Stephanie Hoelker had “a big scare” when her loan provider, Key Bank, stopped offering private loans. The senior biology major said she looked for other loan providers, but wasn’t sure she would be approved for loans.

“I don’t feel secure,” she said. She pays for college on her own without any help from her parents. She had a little luck with financial aid from the government; but she only received it her first two years of college. The senior, who is going to Kent State for one more semester, relies mostly on private loans to finance her education.

She did find another lender with Citi Bank, but pays two or three percent more interest on her loan than she did previously.

Lenders exit the community

Around 111 lenders in the Federal Family Education Loan Program have suspended loans, and about 34 private lenders have suspended practices as well, according to the National Association of Student Financial Aid Administrators. Kent does not use FFELP loans because it is operated under the Direct Loan program.

Director of financial aid Mark Evans said there were once about 250 private loan programs.

Lenders are closing because “the federal government significantly reduced subsidy,” he said, adding that some lenders are eliminating loan consolidation.

Student Loan Xpress, a FFELP and private loan lender, is among those no longer offering loans. David Harmon, the president of Student Loan Xpress, said the company had to exit for two reasons. First, Congress lowered the interest rates on loans, making the rate too low for Student Loan Xpress to offer loans. Secondly, “the market for purchasing was dried up.”

Two of the nine FFELP lenders the University of Akron works with dropped out.

“Student loans are trying to avoid the home loan mess by not giving loans to people who can’t pay them off,” said Doug McNutt, the director of financial aid and student enrollment services at Akron.

He said the lenders really hurting are the ones whose primary business is student loan lending.

Tighter credit checks for private loans

Credit checks for loans are getting tighter, McNutt said. For example, if a student had a credit score of 600, they could qualify for a certain loan in the past; now the loan may require borrowers to have a credit score of 650. It was estimated that about 5 percent of people who got private loans won’t qualify this year due to lines of credit.

Graduate student Nick White, who is going for a masters in economics, said this affects the lower middle class.

“At our age, (there is) not time to build up credit score,” he said. “We will all have a lower credit score. (It can) kill your rates if you can even get a loan.”

Junior psychology major Jessica Krieger is “really concerned about next year,” she said. She spoke with people at the office for a private grant she receives and they told her they are facing reductions they have never seen before. She is considering getting a job next semester to make up for her loss of financial aid.

“I’m concerned grades will drop if I have to work more if I don’t get tuition covered,” Krieger said.

President Barack Obama plans to eliminate the FFELP loan program because it is funded privately by banks and lenders who receive subsidies and guarantees from the government. The program provides no greater benefits than the Direct Loan Program and costs more. The Direct Loan program is publicly funded. Obama aims to make the Direct Loan program the primary federal loan program.

“I think next year will be the hardest year,” she said. “I think Obama will take care of us.”

Loans still available

Lenders who suspended loans have honored their commitments for loans already disbursed for the 2008-2009 cycle, Evans said. If a student, like Hoelker, who borrowed from a suspended lender is borrowing for the 2009-2010 cycle, the student will have to select another lender.

Hoelker found the process of switching lenders to be a learning experience. She said it’s not a convenience, but it teaches her responsibility.

Evans said options still exist for student aid and there are other lenders available. About 11 lenders plan to increase lending, according to the National Association of Student Financial Aid Administrators.

“Kent State is in a good position to make loans available because they are in a Direct Loan program,” he said. “Despite merges and banks terminating, (there is) still a number of lenders (that) plan to expand market in the private loan industry.”

Contact student affairs reporter Kelly Petryszyn at [email protected].