Students feeling the federal financial crisis as they apply to college
Credit jitters on Wall Street are affecting the student loan markets.
That's making senior high school students jittery as they send off college applications.
When Jan. 1, 2009, rolls around, Park Rapids seniors Kirt Leadbetter, Kayla Stursa and Amelia Pugh will be applying for scholarships, grants and loans.
They're keeping their options open as to which college they will attend. All three are worried about going into long-term debt getting a post-secondary education. Students can borrow directly from the federal government or take out loans from banks or other private lenders subsidized by the government.
Meanwhile, as Congress works to implement the $700 billion market bailout and the stock market continues on a rollercoaster ride, lawmakers are trying to ensure that students can afford college educations.
Tighter credit markets could result in students and parents paying higher interest on loans or facing more restrictive qualifications to get those loans.
"A lot of banks have quit dealing in student loans" altogether, said Park Rapids Area High School guidance counselor Susan Rassier.
Last week Congress passed, on a voice vote, legislation that authorized the secretary of education to buy loans from lenders participating in the federal guaranteed loan program when the banks are unable to meet student demand for funds, due to the turbulent credit markets.
"Our tough economy is already dealing a huge blow to American families, and we can't allow trouble in the credit markets to further price students out of a college degree," said House Education and Labor Committee Chairman George Miller, D-Calif., in proposing the legislation.
The bill assures students access to loans regardless of credit market conditions and would allow students to borrow more money from federal loan programs and rely less on private lenders.
Rassier worries that schools are becoming more expensive, even in-state schools, and students and parents are entering long debt cycles to pay for educations.
But she sees an irony in that students come to her to say they don't want to borrow money for school, yet don't think twice about taking out a car loan.
"I tell them borrowing money to go to school is an investment in yourself," she said. "You still have to be wary how much you borrow but it's important to invest in yourself because your car won't work anymore and you're going to have to replace it anyway. Whereas whatever you borrow for your education you have forever."
But it's that borrowing that concerns the three seniors.
Kirt would like to attend the University of Minnesota, but he's applying to five other colleges.
Kayla would like to attend Concordia, but its annual tuition of $30,000 is a daunting prospect. "One hundred twenty thousand dollars for four years," the wide-eyed student said, shaking her head at the prospect.
Amelia is looking at Bemidji State University, but cost comparisons Rassier provides students shows BSU has the highest tuition cost of 4-year colleges in the Minnesota State University system. Tuition there is $6,756 annually.
Rassier said even a technical college education can cost students a minimum of $20,000.
None of the three seniors intend to work during school their first year, but all admit it will be a pinch. Gas money for trips home, groceries, laundry money, just the little incidentals, will add up quickly, Kirt noted.
New York Sen. Chuck Schumer implored Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke to protect student loan markets as they implement the financial rescue plan. He recommended that colleges allow students to obtain loans directly from the federal government instead of turning to private lenders in crisis.
The student loan market is an $85 billion enterprise. So far, lawmakers say there's no shortage of money, but rising defaults in the loan industry overall and cuts in federal subsidies to student lenders are causing strains for potential borrowers.
Reduced federal subsidies and lower profits have led many banks to scale back incentives to borrowers such as discounted interest rates for having payments automatically debited from bank accounts.
The nation's biggest student lender, Sallie May, is the company hit hardest by those reduced subsidies.
Sallie May wrote off $142.6 million from student loan borrowers who missed payments during the July to September quarter. That more than doubled the $67.2 million write-down it incurred a year earlier, according to Department of Treasure statistics.
All three seniors are worried they could have trouble qualifying for academic aid, which is primarily based on ACT scores, not what they have achieved as student leaders.
"It puts a lot of pressure on you," Kirk said. "There's lots of competition out there" for academic scholarships.
"You work your butt off in high school to achieve" excellence, but all colleges look at is one test score, Kayla said.
And students who score well on the ACT, but don't turn in a brilliant score, are worse off, she said. They're completely overlooked by financial aid offices. "Where's the payoff?" she asked.
If several students qualify for scholarship monies through test scores, generally colleges turn to their secondary criteria in awarding them - a needs-based formula.
Kirt perused a monthly loan payment chart Rassier provides students, so they can get an idea of what their indebtedness will be, assuming they qualify for student loans at varying interest rates.
"If you get a $50,000 job out of college you'll be paying most of it in student loan payments for the next ten years," he said.
They agreed that's no way to start off in life, college educations in hand.