When Massachusetts' largest student-loan company announced last month that it would no longer be able to offer private student loans because of the credit crunch, 40,000 in-state students and Massachusetts families scrambled to find other lenders.
(click below to hear an interview with Director of Financial Aid Patricia Reilly)
While almost all of the 250 Tufts families who were affected have managed to secure other funding, questions remain about the fate of the company, the Massachusetts Educational Financing Authority (MEFA).
MEFA released an exploratory statement on Thursday to gauge consumer interest in purchasing MEFA bonds. If the company is successful in attracting investors, it will be able to provide loans again as soon as September, spokesperson Jessica Belt said.
MEFA's recent announcement about private loans follows one made in the spring, when the company revealed it would no longer be offering federal loans.
"They did a really good job at staying in touch with their schools and their borrowers over the spring," Tufts' Director of Financial Aid Patricia Reilly said. "We knew all along the program was in question."
At high-cost private colleges, students often use private loans — as opposed to government-subsidized loans, which go to the most in-need students — when federal loans don't cover the whole bill.
State senators unanimously responded to MEFA's announcement that it was halting loans by writing to Gov. Deval Patrick and asking him to take action.
"We were very concerned about what we read," Sen. Pat Jehlen said.
In response, Patrick proposed investing $50 million of the state's pension into MEFA bonds and requested that at least ten colleges do the same with some of their endowments.
University President Lawrence Bacow was among the school presidents that Patrick contacted with his proposal, according to Vice President of University Relations Mary Jeka. Bacow "referred the issue to our Investment Office for review," she said in an e-mail.
Massachusetts Treasurer Timothy Cahill officially announced that the state would not provide any funding to MEFA, the Boston Globe reported. Cahill had originally objected to Patrick's plan, proposing instead that the state use taxpayers' funds as collateral for MEFA, but ultimately rejected both ideas. But Patrick and the state Senate are leaving the door open to further discussion.
Conversations between MEFA, a non-profit organization, and the governor continue regularly, MEFA spokesperson Jessica Belt said. But Belt "can't say one way or the other" if state action has been ruled out entirely.
(click below to hear an audio report on Massachusetts' decision not to bail out MEFA)
"There is no question that MEFA needs these funds to offer families the most affordable opportunity to send their children to school," said Cynthia Roy, a Patrick spokesperson.
"The governor will continue to work with MEFA to make sure low-interest loans are available to students for this entire school year."
Tufts' tuition bills were due on Aug. 4, and for the most part, Tufts students, including those who had been planning on receiving loans from MEFA, were able to pay on time, Reilly said.
Similarly, about 300 students from the Massachusetts Institute of Technology (MIT) were MEFA borrowers, but almost all secured other financing, said Daniel Barkowitz, MIT's director of student financial aid and student employment. "In the short term, people are finding other ways to go through," Barkowitz said.
A survey conducted by the Association of Independent Colleges and Universities in Massachusetts (AICUM) echoed Reilly and Barkowitz's sentiments.
While the survey asked some questions about MEFA individually, it was not solely focused on students who had MEFA loans.
"Our survey was more aimed at trying to understand how many students were out there looking at this late date, still looking for loans and to also get a better sense of if schools felt that they had received notification to make alternative plans for their students," AICUM President Richard Doherty said.
Only a small number of students on each campus were having difficulty getting a loan, and those who did were mostly those who had poor credit or were unwilling to take on more debt.
But MEFA's situation is indicative in many ways of a national trend affecting large lending companies. Belt estimates that over 100 lenders have been forced to drop out due to the credit market since the spring.
And even for private lenders that are still in business, "it's most likely much harder to get approved," said Kevin Walker, CEO of SimpleTuition.com. Walker anticipates that 150,000 to 200,000 students nationwide will not be able to get the private loans they need this year.
One option is the Federal PLUS Loan, a federally guaranteed parent loan, also recommended by Reilly.
In recent years, it has become increasingly common for students to take on their own loans, as a result of a generational trend in which parents are increasingly older and closer to retirement.
But with so many lenders pulling out, Walker anticipates the PLUS loan will become popular again.
