CSUN University News Clippings

Students Rely on Federal Loans to Pay Rising Tuition

(October 21, 2009)

By ROBERT TOMSHO

(Students in a chemistry class last month at California State University East Bay in Hayward, Calif.)

More college students are relying on federal student loans instead of increasingly scarce private ones as tuition costs continue to rise, new data indicate.

According to reports issued Tuesday by the College Board, the volume of private student loans — those not made or guaranteed by the government — fell by 52% in the 2008-09 school year as recession-battered lenders tightened credit standards or abandoned what had been one of the fastest-growing sectors of the financial-aid market.

The New York-based college-admissions nonprofit said students and their families took out an estimated $11 billion in private student loans for the 2008-09 school year, down from $22.8 billion in 2007-08. All loan figures were given in constant, or inflation-adjusted, 2008-09 numbers.

The private loans, which generally have higher interest rates and more stringent terms than those made or guaranteed by the federal government, are often the last recourse for students who have maximized borrowing under federal programs.

As credit markets came to a near-halt last year, the government took steps to boost student lending in government programs, but the increase wasn’t enough to offset the drop in private credit. According to the College Board, federal-loan volume rose 15% to about $84 billion in 2008-09, and overall lending fell to $95.9 billion in 2008-09 from $96.7 billion.

“I think what we are seeing here reflects the enormous credit tightening that occurred in the economy,” said Terry Hartle, senior vice president of the American Council on Education, a college trade group.

Mark Kantrowitz, publisher of FinAid.org, a Web site that tracks financial-aid issues, said in an email that, amid the credit crunch, lenders have been unable to interest investors in buying securities backed by student loans, making it tough to raise lending capital.

More students and parents are pursuing federal aid, in part because as parents lose jobs, more qualify for a broader variety of such loans. The Obama administration has tried to make federal financial aid more readily available, pumping additional funds into Pell grants for low-income students and streamlining the application process.

The new reports also suggest that such efforts may be at least partially blunted by increases in tuition and fees. The College Board reported that average tuition at four-year public colleges and universities in the U.S. rose 6.5% in 2009-10, to $7,020 — even as overall consumer prices fell. Average tuition at private, nonprofit four-year schools rose 4.4% to $26,273 for 2009-10.

Sandy Baum, a senior policy analyst at the College Board, said the tuition increases were due, in part, to declining state appropriations for higher education. They totaled $78.5 billion in 2008-09, down almost 5% from $82.2 billion the previous school year.

Ms. Baum, a former economics professor at Skidmore College, said that increases in college costs have been at least partially offset by increases in financial aid.

Patrick Callan, president of the National Center for Public Policy and Higher Education, a research group that tracks higher-education issues, called the trends highlighted in the report “disappointing,” and said continued increases in college costs threaten to undermine the federal government’s efforts to make college more available.

“We are kind of going on a national treadmill,” he said.

Publication: The Wall Street Journal