There is a nonprofit organization named College Board that has tracked the amount of student loans, among other statistics, originated each year. Based in New York, the most recent report on the 2008-2009 academic year shows there were approximately $11 billion in private student loans issued. This is a 52 percent decrease over the prior year.
It is interesting to note that the private student loans have declined but the federal loans have risen. There are good reasons for this and most of them are related to the condition of the economy. It is much more difficult to obtain credit this year as opposed to last year as credit markets remain tight. In addition, the private loans are costlier and repayment terms more stringent as compared to federal loans.
Private student loans are those not guaranteed by the federal government. As the recession deepened, the federal government increased the amount of student loan money that was available. The amount of the federal loan increase was not enough to offset the decline in private loans though. This has made it more difficult for people to obtain enough money to pay for college at a time they are turning to college to find new careers or for retraining.
The College Board reported that federal loans were increased for 2008-2009 by $84 billion. Overall the amount of student loan lending fell by $96.7 billion leaving an almost $13 billion shortfall. Normally private lenders sell bundles of securities that are backed by the student loans they offer students. Due to the tight credit market and uncertain economic conditions, these bundles have been difficult to sell. That is a major reason why there is less money to loan.
More students are qualifying for federal aid for a couple of reasons. Increased numbers of younger students have been able to qualify for loans due to their parents losing jobs and reporting lower income levels. Many of the older students are qualifying for federal student loans because they have lost personal income due to unemployment and have returned to college to make themselves more employable.
Unfortunately tuition and fees are rising and that is partially offsetting any new federal loans being made available. The College Board reported that 2009-2010 tuition and fees have risen by 6.5 percent at the 4-years educational institutions.
This means that even as the federal government tries to make more money available to increase access to college, the rising cost of tuition and fees is undermining the effort. States are having no choice but to raise tuition and fees to offset falling appropriations.
In other words, the economic conditions have set off a chain reaction that has disappointed the people who had hoped the higher amount of federal Pell grants would have increased college access to low income students. Though some are benefitting, the increased federal spending has certainly not created the opportunities hoped for.
As the president of the National Center for Public Policy and Higher Education, Patrick Callan, so aptly described to Wall Street Journal reporter Robert Tomsho, “We are kind of going on a national treadmill.” (WSJ, 10/21/09, p A6)
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