Loan funds dwindle

Present financial conditions may soon affect the future of student loans. The nation’s largest student-loan company, Sallie Mae, formally the SLM Corporation, reported a loss of $159 million in the third quarter as well as a drop in new loans from $8.9 billion one year ago to $7.7 billion in this year’s third quarter.

Sallie Mae’s stricter underwriting standards for private student loans have led the company to lend less money to students. The reduction was also due to a shift toward servicing partner companies’ loans rather than buying the loans outright, according to The Chronicle of Higher Education.

Sallie Mae also reported that its core, or adjusted, earnings were $117 million, or 19 cents per share compared to $259 million, or 59 cents per share, in last year’s third quarter. The struggle for lenders and borrowers with the recent economic conditions and with the higher costs of credit has been difficult; strains in the credit market have made funding costs rise.

One of the major problems that Sallie Mae has had to face is the increased amount of delinquencies on private student loans. These student loans are not issued with any government subsidy; Sallie Mae officials knew that they needed to increase the amount they set aside to cover these student loan costs. The amount that they have set aside increased to $263 million from $102 million one year ago, according to the Chronicle.

John F. Remondi, Sallie Mae’s chief financial officer, stated that Sallie Mae is using many measures to decrease the number of accounts that have higher risk. One of these measures is to have a stricter use of collections efforts. Sallie Mae told the Chronicle that Sallie Mae financial aid officers are looking much more closely at loan requests that they receive. The financial officers are aggressively making sure that the borrowers are both committed to serving their debt and actually have the ability to benefit from a forbearance.

Sallie Mae is just one of the companies in the $85 billion annual student-loan market.

Students and staff at Carnegie Mellon expressed mixed feelings on their perceived effects from the student loan crisis.

“I’m not sure how Sallie Mae’s recent slump will affect my future financial aid packages, but as of now, there haven’t been any repercussions in my current financial aid package,” said first-year H&SS student Mikela Shepherd.

Linda Anderson, director of student financial aid at Carnegie Mellon, said that in the 2008–2009 school year to date, she has not seen a significant impact on Carnegie Mellon students.

“I have no data or even anecdotal data to suggest that students are having more difficulty in qualifying for their alternative loans,” she said.

Anderson said that instead of student loans at Carnegie Mellon decreasing, the average undergraduate alternative loan borrowing is actually on the rise from this time last year.

Anderson also noted that most Carnegie Mellon students applied early in the 2008–2009 financial aid process and had good credit scores or acceptable co-borrowers, so their requests were usually met.
As of now, several loan providers, including Sallie Mae, have found it necessary to adjust their private loan pricing.

Jill Fernandes, a senior financial aid officer for graduate students in the Tepper School of Business, said that the majority of students at Carnegie Mellon are not borrowers from Sallie Mae.

“[So] we are fortunate that the troubles with the loan industry have not greatly impacted our students; the low student borrower default rate at Carnegie Mellon has really helped as lenders focus on institutions with a proven track record,” Fernandes said.

Fernandes mentioned that financial aid leaders at Carnegie Mellon will continue to keep up with industry changes or consolidations so that they offer the best loan borrowing options for their students.
Anderson noted that choosing the right type of loan and provider is key. She urged students and their families to do careful research before committing themselves to one.

She thinks that Carnegie Mellon’s publications, web materials, and counseling initiatives are useful to students in the loan process.

Anderson said that if the changes in Sallie Mae and comparable companies were to affect any choice of students, they may cause some students to choose a lower-cost college that is closer to home. All in all, she said, students should be concerned about the overall cost of college while realizing the short-term and long-term values of a college education.