Will the credit crunch affect your student loans?

An analysis of the effects of the budding financial crisis on university students, published on North by Northwestern in May 2008.

The so-called “credit crunch,” which in recent months has made it harder for people across the world to borrow money, has found a way to hit college campuses.

In past months, 14 percent of private lending companies have said they would withdraw from the $85-billion student-loan business. The biggest student-loan firm, Sallie Mae, has also said it might discontinue student loans.

As costs rise and government subsidies decline, student loans have become increasingly unprofitable. Many lenders that stay in the business are limiting the number of people they give loans to.

Northwestern Associate Provost Michael Mills said that the crisis could affect future attendance at Northwestern.

“Northwestern and all of our peers have a theory that this might influence seniors to not go to private schools,” Mills said.

But Mills added that he wasn’t worried about current students because the university’s reputation is a sufficient guarantee for lenders.

“Our students are very appealing to banks. They really don’t run a risk of default, so the Northwesterns of the world are going to be fine,” he said.

Economics Lecturer Steffen Habermalz agreed.

“It’s the less fortunate, the less qualified students in the economy that we should worry about before we worry about Ivy League students,” he said.

Students shouldn’t be concerned about loans, Habermalz said, because there isn’t much they can do to change the global situation.

But he said students may want to consider other effects of the crisis.

“If you’re at the beginning of your college career, of course, you can still choose your major, and that might affect it,” he said. It may be an especially tough time for Kellogg students looking for a job in finance, he added.

The government has tried to remedy the situation by filling in for private loan companies. On April 30, the U.S. Senate approved legislation to increase the amount that students can receive from federally subsidized student loans, shortly after a similar bill passed the House. The bills gave the Education Department the power to buy loans from student lenders, and ensure students get reliable access to cash.

The Federal Reserve announced May 2 that it would accept student-loan-backed securities as a guarantee for some federal borrowing. Sen. Christopher Dodd (D-Conn.), the chairman of the Senate Banking Committee, suggested the possibility of getting the Federal Financing Bank to inject money in the student-loan market.

Although the government is taking action, the economic crisis leaves some feeling powerless. For the students part of the Roosevelt Institution, a student think tank with a Northwestern chapter, the current economic crunch is “an economic crisis of proportions unmatched since the Great Depression,” as stated in their recent letter to the editor in The Daily Northwestern.

“At least one million students next year will not receive their college loans as a result of the financial meltdown,” the letter said.

“It affects everyone who is looking for a job, looking for somewhere to live in the next few years, and just dealing with higher prices all over the place,” said Stephanie Gross, a member of the Roosevelt Institution and a Weinberg junior. “One of the most direct impacts that it’s making is already happening to many students is credit, and particularly college loans.”


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s