Student Loans

PRIVATE:

“Criteria to qualify for [private] loans has become more stringent,” said Peter Stace, vice president for enrollment at FCLC. “Interest rates are higher, approval rates for loans are declining and there are some students who, last year, were able to obtain private loans and this year were not approved.”

Interest rates are set to compensate the bank for the risk they take in lending money—specifically, the risk that someone will default on the loan, explained Stace.

“Banks right now are looking at an environment that is constrained and risky in which to make loans,” Stace said. “The higher interest rate will compensate the bank for the risk they are taking in making a loan to you.”

According to Stace, “The way the economy is going right now, it is more likely that people won’t pay [the banks] back” and that interest rates will now be much higher.

Valli remains somewhat optimistic. “[Student loans] have been a very profitable part of bank operations…there is not as much risk [in student loans] for banks compared to other quarters of the financial market,” he said.

The Financial Aid Office received an e-mail last week from Sallie Mae, which is one of the largest student-loan lenders in the country, that addressed the current financial tumult.

The e-mail stated, “Because of the continuing turmoil and uncertainty in the credit markets, Sallie Mae has made the difficult decision to tighten the underwriting on all our private student loan products…which will require applicants to meet higher credit standards. We believe that this action will mean lower approval rates for these loans…these decisions were not easy to make, but the current financial markets provide no other choice. When conditions improve, we hope to relax our underwriting criteria…” Interest rates on Sallie Mae loans have ballooned to anywhere from six to 14 percent, the Seattle Times reported.

Stace addressed the fact that many of the banks that were lending to students previously are now in serious financial trouble—or don’t even exist anymore. “Our list of [Fordham Preferred Lenders] is a different list now than it was several months ago,” he said. “Some of those who were offering student loans months ago aren’t offering them today, and the interest rates are higher today than they were several months ago,” he said.

Fordham’s official list of Preferred Lenders includes Access Group, Chase, Citibank and Bank of America.

“Loan programs are all in turmoil right now,” said Stace, but he added that “Access Group has been a good performer” and that “Chase, Bank of America and Citibank are the largest and arguably among the soundest major banking players in the industry right now. They have a history of good rates and good service.”

“The Wall Street community is fond of saying that ‘past performance is no guarantee of future returns.’ That said, a good track record is better than the alternative,” Stace continued.

Stace encourages all students who were denied loans to seek help from the faculty in Financial Services.

“There may be banks they haven’t approached or loan programs they haven’t heard about,” he said. Above all, he encourages students not to “feel that you are on your own. Get the benefit of folks who work with it every day—they are here to help.” Stace said that students should “be attentive to find the best terms they can get—not just rate, but when payback begins, up-front fees, co-sign requirements and possible rate reductions if certain conditions are met.” He warns students not to just agree to the first terms put before them by a lender.

“We see cases where lenders propose alternative loans that bring the lender more revenue before they propose Stafford loans with lower rates that reduce the cost of borrowing for the student,” he said.

FEDERAL:

“Students are well advised to take advantage of the federal Stafford Loans for which they may be eligible before considering…private [loans],” Stace recommended.

However, “Federal support will now demand a higher credit score,” said Janis Barry, associate professor of economics at FCLC. “Students are facing tightening credit conditions in the future.”

Valli said he believes that “federal and state authorities will do their best to maintain the student loan market so it doesn’t create an issue for borrowing or lending.”

Pell Grants, which vary in amount and are awarded to low-income families, will still be awarded to the same families in need, according to Stace.

“The criteria to qualify for a Pell Grant are set, so that hasn’t changed because the families’ income [will still] fall below a certain level,” he said.

ENDOWMENT AND SCHOLARSHIPS

“There’s not an institution in the country that’s not going to be affected by the [poor economy],” said Stace. “The value of the endowment and [the value of] our investments are certainly affected by what’s happening in the stock market.”

He added that “the money that flows from that to support the university budget” may be affected over time. “The value of our endowment declines as the stock market declines,” he stated.

“The rate at which endowment funds create scholarship funds is a three-year average [period of time],” said Stace. “It [takes] three years before it has a significant impact on the funds that are available for students.” Therefore, in order for a bad market and decreased endowment to have an effect on the amount of scholarship funds available for students, “it would have to be a three-year downturn,” he stated. The current economic situation will only have a “small impact,” according to Stace.

“Reduced value in the endowment would influence the making of [scholarship] awards to new recipients,” said Stace. “It may mean fewer scholarships available, or the same number but a smaller award amount per recipient.”

This year’s freshman class is Fordham’s largest ever, and Stace stated that “the decision was made last spring to admit a class that was somewhat larger because…it would provide the resources [more tuition money] necessary to advance the academic profile…of the university.”

JOBS:

Karen Casingal, assistant director of career services, said that students have a better chance of finding a job in the weak economic climate if they start their job search early. “Positions are open now for next year—students need to start looking now. The job search process can last 3-6 months, so don’t wait until graduation,” she said.

“[Finance majors] may not be able to work at their dream company because that company may not exist anymore, but…you don’t have to work at an investment firm to use your finance degree,” she said. She pointed out the fact that other companies, ranging from entertainment to fashion, need finance majors. “Finance is affected [by the economic downturn] and that affects everything else, but students will be able to find other opportunities,” she stated.

“I don’t think there is one specific industry that will suffer more than others, besides finance,” Casingal stated. She said she believes that students planning to land jobs in education, communication or nonprofit work will have the least difficulty finding jobs.

“I hope by the time most of our students graduate, things will turn around and the economy will recover,” said Valli. “We can’t know what’s going to happen, but given the circumstances and seeing what is happening in the market…and the massive [layoffs] in the market, the prospect [seems to be] the worst for College of Business Administration (CBA) students, but I hope I’m wrong.”

Valli said that students with a liberal arts education now “have a better chance in the job market” because their skills are more varied compared to CBA students.

Casingal stressed the fact that students of all majors need to “look outside the box.” She continued, “The jobs are there—students just need to be educated and know how to find them.”

“This is a severe economic crisis, but like many other economic crises, it’s going to pass,” said Valli. “It may last longer than others that we have experienced, but eventually it will pass and…the economy will recover.”