SCHUMER UNVEILS EMERGENCY PLAN TO HELP NERVOUS NYC STUDENTS AND PARENTS PAY FOR COLLEGE AND SECURE STUDENT LOANS AS CREDIT CRUNCH GRIPS NATION
With Parents and High School Seniors Looking At Colleges Right Now, Economic Crisis Forcing Many Private Lenders to Suddenly Cut Back or Even Cut Off All Student Loans Leaving NYC Families Limited Options This Year
Senator Will Discuss How Federal Rescue Plan Will Help Ensure Private Student Loans Are Still Available - Call for Action to Make Sure Help is Still Available if Private Student Loan Market Stays Tight
Schumer Calls for Emergency Commission to Monitor Stude
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In the midst of the national economic and credit crisis, U.S. Senator Charles E. Schumer today warned the market for private student loans this school year may be drying up, with federal loans barely able to cover the rising cost of tuition. Schumer today unveiled his plan to protect students and families who could struggle to pay for college and will discuss how the economic rescue plan, which was approved by Congress on Friday and expected to be signed by the President, will help protect New York City students and families and stabilize the private student loan market. Schumer said say many New York City families are forced to take out private loans in addition to federal Stafford and Perkins loans because the amount of some government loans are capped below the total cost of tuition, which has skyrocketed in the last years. Schumer called for a series of steps to first shore up the private lending market and protect borrowers from skyhigh interest rates and second ensure that all borrowers have access to sufficient government loans should the private market stay tight or even collapse.
"We need to build an impermeable wall around the student loan market to protect our kids from this financial crisis," Schumer said. "With all types of credit tightening up, we need to ensure that families and students can get the loans they need to pay for college. If even one high school grad has to forgo college because they can't get the loans they need to pay for it would be a great casualty of this economic crisis. We need all hands on deck to make sure that the student loan market is protected at all costs. My plan will both protect borrowers right now and over the long term should things get worse."
Schumer today discussed how the mortgage market and major banking institutions aren't the only parts of the business sector affected by the credit crisis. Schumer warned that the market for private student loans is tighter than ever which could force many New York City families and students to either pay sky high interest rates on loans or even fail to qualify for private loans at all, forcing them to turn to government programs. Due to the credit crisis, as of this summer more than 50 lenders have either suspended studentloan originations or left the guaranteedloan program altogether. Those lenders were responsible for originating 13 percent of the Stafford and PLUS loan volume and 67 percent of the consolidation loan volume in the 2006 academic year.
In New York City, the average college student graduates with more than $20,000 worth of debt from student loans. The Department of Education estimates that 40 to 60 percent of students who borrow nonfederal private loans are not taking advantage of all the federal grants and lowcost loans for which they are eligible. Unlike federal loans, private loan rates aren't fixed and can range up to 19%. These loans grew in a single decade from less than 5% of the student loan market to more than 20%.
Schumer today said that the federal economic rescue package, passed by Congress and signed in to law by the President on Friday, should ease pressure on the private student loan market and over time allow more loans to become available and even bring interest rates back down. However, with many parents and students beginning to look at colleges and sizing up loan options right now, the effect of the rescue plan may not be felt in time.
In order to protect students and families during the credit crisis, Schumer outlined a series of actions he is calling for to ensure that, despite the lack of private loans, New York City families will have the money they need to pay for college. Schumer's actions are targeted to protect families this year while the government attempts to stabilize the credit markets, but also over the long term if the private student loan market continues to struggle or even takes a nose dive. Below is Schumer's fourpoint plan.
· Encourage All Colleges to Accept Direct Government Loans - Right now, many colleges limit the type of loans they allow their students to take out, at times favoring federally backed, private loans over loans made directly by the U.S. Department of Education. Schumer said that, given how difficult it is and will be to get a student loan this year from a private bank, all colleges and universities in New York and across the country need to ensure they participate in all government loan programs. This will ensure that no matter what loans a student or their parents take out, the high school grad can pay for school. Schumer today sent an open letter to all New York college presidents and the head of the American Council on Education encouraging them to enroll in the Direct Loan program "as a backup for their students" in the event that private loans become less available. The Direct Loan Program does not rely on capital from the volatile private markets, and is a stable, reliable option for schools to ensure that students can continue to access federallybacked loans regardless of the actions of private lenders.
· Monitor Implementation of Rescue Plan to Ensure Student Loan Market is Protected - Schumer said that while the economic rescue plan is targeted toward mortgage backed securities and ensuring banks and lending institutions have the capital they need to continue to operate, special attention must be paid to the strength and vitality of the student loan market. In a personal letter to Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke, Schumer asked that they pay special attention to student loan market where effective and appropriate as they design and implement the rescue plan.
· Commission to Ensure Government Loans Will be Available if Private Loan Market Collapses - Nearly onequarter of current student loans are taken out on the private market. Schumer today said that if that market collapses or becomes so tight that middleclass families either can't get student loans or have to pay exorbitant mortgage rates, similar to what happened in the home mortgages market, millions of students and families will have nowhere to turn. Today, Schumer called for a fasttrack government and a commission to audit of the stability of government student loan programs to ensure there are sufficient resources to fill in for where the private market fails.