Cheap Student Loans Out
State can't dig up cash for popular program
By Jay Fitzgerald
July 29, 2008
Thousands of Massachusetts parents and students will likely be stuck with higher-interest college loans after a state lending agency said yesterday it can't line up enough private financing before the start of the school year next month.
The Massachusetts Educational Financing Authority, which last year provided more than $500 million in low-interest loans to help families pay for college, blamed the nation's severe credit crunch for its inability to secure private financing for its popular loan program.
"As a result of our problems and the continued dislocation of the capital markets, we have been unable to raise funds for the coming academic year," Executive Director Thomas Graf said.
MEFA, which earlier this year discontinued its federally backed student loan options due to market turmoil caused by the subprime-mortgage mess, said it will continue to search "tirelessly and diligently" for new private financing in coming weeks.
But MEFA, which processed about 25,000 private loans last year, made it clear that parents and students need to search on their own for alternatives to pay for tuition with the start of school only weeks away. The authority has a hot line (1-800-809-0571) to offer advice for students and their families.
Student-loan experts say potential borrowers better be prepared to pay higher interest rates.
"The cost of borrowing will be more expensive," said Kevin Walker, co-founder of Newton's Simple Tuition, an online student loan comparison company.
Robert Weinerman, director of college financing for College Coach, the nation's leading educational consulting firm, said MEFA's move "means a lot of people will be inconvenienced and pay higher interest rates."
Experts say the federal government's PLUS loan program is still widely available, though it charges about 2 points more than MEFA loans.
Other institutions that provide loans include Sallie Mae, Wachovia, Wells Fargo, Bank of America and Discover.
If borrowers are lucky, they might find a loan that charges less than MEFA's usual 6.5 percent interest rates.
But Bernard Pekala, director of student finance strategies at Boston College, warned that other lenders offer variable rates - meaning interest rates can go up over the duration of a loan.
"There's a lot of options out there, but families are really going to have to do their homework," said Pekala.
Back to College Coach in the News
