Saturday, December 9, 2023

Credit crunch alarms student loan lenders

March 26, 2008

With the prospect of federal student loans decreasing in availability next year, Whitney Krieger said she is worried she won’t be eligible for the aid she needs.

“It’s kind of scary,” said Krieger, an interior design sophomore. “My dad’s helped me out with college, but there’s only so much he can do at one time.”

Student discomfort like Krieger’s concerning student loans could continue as several lenders have announced they will stop adding new funds to the Federal Family Education Loans program, the primary provider of loans to students.

Mark Kantrowitz, publisher of, said at least 27 lenders have stopped adding funds to the pool because the credit market has been so bad. But although some lenders have left, Kantrowitz said students won’t be affected — yet.

“There’s still plenty participating,” he said. “To some extent, the remaining lenders are picking up the slack. But clearly, if this goes on much longer, the lenders won’t be able to pick up the slack.”

Kantrowitz said the government will have to intervene by mid-2009 if the market continues in the wrong direction. Otherwise, he said, student-loan accessibility will be much worse next year.

“Word is Congress is looking for solutions, but so far nothing has happened,” he said.

The Perkins Loan Program is another federal loan for which funds are decreasing, said Rick Shipman, director of the MSU Office of Financial Aid.

This year, the program loaned $7 million to 6,600 low-income students. Next year, $5 million will be available, he said.

“We actually have more students eligible, but less money to give out,” he said.

The federal government hasn’t put any money into the Perkins Loan Program in years, Shipman said, and some previous recipients of the loan did not have to pay their debts back.

“Some students are able to discharge their loan if they go into the military or teaching,” he said. “Their debts are forgiven by the federal government, but the federal government doesn’t necessarily reimburse the school.”

Shipman said President Bush has proposed several times to eliminate the program entirely, which would remove another option available to students.

“A lot of people in Washington argue that it’s just another federal loan program, and we don’t need another,” Shipman said.

Private loans, an alternative to federal loans, don’t look any better.

The state suspended the Michigan Alternative Student Loan, or MI-LOAN, in February. About 300 MSU students borrowed more than $3 million from the program this year.

Terry Stanton, a spokesman for the Michigan Department of Treasury, said the MI-LOAN was suspended because of market conditions.

“We’re looking at potential remedies, but at this point there’s no timetable for when it might be reinstated,” he said. “We certainly hope to do so when the market straightens out.”

And this impending loan crisis could have quite an impact on students like Krieger — she said she received $5,000 in federal loans this year.

“Without it, I’d be screwed,” she said.

Support student media! Please consider donating to The State News and help fund the future of journalism.


Share and discuss “Credit crunch alarms student loan lenders” on social media.