What's Going on With Education Loans in Today's Economy?

You're probably wondering how the current national financial mess--foreclosing mortgages, the plummeting stock market, and the credit crunch--will affect your ability to obtain educational loans. Unfortunately, this financial fiasco has far-reaching and cascading implications for higher education funding. The problem has several components:

• Tuition costs are increasing
• .More students are eligible for limited aid sources as the economy worsens and family resources dwindle.
• Scholarship and grants will likely decrease for economy-related reasons.
• Lenders are opting out of the loan programs or significantly cutting back and making fewer loans available.

Tuition Costs
There's not much you can do about rising tuition costs other than considering the possibility of applying to a lower-cost school. And the competition for such schools is probably going to increase as others face the same financial woes.

Increased Aid Eligibility for Students
Investment and education savings accounts have taken serious hits, unemployment is skyrocketing, and home equity loans, which many parents have historically used to fund educational expenses, are no longer a viable option as home equity refuses to rebound. As family incomes and resources decrease, more students become eligible for financial aid.

Federal aid applications are up 16%. Because there won't be a significant increase in funding, the same amount of money will have to be spread over more students, which results in more students needing more money to pay their educational costs. And there doesn't seem to be any more money.

Less Scholarship and Grant Money
Available scholarship and grant money hasn't kept pace with increasing costs for some time, and with a worsening economy the situation is not expected to improve. Corporations and charities that have long been a source of scholarships and grants are projecting shortfalls, which means fewer scholarships and grants.

According to an article in the New York Times, the Federal Pell Grant program is expected to experience a shortfall of $6 billion (which includes prior year shortfalls). Without a taxpayer bailout, this could result in a reduction of annual awards in subsequent academic years, guaranteed to make the funding situation worse for students.

What about Loans?
With the economic forecast remaining grim and no increase in grant and scholarship funding on the horizon, educational loans will have to take up much of the slack. In these difficult financial times, unable to secure private educational loans due to tighter eligibility requirements, students have opted to take time off, switch to part time, work more, or pay educational costs with credit cards. Education loan programs--Federal Family Education Loan (FFEL) and Direct Loans for students and PLUS loans for parents and graduate students--also remain a viable funding option.

In an attempt to keep educational loans available to students and their parents, the Department of Education has implemented a "student loan bailout program" to assure that lenders have the incentives and liquidity to continue making loans under the FFEL program. In 2008-09, about 30 percent of schools have also opted to participate in the federal government Direct Loan program (up from 19 percent in 2007-08) according to Tim Ranzetta, founder of Student Lending Analytics.

In the Final Analysis
According to Kim Clark in her article, Is a College Degree Really Worth The Cost?, "a wide variety of studies show that, on average, college does pay off in both financial and non financial ways," so completing your education, particularly in times of economic downturn, is crucial if you want to be competitive in the job market. And educational loans have pretty much become a fact of life for the average college student. Contact your financial aid office for information on available educational loan options.

Source
Higher Ed Struggles as Economy Falters
Pell Grants Said to Face a Shortfall of $6 Billion
For Fall Semester, Student Borrowers Muddle Through

About the Author:
Judi Sandall is a graduate of the State University of New York, with a BA in English Literature. She is a technical writer and editor who worked in student financial aid for over 20 years.