 "Photo: Jennifer Lam/Collegian")
Every year, students across the nation, including those at the University of Massachusetts, attempt to figure out how they will pay for college.
There are a multitude of options; their own personal savings, their parent or guardian's savings/income, scholarships, grants, financial aid and monetary gifts from family. But for many, if not most students, that is still not enough. Student loans typically bridge this gap for many costly school expenses. Of course, with these loans come interest rates, and the lower the better. In Massachusetts, the lowest student loan rates are available through the Massachusetts Educational Financing Authority [MEFA]. This year, MEFA is not an option.
MEFA announced on July 28, 2008 that they couldn't secure the funds for the loans that they have offered for over 26 years. This abrupt news sent over 40,000 Massachusetts students and their families scrambling to find other options.
MEFA's student loan program has offered over $2.3 billion in education loan bonds since its inception in 1982. The Massachusetts State Legislature founded the program in response to concerns about the growing cost of higher education.
MEFA offers loans, college savings programs and a Prepaid Tuition Program. They have assisted over 200,000 families in paying for college.
Here at UMass, about 10 percent of students depend on MEFA every year to pay their tuition and board bills.
"I may have to take this semester off if I can't get approved for a loan," said Shayna Murphy, days before the semester began. "I'll think of something. I may end up having to work two jobs."
Murphy, a UMass Junior, was counting on using a MEFA student loan for the 2008-2009 school year.
"This summer, I went to England, and I paid for that myself. I thought that MEFA would be around this fall to help out, but it's not," Murphy said.
MEFA's loans are private family loans that are available on a non-need basis. They are among the nation's lowest cost education loans. They allow students and families to borrow anywhere from $2,000 up to the full cost of education. MEFA accepts students from any state, as long as they attend one of over 70 participating Massachusetts colleges.
Some lenders only give the lowest rates to the most qualified, but MEFA provides the same low interest rate to all. Other lenders like Astrive and Wells Fargo offer private loan rates based directly on the individual's credit history, and other varying rates.
Last year, MEFA offered undergraduate student loans with a 6.39 percent fixed interest rate or a 7.55 percent variable interest rate. Origination fees were only 2.55 percent for both loans. On a Federal Parent PLUS loan, the origination fee is 4 percent. MEFA's student loans offer the lowest in all rates for student loans in the state.
According to the 2008 Sallie Mae study, "How America Pays For College," the most often used source by families paying for college is parents' current income. But the second most frequently used source of paying for college is student loan programs like MEFA.
Once the news of MEFA's unavailability hit campus, the UMass Financial Aid Office offered help via the UMass Helpline to parents and students with questions about further financing options.
"We are guiding families to first exhaust grant aid, then federally backed student loans and then move onto the PLUS loan," said Ed Blaguszewski, Director of News and Information at UMass.
Federal Parent PLUS loans offer a fixed interest rate and the ability to defer payments while in school. Only graduate students pursuing professional degrees and parents with a dependent student can apply for PLUS loans. The interest rate is 8.5 percent, making them the best choice for students after MEFA loans.
Federal Parent PLUS Loans are offered to parents with dependent students. They are available through Federal Family Education Loan (FFEL) and the William D. Ford Direct Loan Program. FFEL loans carry a fixed interest rate of 8.5 percent regardless of a customer's credit history, income, assets or collateral. A Direct Loan carries an interest rate of 7.9 percent.
To obtain one of these loans, the parent must have an acceptable credit history, which isn't always the case. This weakens the student's chance of getting the loan. However, these loans can also cover books, supplies and travel in addition to tuition and room and board. Sallie Mae reported that new federal legislation made qualifying for PLUS loans easier this year.
Amy Riordan, a UMass senior, had a similar experience to Murphy. She began her career at UMass relying on MEFA's program each year. A surprise came this summer when she received a letter in late July informing her that MEFA could not get enough funding for its loans this year. MEFA cited the economy as the reason that it could not secure its usual funds to offer low interest rate loans.
"I didn't know until about two weeks ago whether I would be at UMass, or anywhere, to finish my bachelor's [degree]," said Riordan.
Riordan turned to Sallie Mae to finance her senior year at UMass. Luckily, she got a fixed interest loan, but it is still 1.5% higher than her MEFA loans - even with a parent cosigner.
For Riordan, a student who receives no financial aid, her loans pay for everything. It wasn't just her tuition; it was her apartment, books and other living expenses.
"I made the mistake of thinking 'I'm just a student, this economy situation is really only going to affect how much gas I buy for my car,'" said Riordan. "It was a huge shock to think I might not be able to finish school."
Sallie Mae, the leading student loan lender in the nation, is a private and federal loan lending company that has been around for 35 years. When MEFA announced that they couldn't secure funds, Sallie Mae quickly became a source for students. They also offer Tuition Pay that allows students to pay for their college on a monthly payment plan with no interest incurred.
Sallie Mae offers Stafford loans. The interest rate on Subsidized Stafford loans went down to 6 percent fixed in 2008 from 6.8 percent in 2007. No interest is charged while students are in school, but subsidized loans are only given to students with a financial need. Unsubsidized Stafford loans, on the other hand, carry a fixed interest rate of 6.8 percent and are offered regardless of financial need.
Sallie Mae offered undergraduates the option to borrow an additional $2,000 more this year than was previously allowed through the Stafford loan program.
Sallie Mae and other companies offer private student loans as a final solution for those who still have financial need. Interest rates are based upon on how creditworthy the student is. There are no guarantees for interests to be fixed and these loans do not have a deferment option. Cosigners can give students without a credit history an advantage on getting one of these loans.
"It is too early to tell [whether private loan volume has gone up or not] since the school year is just beginning," said Patricia Christel of Sallie Mae.
With the crisis passing us, one can assume that a number of students turning to private loans must have increased.
The speculated economic crash across the nation has finally trickled down to affect student loans.
Kentucky students went through a similar crisis this summer. However, their ending was a little bit sweeter. The non-profit Kentucky Higher Education Student Loan Corporation stalled as well, due to a lack of funding. They offer 6 percent interest rate federal subsidized loans and 6.8 percent unsubsidized loans much like MEFA. But Governor Steve Beshear purchased a $50 million bond from The Student Loan People, allowing the non-profit to "go about its business…without interruption."
Despite the loss of MEFA as an option, UMass did report that no students had to drop out of school this year as a result of losing their MEFA loans. There is even hope that MEFA can offer loans as early as spring of 2009, but it is still unclear if this will be possible.
Andrea Murray can be reached at amurray@dailycollegian.com.
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