Big bills on campus
BAD NEWS for 40,000 families hit this week when the Massachusetts Educational Financing Authority announced that it could not offer private student loans this year because it had failed to secure financing. Created by the state Legislature in 1982, MEFA provided more than $500 million in loans last year.
It was another tale of student loan woe sparked by the nation's troubled credit markets. And it will take more government action to make sure college students have the financing they need.
Losing MEFA hurts, says Adrienne Montgomery, the financial aid director at Pine Manor College, where 20 percent of students borrowed private loans from MEFA in the 2007-08 school year. Montgomery says that families with poor credit histories who couldn't get loans elsewhere could borrow from MEFA. And because MEFA works with borrowers, its net default rate on $2.5 billion in loan originations is less than 1 percent. The agency is still trying to raise money to offer loans, possibly for this fall. But Pine Manor and other colleges are directing families to other lenders.
Students and their families are struggling. In 2006, a state task force on financial aid found that "after all grants and loans are taken into account, approximately 88,000 students had an average unmet need of $4,500." That's on top of the amount their families are supposed to contribute. Some students fill this hole by using credit cards, and parents have relied on home equity loans. But falling home values and stricter lending limits may stop many from borrowing against their homes.
Federal Action
In Congress, Senator Edward M. Kennedy has pushed through a bill to expand access to federal student loans. And he has fought for reauthorization of the higher education act, which is poised to increase grants, expand loan forgiveness programs, and simplify the process of applying for federal financial aid.
In a letter written on Thursday to Massachusetts students and families, Kennedy acknowledges the credit crunch and offers this sound advice: "I urge you to contact your financial aid adviser to ensure that you are receiving all of the federal aid to which you are entitled."
In particular, students should make sure that they are borrowing the full amount that they are eligible for through federal loans, if these loans offer better terms than the private loans for which students qualify.
State Action
Private colleges are also involved. The Association of Independent Colleges and Universities in Massachusetts says that in the 2006-07 school year, its 58 members gave $350 million in grants to Massachusetts students.
Massachusetts should help by increasing its need-based grants. These grants are vital, since they don't create debt. And while Massachusetts can't afford to make up for all the student loan shortages, the state could cover more of the cost of college by increasing the size of its grants.
States spent more than $7 billion on grants in the 2006-07 school year, according to the nonprofit National Association of State Student Grant and Aid Programs. But according to NASSGAP's annual survey, Massachusetts only awarded $83 million in grants, while Indiana, which has a comparable population, awarded $330 million.
The budget for the fiscal year that began July 1 does include an 11 percent increase that would boost the need-based MASSGrant program to nearly $30 million. This won't increase the size of the grant, though it will reach 1,600 more students. But to match the buying power it had in 1988, MASSGrant would need $110 million, according to education officials.
State leaders should also consider other recommendations from the state task force, such as offering tax credits for companies that help workers pay off their student loans. And more students should be prepared to enter and finish college promptly, so that they don't spend time and money on remedial college courses. Massachusetts and the country need educated workers. Big price tags shouldn't block college doors. 