Student loans have not disappeared

By Anusha Ghosh Roy

Here is a little good news on the economy: Students at the University of Washington are not having trouble getting federal loans.

It seems hard to believe in the middle of this financial crisis, but that is the message for undergraduates from financial and career experts at the UW.

Many students can still get their hands on a loan through the UW because a lot of that money comes from the federal government. The government took steps to protect this moneyso that students could access loans as the nation slipped into a recession. Students are still getting loans from private banks, though they might run into tougher credit checks. But, just because the loans are accessible doesn't mean you should stop making smart decisions-- and many times hard decisions -- to make sure your loans don't pile up.

Kay Lewis, director for the Office of Student Financial Aid, said the UW is a direct loan school. This means students borrow money from the government through the UW. According to Lewis, those students aren't having trouble getting the money they need.William Zumeta, a professor from the Daniel J. Evans School of Public Affairs, whose research interests lie in higher-education finance, said one of the reasons students are not having trouble getting federal loans is because the government anticipated this problem.

According to Zumeta, the federal government bought up loans to raise capital. “Interest rates (for federal loans) were lowered early in 2008 before the worst of the crisis hit,” Zumeta said. “Recently the government has promoted colleges and universities…to get into the Direct Loan Program to replace the banks and other lenders who have dropped out of the Guaranteed Loan Program.” And according to Zumeta, this worked. Students are not having trouble getting federal loans.

As for loans from private institutions, “the few students that do go for a private loan -- some of them have had trouble,” said Lewis. Many large lenders like Wells Fargo and Bank of America are still making loans. But they are doing tougher credit checks and more scrutiny of student applications for loans. Some lenders have pulled out of student loans, but others have moved in.

It is comforting to hear that the money is it still out there, because according to Lewis, around half of UW's undergraduate population is on some type of financial aid. For 2007-08, the typical student graduated with $16,413 in debt. That takes about ten years to pay off. This is still lower than the national average, which is around $19,000 to $20,000.

For 2008-09, the Financial Aid Office expects to give out $200 million in aid to 16,200 undergraduate students. About $20 million will go out in scholarships to 3,700 students; $82 million will go out in grants and around $97 million will be lent to around 11,000 students.

Now that you know that loans are still out there, here are a few tips on how to make sure you don't end up in the hole after graduation:

Always look for federal loans first because they are cheaper. According to Lewis, these loans will have lower interest rates and flexible repayment terms. And you can put off your payments if you go back to graduate school. You don't have to pay these loans back until after graduation, except for interest.

Within federal loans you have a few choices. Check to see if you qualify for the Federal Direct Subsidized Stafford Loan. If you get this loan, you might not gather interest while in school. If you can't get a Subsidized Stafford Loan, then look at the Federal Direct Unsubsidized Stafford Loan and the Federal Direct Parent Loan for Undergraduate Students. All three of these loans are government guaranteed. If you get an unsubsidized loan, make sure to stay on top of your interest payments throughout your undergraduate career, advised Lewis.

Lewis said that the government only gives out a certain amount of money per student per year. You may remember filing what's called a FAFSA financial-aid form. This is the application that determines how much government money you qualify for, depending on your income.

Then private loans come into the picture. Lewis said these loans are not bad but are more expensive. You can start seeing double-digit interest rates and high fees. Lewis said some students have to get a private loan if they run into their federal-government loan limit.

Another great way to make sure you are not getting in over your head with loan payments is to check out what your intended career's starting salary is.Lewis recommended looking at the direct-loan Web site on the U.S. Department of Education's Web site. This is where you can plug in how much you are borrowing, calculate your monthly payments and compare that to your potential starting salary.

UW Career Center counselor Patrick Chidsey's top picks for careers that make paying your loans back easier are computer science, accounting and engineering. According to Chidsey, computer science graduates can expect a starting salary around $58,000. Engineers can expect a salary in the mid-$50,000 range. Accounting graduates can also expect a solid starting salary.

Now, in the middle of this financial crisis, with national unemployment hitting 6.7 percent, you may wonder how these fields are doing. Chidsey said, “We helped with a large engineering career fair last quarter that had 130 employers that were all hungry for students. There was also a large business career fair, with a 100-plus employers that were really hungry for those graduating seniors as well.” Chidsey seemed positive about opportunities available for students in these fields.

“I think that the economic downturn has hit finance specifically and students are seeing stiff competition for positions that are related to financial services, and typical financial employers.”

Even in fields with lower demand, there are still opportunities, said Chidsey.

“Students just need to not believe everything they read online and not listen to their friends as much as they do, and really brush up on and fine tune their job searching skills.”

However, Lewis said some students come to the Financial Aid Office because they are having trouble finding employment and are getting nervous about paying their loans back after graduation.

For federal loans, Lewis and Zumeta said one option is “forbearance.” Forbearance allows you to put off your loan payments if you run into an economic hardship.

Talking to someone from the Financial Aid Office, even after graduation, can be helpful if you are having trouble paying back your loans.

If you find out that you are taking on too much debt, you might consider taking time off from school to work full time.

It is also common for students to work and go to school. But Zumeta pointed out that when students start working 15 to 20 hours a week, it often affects their education. Some students cut down on their course work, fall behind on their credits and end up having to pay for the extra quarters of school to finish their degree. This means they get out into the job market later.

Other ways students are cutting costs are by commuting and finding paid internships. If you are eligible for loans, you also may be eligible for a work-study program that the Financial Aid Office can help set up. This way, you can do work related to your major while getting paid. Lewis said a lot of students come in with scholarships from outside the school as well. Zumeta recommended applying for grants and scholarships from private and public sources, parent's employers and their school.

The trick, said Lewis, is to find a balance to make sure all your money doesn't go into loan payments, because we all need a little money for ourselves.

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