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The state of the economy is hitting many hard, but student loans and public funding are not affected.
“When one significant part of the credit market sneezes, the rest of the credit market catches a cold,” said Michael Montgomery, professor of economics. “Student loans will unfortunately suffer accordingly, despite the lack of any real link between funding students and funding housing. Loans will likely be harder to get everywhere, and when they are gotten, it will be at a higher interest rate.”
While many predict the availability of student loans may decrease in the near future, they are not currently in jeopardy.
“Broadly speaking, there has been a major issue about availability of loans for student education. Have we noticed this at the University of Maine? No,” said Peggy Crawford, director of the office of student financial aid. “We still have multiple lenders who are willing to do business with our students and parents. Some have changed, but there are loans available, and we have not seen a decline in our borrowing or availability in loan funds, and I do not expect to see it in the future. However, the terms of some of the loans may change, interests rates may raise, and repayment options may not be as advantageous as they once were, but loans will always be available, and unfortunately, I expect our students and parents to have to borrow more to finance their education.”
Many students attending colleges seek federal-guaranteed loans, which are popular because of their offer of fixed rates. With the current credit crisis, students could be required to pay higher fees to borrow money. Students may be forced to turn to private loans, which are more expensive because they lack a federal guarantee. The share of college loans that are private has quadrupled to 24 percent in the past decade, according to The College Board, a nonprofit examination board.
While the loans are still available, the effect of the economy may be evident in other ways, such as increased enrollment at colleges and universities that are less expensive.
“Enrollment for this year is up,” Crawford said. “For many of the students we’re a deal – even for out of state students. UMaine is not really an expensive school, more than some, but not high priced. But still, 76 percent of our students are on financial aid. That is a high number. Three out of every four students are receiving some form of financial assistance, whether it’s loans, grants and scholarships or working.”
The economy could also have a negative effect on public funding for universities, which would ultimately raise the price of these institutions.
“During economic downturns, public funding for higher education falls precipitously. Right now, I expect to see public funding for higher education to fall over the next couple of years,” said Philip Trostel, professor of economics and public policy.
“Public funding of all types also is likely to suffer as the federal government has been forced to take on quite a bit of additional debt in order to tackle the credit crisis,” Montgomery said.
With higher costs of colleges and universities, students are forced to take money and its availability into much higher consideration when choosing their schools.
“I believe that the cost is now going to become a massive factor in deciding what college people choose,” Crawford said. “The other thing that’s going to be in question is how many students are not going to be going to college because they do not want to be in debt. I think that there are going to be many students that cannot go on to college because of the economic scenario right now. They’re going to leave to go to work, so they don’t go into debt, and that concerns me.”
The economy may also be affecting students once they graduate, with the job market being very unstable.
“It is a very tough time to be a student, with this credit crisis now added to the substantial rise in energy costs, which hits us both at home and in the car directly, and indirectly makes it harder to find part-time jobs, as the employment market shrinks in response to the weakening economy,” Montgomery said.
The job market can also have an effect on students who are still in school.
“When you graduate, how are you going to pay these loans back? Does that mean you might not choose a career that you want because it doesn’t pay a lot?” Crawford said. “The jobs that don’t pay a lot, are those still going to be career factors for us as graduates?”
While the direct relation between the economical crisis and students may not be clear, it is apparent that students will be affected, whether it is because of the majors they choose that lead to careers, their ability to borrow money or the rising cost of tuition.
