The current credit crunch has hit college student financial aid hard, with some institutions shutting off the lending spigot and leaving families high and dry.
“It’s weighing more on students’ minds now than before. They listen to the news; they hear their parents struggling,” said Carol Mountjoy, assistant director of outreach for Western Michigan University. “The economy affects students emotionally and mentally.”
There’s a perfect financial storm right now. Despite the fact that Congress this fall authorized $700 billion to bail out banks on Wall Street, many still aren’t lending. That especially hurts students who have private loans, disproportionately impacting those at private colleges. Experts expect that even when banks do start lending in the future, terms will be stricter and rates will be higher.
But the economic news gets worse. There’s the foreclosure crisis. Unemployment is on the rise. Health care costs are soaring. Many families are already struggling with major financial issues in the recession on top of putting their kids through college. While people used to be able to borrow against their homes for financial aid for school, that’s largely a thing of the past: home values are declining and the credit crisis has stopped the practice.
The bottom line is it’s a scary world out there right now for college students, who are struggling to get loans and facing a shrinking job market.
Here’s the good news. If you get your financial aid through federal loans and grants, you shouldn’t be affected by the financial meltdown.
Still, Mountjoy has seen more students turn to credit cards to make ends meet, and they’re racking up debt quickly. Instead of acting rashly and taking on risk, students should go straight to their financial aid office. When students run out of money and consider dropping out, the WMU staff is “proactive,” Mountjoy says, doing whatever it can to keep kids in school. Financial aid staff may be able to help identify untapped scholarship money or help students secure loans with reputable lenders.
Another new option emerging is peer-to-peer loans. When banks won’t lend, people ask families and friends to do so. The new twist on this is that there are services, like greennote.com, that take care of the legal paperwork. Lending money can tear friendships and families apart, so more people are turning to services to make the process official and protect the lender.
The financial picture is changing rapidly. Most economists believe the recession will get worse and continue to impact college students. The best strategy is to keep on top of your finances and in touch with financial aid officials at school. They’re on top of the latest changes and are there to help.
Susan J. Demas is a contributing editor to EduGuide and 2006 Knight Foundation Fellow in Nonprofits Journalism.