The State of Student Aid: How Financial Aid Directors Are Coping with the Troubled Economy and Helping Students Continue to and through College

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IT WAS THE DISASTER THAT DIDN'T HAPPEN, DESPITE THE HEADlines in national and local newspapers throughout the spring of 2008. "College Financial Aid System 'In Crisis,'" proclaimed USA Today. "No Funds to Lend to 40,000 Students," blared the Boston Globe. "Student Loans Start to Bypass 2-Year Colleges," warned The New York Times.

The dire news stemmed from the conga line of credit-stricken banks exiting the Federal Family Education Loan Program (FFELP) and the rolling shutdown of state educational finance agencies which offer private student loans--from Colorado and Missouri to Michigan and Massachusetts.

But financial aid officers at schools around the country have been able to exhale over the past academic year, having for the most part weathered the credit meltdown--and its impact on the nearly $100 billion annual student loan market--with only a considerable amount of inconvenience. Along the way, they have followed an evolving approach to student borrowing and financial aid.

"Last year, when some banks were pulling out of our loan program, it created chaos for us when things changed at the last minute," admits Catherine Geier, vice president for enrollment services at Trinity Washington University (D.C.), where 98 percent of the student body receives loans and/or tuition grants to defray the $29,000 annual cost of attending. "But we had a lot more media calling about the credit crisis than we had students coming into the office with an individual problem."

For students and officials at Colorado's community colleges, the outcome of last year's credit crisis was angst-ridden. "I'd call our banks and they'd say they were still on board. But an hour later they'd call back and say, 'The national office won't let us lend,'" recalls Nancy McCallin, president of the 13-school system, who helped cobble together groups of preferred lenders at each institution. "They were redlining us. Students were very concerned, because they were being turned down by their traditional lenders. Many of them had m apply to three or four banks."

Fallout from the Credit Crunch

Most disruptions to the college loan market were put to rest in May 2008 by the federal Ensuring Continuing Access to Student Loans Act (ECASLA), which has been extended through June 2010. The legislation authorizes the U.S. Department of Education to buy up FFELP loans, leaving the lenders more capital to make new loans.

The law also increases the annual limit on Stafford Loans by $2,000 and eases some "adverse credit" restrictions on Parent PLUS Loans. For one, previous rules disqualifying borrowers more than 90 days behind in credit payments have been stretched to 180 days.

"We would have been in a lot worse shape without the legislation," says Mark Kantrowitz, publisher of FinAid, an online student guide to financial aid. Last fall, a National Association of Independent Colleges and Universities survey found no widespread student loan crisis among the almost 500 members that responded.

Not that there haven't been credit casualties at institutions private and public. The NAICU report noted that 20 percent of its respondents experienced "significant delays" in FFELP disbursements. At the University of Wisconsin, Oshkosh, some students in the accelerated nursing program, which has a higher cost than the $16,800 for other students at the public university, could not get the supplementary private loans they needed to enroll or continue. At Allegheny College (Pa.), some private borrowers have had to pay higher rates because lenders have tightened credit requirements.

For many schools, the recent ordeal of finding available FFELP lenders has prompted them to turn to the Federal Direct Lending Program, established in 1993 to process all federal student loans. Schools can subscribe to only one program at a time.

"I will not subject our students to uncertainty over whether or not they can get a loan to go to college," says the Colorado Community College System's McCallin, who made the transition for the spring 2009 term. …