The credit crunch hit a little closer to home for many Penn students this past month, as they opened letters from Student Financial Services informing them that their current lender had stopped issuing Stafford loans due to recent market instability.
According to Student Financial Aid director Bill Schilling, about 6,600 Penn students had to switch lenders for the upcoming school year.
Many of the graduate students within this group had signed loans with Penn, and most of the undergraduates had loans with American Education Services/Pennsylvania Higher Education Assistance Agency.
Twelve other lenders Penn had partnered with also announced they would not be issuing loans for this year.
Stafford loans are federal-government-issued loans whose amounts are dependent on the individual student's FAFSA form.
The payment on the loans is deferred until students are out of school, and the loans are often issued by an intermediary lender through the Federal Family Education Loan Program.
PHEAA is one such intermediary lender. Because the continuing problems in the sub-prime mortgage "really sent shockwaves through interlocking market sectors . [PHEAA was] no longer able to access capital" to issue the loans, said PHEAA spokesman Kevin New, adding that PHEAA will likely lend Stafford loans again once the bond markets stabilize.
Beyond the problems in the loan markets, Schilling wrote in an e-mail, the College Cost Reduction and Access Act, effective Oct. 1, 2007, "made changes that significantly reduced the subsidy to lenders," leading lenders to tighten interest rates and principal reductions.
However, he added, it was not until the market turmoil reached a peak in January that many lenders decided to suspend their loan offerings.
Though some popular lenders have suspended their loans, students should not have had any difficulty finding another lender. Penn developed a list of 11 lenders for students to borrow from in the upcoming school year.
"From a student's perspective, the transition to another lender should be seamless," New said.
Wharton junior Billy Haddad found that New's prediction held when he switched lenders earlier this month.
"You could either do it online or through the mail. I did it online and it only took a couple of minutes," he wrote in an e-mail.
Although students have not experienced hardships switching lenders, both New and Schilling said this year was the first year they had seen lenders stop issuing Stafford loans.
To help with the situation, the Department of Education recently announced a new plan to provide lenders with more liquidity so they can continue to issue loans. This program, Schilling wrote, "has already appeared to have a positive impact on lenders."
Despite the currently unstable financial climate, Haddad was optimistic that he would be able to find lenders to help finance the rest of his education.
"Maybe next year I'll get loans with a higher [interest] rate, but it's not that big of a deal," he said.
