STATE NEWS ‘mdash; No matter whether it’s reflected in the elimination of on-campus programs or through our state’s attempt to reduce its debt, students have inherited a financial gray cloud of their own. And with the added weight of Gov. Arnold Schwarzenegger’s proposal to cut $87.5 million from California’s largest state-funded financial aid program, there are rainy days ahead for students who were promised free access to higher education.
Lending problems first arose in April 2008 when Mark Kantrowitz, a publisher of the financial aid Web site Finaid.com, testified before the U.S. Senate Committee on Banking, Housing and Urban Affairs that an estimated 57 student lenders stopped issuing federally guaranteed loans and 19 suspended private student-loan programs. According to Kantrowitz, this represented about 13 percent of federally insured private loans and 67 percent of consolidation loans for the 2006 fiscal year.
The private lenders’ withdrawal was a blow to middle-income students, considering those lenders supplied about 80 percent of the $55 billion to $60 billion in new federal loans made each year in addition to the $15 billion to $20 billion funded by private lenders in the form of private loans, according to a report by the Federal Reserve Bank of Cleveland. Essentially, as private lenders dropped from the student loan market, so did access to non-federal student lending.
While President George W. Bush passed a bill containing provisions to ensure federal loan availability, the many students who need to fill their financial gaps with private loans in 2009 will face difficulties. Standards for obtaining private loans have become more selective and Parent Loans for Undergraduate Students ‘mdash; money borrowed by parents to meet necessary educational expenses, like housing and books ‘mdash; will be harder to attain with poor credit scores, according to Ben Miller, a program associate of the Educational Policy Program at the New America Foundation.
The most recent development in students’ already tense financial climate is Schwarzenegger’s proposed 10 percent cut to Cal Grants. Although not yet official, this decision would relieve UC Cal Grant awards from covering the entire proposed fee increase for 2009-10 ‘mdash; leaving a potential $2 million tab for UC Cal Grant students to pick up. In addition, the decision would eliminate $100 million worth of Competitive Cal Grants and limit annual awards to incoming private school undergraduates to a mere $1,400 per student.
If passed, these proposed cuts will create a domino effect, starting with private schools. As private loans’ availability and accessibility decreases alongside state aid, private institutions will deal with costs by cutting admissions, diverting students to public universities and community colleges.
But the possibility that the University of California may both raise its fees and cut admissions by 6 percent leaves no room or peace of mind to accommodate debt-wary students, adding to its already oversized applicant pool and increasing financial strain. Although the Department of Education plans to increase the size of its Stafford Loan lending to make up for the decrease i
n private lenders, these efforts are just to buy time before they can find a permanent solution to the problem.
Students who don’t qualify for these loans will either need to take out private loans with variable (and presumably high) interest rates (read: more student debt), get a second job or search for some other means of financial support. But the underlying questions in our shaky economy are: Where? And how?
Even if Congress passes a 10.6 percent increase per student to the Pell Grant ‘mdash; which is typically only awarded to students with family incomes below $20,000 ‘mdash; adding about $950 more per student wouldn’t be nearly enough to make up for the Competitive Cal Grant’s absence. Similar efforts proposed by university officials to combine several aid sources fall short (just $200 below the cost of tuition) and in the bigger picture, without comprehensive solutions to make higher education affordable for students of all socioeconomic standings, any attempt to cut budgets will simultaneously make a college degree less attainable.
Simply scrounging up some cash and saying that’s the best they can do for’ broke students doesn’t change the fact that an increasing price tag undermines the university’s goal to provide higher education to all qualified applicants. For students who think it’s tough to make ends meet now, college affordability looks even bleaker for the future. ‘ Readers can contact Alyssa Bereznak at [email protected].