By Michele Richinick
With the cost of higher education skyrocketing and the student loan market floundering, families are being squeezed financially, US Senator Edward Kennedy said at a hearing at Northeastern Monday.
Kennedy, a Massachusetts Democrat and chair of the Senate Committee on Health, Education, Labor and Pensions, heard testimony from the Department of Education and experts in student financial aid. They discussed the importance of financial aid and addressed recent instability in the credit market.
Despite the current challenges, the panels ensured students they will continue to have uninterrupted access to student loans to pay for college regardless of the strains in private credit markets.
Kennedy’s address came as Northeastern announced plans to overturn its student loan process. Effective in July, Northeastern will reject private lending programs like Sallie Mae, and opt instead to borrow directly and exclusively from the US Department of Education, university officials said Monday.
Economic issues, including the recent subprime lending crisis and an upending student loan market, prompted the decision, Philomena Mantella, senior vice president for enrollment and student life, said in a statement.
Northeastern is the second college in the country to accept only federal loan money in lieu of third-party lending, following Pennsylvania State University, which announced similar plans earlier this month.
Overall, it was the administration’s decision to move in this direction, said Seamus Harreys, dean of student financial services. The uncertainty in the financing market, the availability of a low-cost options and the simplicity of the direct loan program influenced the administrator’s decision, he said. The direct loan program will remain one of the lowest costs going forward, he said.
To the 75 attendees in Raytheon Amphitheatre, Kennedy said young people are beginning to wonder how much debt they can live with.
“They aren’t talking about books and teachers, they’re talking about the jobs they have to maintain,” Kennedy said.
Sara Martinez Tucker, US undersecretary of education, reassured the attendees that federal aid will be available to them in the upcoming school year despite uncertainties in private lending.
Loan programs have been suggested to more than 4,150 institutions, and there have been no encounters to date of lenders not being able to lend, Martinez Tucker said. Sixty of the schools have sent back positive responses, she said.
“We assume those we haven’t heard from means they have no problems,” Tucker said. “These schools are currently with lenders.”
Harreys said the direct loan program is an easy structure with repayment benefits.
“The direct loan program is simple, very easy, straightforward and an easy-to-manage process on the front and back end of repayment,” Harreys said.
More than 20 percent of Northeastern students that have borrowed in the past are being forced to choose a lender for a third time because certain lenders have gone out of business, Harreys said. That number is growing as lenders have decided to discontinue their lending programs, he said.
With some students forced to choose a third lender, the administrators saw a huge amount of uncertainty and volatility in the federal loans provided by the third party banks and lenders, Harreys said.
“We were looking for a safe harbor for students and parents to make sure federal funds are available,” he said.
At the hearing, the cost of attendance at institutions around the country was also a issue concerning the economy. Costs have increased during the last 15 years, Tucker said.
“From the student perspective, they have a right to be concerned,” she said.
Educators are trying to implement provisions of financial aid literacy to educate high school students on the financial options available to them.
“We want to make this process as student and family friendly as possible,” Kennedy said.
The Board assured the attendees that federal aid will be available to suit students’ college dreams by receiving the money they need to be available to them.
At the hearing, Eileen O’Leary, assistant vice president for finance at Stonehill College, said all eligible students can receive loans now and will continue to be able to in the future, but caution must be taken for any economic turmoil the country could later encounter.
With respect to student loans, “the sky is not falling,” said Deanne Loonin, director of the student loan borrower assistance project at the National Consumer Law Center in Boston.
Most private student loans are generally more expensive than federal loans, and some are so expensive they are destined to fail, Loonin said.
“It’s a time of change, not crisis,” she said. “We need to keep the focus on helping students pay for school.”
Thomas Graf, executive director of the Massachusetts Educational Financing Authority (MEFA), said the liquidity to provide student loans is evaporating, and today’s challenges are the most MEFA has ever experienced.
Despite the uncertainty of how much MEFA can secure, the organization remains hopeful in this challenging economic time that they can maintain the current system, Graf said. They have the “courage to pursue possible solutions,” he said.
There is a great deal of activities that need to be implemented to make sure families have protection and are guaranteed aid under a reliable system, Kennedy said. Young people need to be informed of what’s available to them at the best costs, he said.
Before ending the hearing, Kennedy said there is responsibility to take the necessary steps, and that he will be active and involved in following the issue.
“The unexpected has occurred,” he said.
