Candidates Differ on Financial Aid Programs

AUSTIN, Texas, Oct. 29, 2008 -- From deregulation to credit-swap derivatives and faulty mortgages, the many causes of the credit crisis may require years to sort out.

This much is certain, however: creditors are having a harder and harder time getting their hands on cash to generate new loans, says Mark Kantrowitz, a financial aid expert who has authored two books on the subject. He is also the publisher of the financial aid information Web site, FinAid.org.

Supply and Demand

"It's a basic supply-and-demand issue," Kantrowitz said. "In order to make a loan you have to have money to lend. The government has had to inject billions in the market to get the process going again."

Already, lenders are cutting back on new student loans. In total, 137 lenders have ended their participation in the federally guaranteed student loan program, FAFSA. That's up from 118 at the end of June. Those institutions represent 12.3 percent of last year's total number of lenders. In total, the crisis has affected 85.6 percent of this year's loans, according to FinAid.

The credit crisis is mainly affecting small lenders' ability to provide private loans, and students shouldn't worry about getting federally backed funding from larger institutions, says Henry Urick of the Office of Student Financial Services at the University of Texas at Austin.

"Pretty much anyone can get a loan, no matter what the circumstance," Urick said.

Avoiding Federal Loans

Students who say they are unable to afford college are unwilling to accept federal loans, Urick added.

"Certain segments of society are willing to make the time investment but are unwilling to borrow the cash," Urick said. "If a student doesn't have the money upfront and is unwilling to take out loans, they are going to have a hard time attending" UT.

Not everyone can get all the money they want from federal loans.

Abhinav Kumar, a senior majoring in supply chain management, applied for federal loans his freshman year but didn't receive enough to cover all of his school expenses because his parents were considered substantial enough earners to contribute significantly to the cost of his education.

The Free Application for Federal Student Aid is a need-based program that gives low-interest loans to college student based on family income.

"If I really hit rock bottom hopefully my parents would step in, but I don't know," Kumar said. "It's not because I was bad or anything, they just told me that's how they were doing it."

Kumar earns tuition by working full-time during the summer and a variety of odd jobs during the school year. He says grades and extracurricular activities have taken a hit because of his schedule but says there few regrets that more student loans would have fixed.

"I'm comfortable saying I haven't missed out on too much," Kumar said. "It would've been nice but changes in how tuition is calculated would have been better."

As an administrator, Urick says he'd like to see presidential candidates pay more attention to community colleges and to increase grants to students. He doesn't endorse a candidate based on his educational platform.

"Community colleges can be a stepping-stone into a four-year school, and after 30 years, giving away other people's money is the best thing about my job," Urick said.

But even before the credit crunch developed, the two presidential candidates had proposed ways to tackle the high cost of attending college. While they agree that college needs to be more accessible, each has significantly different plans.

John McCain on Student Loans

Republican presidential candidate John McCain sees federal benefits as "too complicated" and as often deterring "eligible students from applying for financial aid." He wants to simplify tax breaks and consolidate aid programs so students can track their options more easily. While McCain hasn't called for expansion of grant programs, he has suggested an increase in the lender-of-last-resort capability of the federal government to back loans. McCain also suggested using community colleges to "retrain displaced workers" but hasn't yet set specific goals.

"Look, we must improve education in this country," McCain said in the third presidential debate. "As far as college education is concerned, we need to make those student loans available. We need to give them a repayment schedule that they can meet. We need to have full student loan program for in-state tuition. And we certainly need to adjust the certain loan eligibility to inflation."

Barack Obama on Student Loans

As part of his education plan, Democratic presidential candidate Barack Obama also plans to simplify the financial aid process. More significant is his proposal for a tax credit that aims to "ensure that the first $4,000 of a college education is completely free for most Americans."

However, recipients of the credit would be required to complete 100 hours of community service. Obama is calling for increases in Pell Grants and funding for community colleges. His Community College Partnership Program would attempt to reward community colleges for sending students to four-year institutions.

Education is "the best investment we can make in our future," Obama said in 2007. "I'll create a new and fully refundable tax credit worth $4,000 for tuition and fees every year, which will cover two-thirds of the tuition at the average public college or university. I'll also simplify the financial aid application process so that we don't have a million students who aren't applying for aid because it's too difficult."