While college tuitions keep rising, students and families continue to grapple with how to cover education costs. But those who would normally turn to private loans as a source for financial aid assistance will find that this source is becoming more scarce.
In a worsening economy banks aren’t loaning money to one another let alone struggling middle-class families, who often turn to private lenders as well as the federal government to help cover college expenses.
“They’re having a terrible time getting access to private student loans,” says Becky Timmons, assistant vice president for government relations at the American Council on Education. “The private student loan market is part and parcel of the lending environment banks worldwide are facing. Private lenders are pulling out of the program in lots of cases and we expect more of that.”
Just like home and auto lenders, private financial aid lenders are tightening eligibility requirements, including now requiring more students to have co-signers, Timmons says.
Even before the current economic crisis, private loans were on the decline, reversing years of steady growth, according to a report released this week by the College Board, a non-profit organization that seeks to help more students get a college education. These loans accounted for 23 percent of all education loan borrowing in the past year, the report states.
Federal loans have more preferable conditions than private loans, college aid advocates say. But federal aid is often not enough.
The College Board report shows that public financial aid has increased 5.5 percent after adjusting for inflation, while tuition at four-year public colleges and universities has climbed 6.4 percent to $6,585.
The Pell Grant program — one of the most popular student financial aid options — only covers about 32 percent of college costs.
At the same time, the report shows that the availability of private loans declined by $173 million (1 percent); especially troublesome during an economic crunch.
Fallout from the current economic downturn was not reflected in data contained in the College Board report, but Molly Corbett Broad, president of the American Council on Education, says that given the current economic crisis states have slashed appropriations to colleges, donors are withdrawing, and endowments are posting net losses.
“Given the current economic strain on state budgets, the pressure on state governments to shift costs of education to students and families may prove irresistible,” Corbett Broad says. At least 17 states have already cut funding to public institutions of higher education, which will translate to higher tuitions shouldered by students and their families, she adds.
More than half of high school students in a recent survey said they were more concerned than ever about being able to afford going to college, according to a MeritAid.com survey released earlier this month. About 57 percent of the high school students said they were considering a less prestigious and cheaper college.
Marlon Williams graduated from high school three years ago and now works as a receptionist at a Gold’s Gym in Arlington, Va. He has been applying to community colleges but says tuition costs are making him doubt whether he can afford to go back to school.
“The recession put a strain on my pocket and put me in a lot more debt than I was already in,” Williams says. “If they increase the tuition I’ll be over my head for a hundred grand.”
People like Williams, who may need to turn to private lenders to help pay for college, are especially hard hit by tuition hikes. Yet even wealthier middle-class families, who are far more likely to turn to private aid, are also feeling the pinch from increased tuition.
Jessica Wu, a 20-year-old international student studying marketing at the College of William & Mary, is a diplomat’s daughter who considers her family “upper middle class.” After yearly tuition hikes, Wu says her family now has to find ways to cut corners in order to pay her college tuition.
Wu, a junior at the southeast Virginia-based public college, says her family will have to be more conscientious about spending. As an international student, Wu’s family pays $19,000 a year for her to attend William & Mary.
“There are lots of little sacrifices that we’ll probably have to make,” Wu says. “I’m probably not going to be able to go back home [to Taiwan]. We’re going to have to be more frugal.”
William & Mary was hit with a 7 percent reduction in state funding, which translates to $3.4 million. As a result, the college is cutting costs in maintenance and operations and implementing a college-wide hiring freeze, says Brian Whitson, the school’s director of news services.
Officials there haven’t cut programs yet, Whitson says, but they haven’t ruled out that possibility for the upcoming academic year.
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