FAP779: Roundtable Discussion - Paying for College in Uncertain Times

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Good morning and good afternoon. My name is Christopher Penn, host of the Financial Aid Podcast, and this is the Student Loan Network Live Roundtable: How to Pay for College in Uncertain Times. I have with me here today five experts from the financial aid world, and I’d like to briefly introduce them.

Justin Draeger is the assistant director of communications for NASFAA, the National Association of Student Financial Aid Administrators, the leading national organization for financial aid professionals.

Gail Holt is the Senior Associate Director of Financial Aid at Mount Holyoke College in South Hadley, Massachusetts and also president-elect of MASFAA, the Massachusetts Association of Student Financial Aid Administrators.

Maria Koklanaris is the staff writer and reporter for Higher Education Washington, the leading education services and student lending journal in Washington, DC.

Susan Mead is a 25 year veteran of financial aid and director of financial aid at the State University of New York - SUNY - Dutchess Community College.

Shelley Saunders is the Vice President of Strategic Services for American Student Assistance, a student lending guarantee agency and leading advocate to Congress for a number of higher education organizations.

Welcome, everyone.

I’d like to lead off today with a quick story of how we got here, in two parts.

In the summer of 2007, Congress passed a piece of legislation called the College Cost Reduction and Access Act. Among the many things this legislation did was to greatly reduce the profitability of federal, government student loans for the banks and companies that issued them on behalf of the government.

The net effect of the legislation, of part 1 of this story, is that a number of federal student loan companies, for-profit and non-profit, have stopped issuing federal student loans. These include some very familiar names, such as College Loan Corporation, National Education, Brazos Higher Education, NextStudent, Washington Mutual, and many more.

The second part of the story begins almost three years ago, when lending in the mortgage industry got out of control. Mortgage lenders were writing loans to people who could not afford them, and then securitizing the loans to investors.

As a quick primer, securitizing loans works like this. If I have $100 and I loan that to Justin, ordinarily I’d be out of the $100 until Justin paid me back. However, if Gail, Maria, Susan, and Shelley all bought IOUs from me for $25 each, I’d have the $100 plus change to lend again. Over time, as long as Justin repaid his loan, Gail, Maria, Susan, and Shelley would get paid back too, plus interest.

I could do this over and over again, lending, selling IOUs, lending, and so forth, and as long as everyone paid back their loans on time, I could do this indefinitely, lending out the same $100 over and over again.

The problem began in earnest last summer, when this game of lending and selling off loans broke down, due to borrowers not being able to make their mortgage payments. In our example, Justin stopped being able to pay, so suddenly, I had to cover Gail’s, Maria’s, Susan’s, and Shelley’s loans out of pocket. Obviously, if I did that a whole bunch of times, I’d have to cover that same $100 loan over and over again, and I’d go broke pretty fast.

The economy is in a place today where mortgage borrowers are not able to pay, and the banks that made the loans are having to use all their money to pay back the investors who bought IOUs. As a result, they don’t have the cash to make new loans, and that impacts all loan types, from mortgages to student loans of every kind.

So we’ve got a double whammy - the federal student loans are not profitable for companies to offer, and private student loans, non-government student loans are becoming less available because banks don’t have the money any more and are less willing to lend.

I’d like to open the discussion up to our panelists now and ask each of them in turn what they’re seeing, hearing, and experiencing in their respective roles in financial aid.

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I’d like to thank our panelists, Justin, Gail, Maria, Susan, and Shelley for participating and contributing their knowledge to this very important discussion, and thank everyone listening for tuning in. For scholarship points members, today’s bonus code for tuning in is the episode and if you’re not a member of Scholarship Points, you can participate for free at ScholarshipPoints.com

Our free Scholarship Search Secrets eBook is available at StudentScholarshipSearch.com

I’d also like to thank everyone who asked the more than 1,400 questions we’ve received for this discussion, and promise that if your question was not answered by our experts today, you can ask it again in our discussion forums at FinancialAidForum.com

Finally, if you have colleagues, coworkers, friends, or family who were not able to tune in live, please let them know that this discussion was recorded and will be broadcast on the Financial Aid Podcast at FinancialAidPodcast.com and at StudentLoanNetwork.com.

Thank you again everyone!

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