Recession causes student loan scarcity

From the moment the college acceptance letter is ripped open and the envelope tossed aside, students tirelessly work toward the ultimate goal of donning the cap and gown at commencement.This journey is met with plenty of obstacles; most notably the financial one. Every year, students pour tens of thousands of dollars into the higher education system seeking their degree. They receive scholarships, grants and, most often, loans.


The past year has seen fiscal turmoil in practically every industry. That of the banking industry has been the most publicized. Now, as college students seek out funds for the fall semester, they too are feeling the pain of the crisis. After watching their parents lose jobs, file for bankruptcy and see childhood homes enter foreclosure, college students are now the latest victim of the main street pandemic.


"I try not to think about it because I am already registered for classes. Summer school is $7,000, but I don't have $7,000," said Courtney Terlecki, a junior at DePaul. She, like others, was surprised when she applied to Sallie Mae, the nation's leading student lending agency, only to have her loan turned down because she needed a co-signer.


In the past year, Terlecki has accrued too much student loan debt to meet Sallie Mae's standards for a qualified borrower. Although in previous semesters she alone had signed on her student loans, she now needs a parent or other person with good credit to sign on with her. This is where Terlecki feels trapped.


"My dad just declared bankruptcy and my mom just took out a loan and now my sister has to take out her own loans." Federal aid offers Terlecki no immediate hope either. Terlecki comments that in the previous year she had no problems signing with Sallie Mae.


"I already work two jobs, I don't know what else they want," she said. Terlecki now worries about how she will find a job that earns enough to begin payment if she is forced to drop out.


"Most people I know don't go back. They never do," Terlecki said.


Shauna Eng dropped out of Harold Washington College during the winter, two semesters away from an associate's degree in criminal justice. "I had no choice," Eng said. "My parents had overstretched their credit in an attempt to keep their business afloat and could no longer sign on my loans."


Eng's father owns a small contracting business in Elgin. Businesses such as her father's were some of the first to experience the effects of the recession as "independent and domestic building companies became too expensive," Eng said. In an attempt to keep the business afloat, Eng's father maxed out credit cards, leaving him unable to sign on her student loans.


"It really stresses me out. I mean most of the reason I had to put school on pause was because I couldn't get loans," Eng said. Now, after being out of school for six months, she still has not earned enough credit with lenders to sign on her own education. In addition, Eng will soon have to begin the process of repaying her previous loans. "The loans that I did get with my parents are due to be paid back and I don't have the money for those or the credit to go back and defer payment."


"The economy is affecting a lot of students and more so their parents," said Michael Lindsey, a DePaul financial aid advisor. But Lindsey said he "see[s] more people going back to school, because they have no job."


"My advice is for a student to come in and talk to us," he said.


Lindsey promises that the amount of aid that will be given out by DePaul will not be decreasing. He said DePaul is "maybe overspending but trying harder because of the economy."


"A lot of students have come in, parents losing their job, more than one student in college, and we encourage them all to do a special circumstances form," said Lindsey.


The special circumstances form is a one-page application that gives students an opportunity to express any special difficulties that goes above and beyond what can be declared on taxes. Filling out this form ensures that DePaul will take a second look at financial aid applications and, while no promises can be made, that all extenuating circumstances will be taken into account toward financial aid eligibility.


Another problem Lindsey has seen is the actual closing of banks' student loan divisions-or the banks themselves. There are "lenders carrying students for the fall and spring, but not in the summer and the following fall," Lindsey said.


Lindsey also points to President Obama as hope for students. "President Obama is trying to eliminate the private loan sector," he said. This would ensure that all student aid comes in the form of government loans. Some economist argue this offers a better deal for both the government, who would not have to bail out banks as we are seeing now, and students because all funds would be readily available outside of their parent's or their own creditworthiness.


Another advantage the federal government can offer is a considerably lower interest rate. One type of existing loan offered by the government is the Federal Stafford Loan. This loan has a fixed interest rate of six percent and repayment does not begin until six months after graduation. Another student loan offered is the Federal Perkins Loan, which is offered to students who can demonstrate exceptional financial need. The Perkins Loan features a five-percent interest rate and acts as a supplement to the Stafford Loan. The last existing loan offered through the government is the Federal Parent's Plus Loan. This loan is based on a credit check and offers qualified parents an 8.5 percent interest rate. According to the Institute for College Access and Success, the average interest rate for a private loan is 10 percent. Loans for students with no cosigner are much higher.


For students like Terlecki and Eng who are but a year away from graduation, all their hopes of completing their final year are in the hands of Washington and Wall Street.


"Sometimes I am unsure if I will ever be able to go back," said a frustrated Eng.