Summit tackles student loan crisis

Students attending or planning to attend college know grants and scholarships can be hard to get. But what if student loans dry up?

A pending crisis in funding for federally subsidized, low-cost student loans drew dozens of government, education and financial leaders to Harrisburg to discuss the problem on Thursday. About 500,000 students in Pennsylvania rely on this type of aid.

"Without a solution, the resulting financial stress placed on students and families could be devastating," said state Rep. Bill Adolph, R-Delaware, the board chairman of the Pennsylvania Higher Education Assistance Agency, which hosted the summit.

The participants were asked to carry a message to federal officials to use "all means and authorities available to them to provide needed short- and long-term financial assistance" to ensure student access to low-cost loans through the $50 billion Federal Family Education Loan Program. Eight in 10 college students rely on the program.

Agency officials say the student loan funding situation arose from the subprime mortgage meltdown and resulting turmoil in capital markets. Those problems have compounded to cause a new bond market crisis, which led to PHEAA experiencing "failed auctions" last week for the first time in its history when it tried to refinance bonds. That increased PHEAA's cost of borrowing and put its ability to fund more student loans at risk.

"Many are saying there's no problem. They are wrong," said James Preston, PHEAA's interim president and CEO. "There's a big problem, and it's getting worse every day."

The issue is affecting student loan providers nationally, said state Sen. Sean Logan, D-Allegheny, vice chairman of PHEAA's board. "It is clearly, clearly not one of PHEAA's doing," he said.

The crisis has the potential to cut PHEAA's earnings from its loan business, which it uses to support student aid programs that totaled more than $1 billion in the last decade, he said.

Larry Warder, the acting chief operating officer of federal student aid for the U.S. Department of Education, said in a statement last week that the department is aware of the "great deal of uncertainty in the current economic environment" and is monitoring the situation for its effects on federal student loan programs.

"Thus far, we have not encountered any situation in which an eligible school did not have access to federal student loans," Warder said. "Students and families should be assured that federal student loans are available."

Pennsylvania students borrowed $3 billion through federal student loans this year. Don Francis, the president of the Association of Independent Colleges and Universities of Pennsylvania, said it is important for the Federal Family Education Loan Program to remain in existence.

It is an alternative to the federal government's direct lending program, which provides competition and benefits borrowers, Francis said. Preston said it is not certain that the direct lending program could handle the volume of business both programs generate.

Ivory Nelson, the president of Lincoln University, tried to put in human terms the importance of the federal student loan program by noting that 95 percent of his school's 2,400 students borrowed $25 million in loans in 2006-07.

Those students, he said, come from the poorest of families, with an average income of $40,000 or less, and 65 percent of them are from single-parent homes.

"This is indeed significant," Nelson said. "The future is dim if we cannot succeed in righting this ship."

JAN MURPHY: 232-0668 or jmurphy@patriot-news.com