Credit crunch trickles down to students

Imagine you’re a student who needs financial aid to afford a college education. That shouldn’t be hard; most of us do. Now imagine that beyond getting the basic financial aid package, you need a loan to pay for school. Again, that’s the case for many of us. Next, imagine getting that loan check in the mail, dropping by the bank to make a deposit and then writing checks to cover your tuition and books, only to find out that your loan check had bounced.

It sounds far-fetched, but it is happening. Upwards of 500 students in Massachusetts experienced this very situation last week, coinciding with the bankruptcy filing of one of Boston’s major financial guarantors of student loans. It looks like the financial hardships on Wall Street are trickling down, and students are starting to feel the sting. Recently, around 50 providers of federally backed student loans stopped writing checks, and an additional 20 or so private companies did the same.

It’s easy to try to pretend that these big issues aren’t affecting Montana students, but that would be dishonest. The Montana Higher Education Student Assistance Corporation (MHESAC) uses bonds to help cover the cost of financing loans to students, and MHESAC sells these to bondholders in order to continue to provide funds for loans, a move which allows them to purchase more bonds and continue lending. The thing is, these bonds recently failed to resell at auction, which means that the current bondholders can’t get the financial obligations off their hands, even if they want to. The credit crunch is being felt more than ever.

Previously, just about anyone could get a loan if some degree of need was established. But with financial institutions across the country getting cold feet about risky investments, many folks who previously would have obtained a loan with ease will now have a much more difficult time. Even the often last-ditch option of borrowing against home equity is now being brought into question. The bottom line is that students are continually being priced out of an education, and beyond next year we might not be able to get student loans even if we need them.

Statistic: Last year families nationwide borrowed $60 billion in federally backed loans and an additional $17 billion in private loans to help cover the continually inflating costs of higher education. Try to imagine what a crippling blow to the student loan sector could do to our economy. Fortunately, our delegation in Washington is working on it. That’s, we’ve got both senators and our representative on the same page, and a measure was just passed through the House to come to students’ aid. The bill has broad bipartisan support, and passed by a vote of 383-27. If passed by the Senate, the legislation will increase the amount that students may borrow if more is needed to pay for school, as well as afford protection to student borrowers.

According to Rep. George Miller (D-Calif.), the bill’s sponsor, it will “ensure America’s families can continue to access the federal college loans they are eligible for regardless of what is happening in the credit markets.”

While mounting student debt is a growing concern, I think that ensuring the financial stability of the infrastructure to give student loans should take precedence here.
Although critics say that the government is just bailing out student loan lenders, the legislation allows lenders to refinance with the government backing as collateral. The option of a “bail out” being present is enough for major financial institutions to allow refinancing of bonds, which makes the lenders better able to continue funding student loan programs.

With this legislation, the federal government has the opportunity to allay our fears about future access to student loans, and thus higher education. They may be a little slow coming to this realization (Gov. Brian Schweitzer’s office began to fear trouble several years ago), but this is a situation where help comes better late than never.

Hell, Washington has been giving out bailouts like party favors. The least they can do is give the option of bailouts to federal student loan providers to allow them to continue helping students.

Cedric Jacobson is a senior in cellular and molecular biology.