Credit crunch won’t affect Federal student loans

Jackie Valley

Still, less money available for Federal Perkins Loans

Fewer students will receive Federal Perkins Loans next fall – the result of a drought of funds from the federal government.

Mark Evans, director of Student Financial Aid, said Kent State receives funds from the federal government for the Federal Perkins Loans, which go to students with high financial need.

“In the last four years, the federal government has not given new money,” he said.

Without additional funding, Evans said Kent State is only able to provide the loans based on the payments previous students have made back into the Federal Perkins Loan program.

Evans said this period of fewer Federal Perkins Loans is out of the university’s control, given that less funds are available.

“That’s not just at Kent State,” he said. “That’s nationwide.”

Even so, Evans said the situation could change if, for example, the university’s September collections for loan payments create additional funds for the Federal Perkins Loan program.

Evans said the Federal Perkins Loans account is between $5 million and $6 million per year compared to the Federal Direct Loan program that awards more than $160 million in loans per year at Kent State.

Evans said 65 percent of students enrolled at Kent State’s eight campuses have federal loans – or between 22,000 and 23,000 students.

In addition, Evans said Kent State students should not be impacted by the fallout from the national credit crisis that is hitting the student loan industry because Kent State uses the Federal Direct Loan program, one of two major loan programs for higher education. Under the Federal Direct Loan program, the federal government lends the money directly to students.

Evans said the other loan program – the Federal Family Education Loan program, or “FFEL” for short – relies on banks, credit unions and savings and loans associations to lend money backed by a guarantor to students.

Evans said the credit crisis is affecting recipients of the FFEL loans because “there are some lenders, for several reasons, who have temporarily suspended making federal loans.”

A recent report based on a survey by the National Association of Independent Colleges and Universities found that nearly 60 percent of colleges participating in the FFEL program had at least one lender stop offering student loans.

Evans said Youngstown State, Cleveland State and the University of Akron participate in the FFEL program. Like Kent State, Bowling Green, Ohio State and Miami University use the Federal Direct Loan program.

According to the National Association of Student Financial Aid Administrators, 16 lenders have exited or suspended making FFEL loans, including Collegiate Solutions, First Niagara Bank and American Education Services.

Evans said Kent State is entering its 14th year participating in the Federal Direct Loan program.

“We believe it’s a better way for students to borrow because you have one lender, one guarantor and one servicer,” he said.

Prior to the University’s switch to the Federal Direct Loan program, Evans said Kent State dealt with 500 lenders, 50 guarantee agencies and dozens of secondary lenders as part of the FFEL program.

Evans said some Kent State students, however, still use private or alternative loan lenders to cover the costs of college that exceed the federal loans.

Although Kent State has a partnership with KeyBank and CitiBank for private loans, Evans said students can still borrow from any lender they wish. Kent State does not benefit from the partnerships.

“I really don’t see, with the lenders students use at Kent State for private loans, at this point in time, those lenders making radical changes,” he said.

Still, Evans said the credit crisis’ impact on student loans will continue to play out in the next 10 to 12 months.

David Creamer, senior vice president for administration, said there has been recently “a little more optimism” about the national credit crisis and its ripple effect, including the student loan industry.

“There is a greater feeling that some of the solutions are beginning to be developed for some of the problems,” he said.

Contact administration reporter Jackie Valley at [email protected].