Northeastern University officals announced last week that it is adopting a federal-loan-only program and rejecting private, third-party lenders in its financial aid packages.,In the midst of a growing sense of national economic uncertainty, student payment for higher education is not going unaffected.
Northeastern University officals announced last week that it is adopting a federal-loan-only program and rejecting private, third-party lenders in its financial aid packages.
Beginning in the fall, the university will participate in the William D. Ford Federal Direct Loan Program, which is funded entirely by the United States Department of Education.
The switch was made to keep student loans as stable and affordable as possible in a time when third-party lenders, like Sallie Mae, are tightening eligibility requirements and increasing interest rates.
According to the private loan portion of Columbia University's Web site, requirements include a U.S. credit record with no bankruptcies and no refunds owed on an education grant or loan.
Sallie Mae spokeswoman Beth Guerard said Emerson would not have the option to follow in Northeastern's footsteps because the college does not offer these types of private loans as part of its financial aid package.
The change will not prevent Northeastern students from taking a third-party loan independently, however.
Jenny Eriksen, media relations specialist at Northeastern, said that the measure will only stop students from securing private loans through the university.
"If Northeastern gives you loans and other financial aid and the student still needs more to pay off his or her education, then they can certainly take out another loan," she said.
Emerson College Financial Services provides a list of its most popular alternative loans on its Web site, including the Sallie Mae Signature Loan and CitiAssist Loan.
However, the office is forthright about the potential of such loans to harm one's credit report if payments cannot be made.
"While we understand that many students must take some of the responsibility to borrow for a private college education, we want students to consider only borrowing what they absolutely need," it says on the Web site.
Sen. Edward M. Kennedy, chairman of the Senate Committee on Health, Education, Labor and Pensions, said he supports Northeastern's decision.
"The ability of young Americans to pay the high cost of college should not be determined by the quarterly earnings of the banks," he said at a field hearing with the Department of Education. "[The] move by Northeastern will help protect students, as the Direct Loan Program is insulated from disruptions in the private credit markets."
Dan Sarno, a film major at Emerson, said that he believes students should avoid loans as much as possible.
He said Emerson denied him any financial aid this year, even though the federal government recommended it.
"They said, 'Either don't go to school here or find a friend who will pay for you or sell your house or take a loan out of a bank," the sophomore said.
Sarno said he is paying his own way through college, pocketing only $2,000 of the $40,000 he earns per year as an assistant engineer for the nation's largest multilanguage media company, Multicultural Radio Broadcasting, Inc.
He was offered a federal Stafford Loan but refused it because, with interest rates, he said it wouldn't be worth it.
Federal direct loans like the Subsidized and Unsubsidized Stafford Loans and PLUS Loans have capped yearly rates, unlike private loans.
Rates will rise 8 percent from 6 percent for the 2012-2013 school year while rates of loans from third-party lenders are subject to less stable change.
Tom Joyce, senior vice president for corporate communications for Sallie Mae, said the company is refusing loans to people deemed less likely to pay them back based on criteria like credit history and graduation rates.
The direct loan program offers several repayment methods and allows students to switch payment methods at any time.