
"I wouldn't say we've seen too much more traffic," Brooks said. "The federal government is still making loans so people can get their money."
In fact, Brooks said MU has given more financial aid this year than in the past because the number of students who qualified was so much larger. He said that number could increase, depending on whether a proposal put forth by Gov. Jay Nixon to maintain MU's level of state appropriations passes the legislature.
"For this year, because the class is bigger, we're probably spending more money on financial aid," Brooks said. "Next year will probably depend on the legislature, but if (the bill) goes through, it will be great."