Most students aren’t investment bankers or are taking out major mortgages for homes, so how do woes on Wall Street and the credit crisis affect students at the U?
Student loans could become difficult to obtain if the credit crisis is not resolved, professors said.
There are many different opinions circulating about how effective the bailout will be in ensuring the availability of credit. If the credit problem does not improve, then students might be unable to afford education costs.
The University of Utah Credit Union is a major source of student loans for U students. Terri Smith, the credit union’s vice president, said the bailout should have no bearing on students applying for student loans at the credit union.
Smith attributed the continued availability of student loans to a piece of legislation passed in 2008 called “the Ensuring Continued Access to Student Loans Act of 2008.” Smith described this as the Department of Education’s attempt to make sure that every eligible student can get a loan.
Smith did acknowledge that this legislation does not protect students who already have variable rate loans. These loans are subjected to increased interest rates based on how expensive it is for banks to supply the loans.
Banks add to the financial system problem because it is very expensive to borrow money from one another. Large financial institutions such as Washington Mutual and Lehman Brothers have filed for bankruptcy, and banks are afraid that if they lend to another bank, it may go under before loans are paid back. Most banks will now only lend money at a high price.
Scott Schaefer, a professor of finance at the U, said the high rates that banks charge each other to borrow money means a higher rate for individuals to borrow money. He said the banking system needs more regulation to avoid this fear of lending. Schaefer also said that student loans are not as susceptible to lowered availability because the government guarantees them. Home loans and student loans are nationally endorsed, which means the government feels everyone should be able to afford college and own a home.
What this bailout might mean for students is not an impossibility to get a loan, but that loans may be more expensive. U finance professor Elizabeth Tashjian said that although government-endorsed student loans should remain stable, variable rate loans might be at risk.
“If students have a variable rate loan, they could end up spending more,” Tashjian said. If it becomes extremely difficult to get banks to lend money, student loans will eventually be affected.