<p>Given todays mess in the stock market, It makes me wonder how the schools endowment funds and ultimately scholarship aid will be affected. Anyone have any comments?</p>
<p>Hopefully, schools have done a good job diversifying investments to limit exposure to such losses.</p>
<p>I can tell you for a fact that the recent credit mess has been a HUGE problem for financial aid. Lenders are refusing to issue student loans, parents are being turned down for PLUS loans, etc. It's made the start of the year a giant pain for financial aid folks & students alike.</p>
<p>I imagine that the stock market woes will have far-reaching effects ... and financial aid is certain to feel them.</p>
<p>I don't understand markets and their effect on the economy and all that particularly well, but it does occur to me that all the big improvements in financial aid we saw last year --top schools eliminating student loans, or putting low caps on loans, eliminating tuition for low income students, better financial aid for middle and upper-middle class students, etc.-- that we will probably not see more colleges following suit this year. I expect more will sit tight with the aid policies they have now and maintain for some period of time to see how things unfold.</p>
<p>To the degree the drop was driven by Lehman it may be what has become the market's tendency to over react. Lehman has good units which should be able to be sold off. I think that the market should bounce back, though the sentiment seems to be a hard few quarters. Of course unknown in all this is the how the election will affect all this.</p>
<p>With respect to endowment-based aid, stock market performance this year will not be much of a factor. The endowments are quite conservative in their spending. (In fact the govt. is complaining they don't spend enough.) They look at multi-year average returns when determining how much they will spend. This smooths out the peaks and dips in the market such as we have seen in the past decade. If the market has 3 or 4 bad years in a row, that could cause a problem. Last year the average return for endowment funds was 17.2%. The 3-yr avg. return is 12.4%.</p>
<p>These returns do not include new endowment money that is being contributed each year.</p>
<p>^ Yes, but it's going to be more difficult for the biggest endowments to make as much on hedge funds, derivatives, and all the other fancy financial instruments that helped them score record returns in the last few years. I'd expect relatively modest net positive rates of return on endowments, bringing down 3-year averages a bit. The richest schools won't need to retreat on their recent financial aid commitments, but their not-quite-so-rich competitors will not be in any shape to follow suit. Meanwhile, the credit crunch is making it difficult for many families to borrow, home equity has shrunk dramatically in a lot of markets (so people don't feel nearly as well off as they did last year or the year before), and a non-trivial fraction of households are experiencing job loss or real uncertainty about it. I think this is going to prompt a lot of bargain-hunting, including:
* more competition than ever to get into HYPSM, the other Ivies, and the handful of other schools that can afford to be extremely generous with grant aid (and don't require families to take out loans)
* more top students with high EFCs opting for schools that give merit aid, or for in-state publics with a low net COA (after grants/scholarships)
* more pressure on the less well-endowed private schools (and perhaps some publics) to offer merit aid to attract top students, potentially at the expense of traditional need-based aid.</p>
<p>bclintonk,</p>
<p>You make a good point about demand for aid going up, perhaps dramatically so. That is where the stress on endowments will come from. The student from a financially limited family would be much better off looking at the top-50 FA schools than the top-50 academic schools, although there is a great deal of overlap on these lists.</p>
<p>Even with the best money managers these day, the endowments at these colleges have to be affected by the stock market down turn. Can't help but wonder how all this factors into the acceptance/actual enrollment ratio. It will be an interesting year.</p>
<p>My bigger concern is whether tuition will continue increasing at 5%+ a year even with loans much harder to get and financial markets in the tank.</p>
<p>^^I suspect some pressure will build on the "lesser" schools that have to compete for top students. The very top schools - Ivies and the like - have 5 applicants for every spot and therefore no incentive to minimize tuition increases. The "lesser" schools, however, have to be somewhat price sensitive. My kids' college accounts are taking a hit like everyone else (except those who got out at the peak - wish I was one of you) which means I will be paying attention to tuition prices.</p>
<p>I audited a major student loan company this summer. It has been difficult enough for the government to get money out for student loans. There is no liquidity in this market either.</p>
<p>Not sure if it's related or not, but I had to resubmit my Stafford Loan since one of the banks pulled out because of the financial collapse. I had a $11000 balance left because of this. :-/</p>
<p>Oh, well, thanks for screwing me, stock market!</p>
<p>i think a big concern will be how much tuition will increase, and how much the government will help us to stay in school.</p>
<p>Not everyone loses money during an economical downturn. Just look at gold prices. Just this week alone has seen gold increase over $100/ounce. This is just one example of a "winner" during an economic downturn, and Harvard is just one endowment that still indicated a nearly 9% return on its investments for this last fiscal year (06/2008), while the S&P reported a 13% decrease.</p>
<p>Between</a> Fundraising and Endowment, Harvard’s Coffers Look Full - The Paper Trail (usnews.com)</p>
<p>Colleges generally have very savvy and smart investors running their endowments, and sustained downturns such as what we're experiencing are actually relatively easy to manage through and make increases.</p>
<p>So, I don't believe that there needs to be huge concerns about colleges' endowments. They should and can still continue to use their endowments to help the rest of us finance our educations.</p>
<p>Generally, endowments are tapped at a more or less even rate per year, and at a rate that won't cause the endowment to decline in value over the long haul. Up and down years are expected.</p>
<p>I think the bigger impact of the financial mess could be on private student loans. For years, loans have been granted with too little scrutiny of the borrower's resources and ability to repay it under adverse circumstances. Traditional lenders have already begun to pull in their horns.</p>
<p>I saw this news item on the CCN scroll. The impact is on private Loans. </p>
<p>My Rich Uncle.com is the most recent lender to suspend its private student loan program, joining the ranks of major financial institutions like Wachovia and Bank of America and companies specializing in student loans such as College Loan Corporation and Campus Door, which was backed by Lehman Brothers.
MyRichUncle's president and co-founder, Raza Khan, told CNN: "We are currently working with a number of investors so we can resume loan origination as soon as possible.
"Meanwhile, students and parents should not lose sight of the value of education. Funds do remain available -- we encourage families to do all the homework and research, and to make prudent decisions on borrowing," he added in a written statement.
Since August 2007, 33 lenders have suspended private loans programs, according to the Web site FinAid.org, which tracks activity in the student loan market.Unlike federal lending programs, private loans rely on liquidity from investors. Even though private loans are considered strong by industry standards, they are feeling the effects of a turbulent capital market.
"The only reason lenders had to stop making the loans was that they ran out of liquidity," said financial aid expert Mark Kantrowitz, who created FinAid.org.
"It's a contagion effect of the sub-prime crisis," said Kantrowitz. "It's an overreaction that has affected the student loan market."</p>
<p>I think less financial aid will be available with a greater demand for it. However, where I think there will be the greater unknow impact is in the application pool. If guidance counselors thought 2008 was crazy due to volume of applications and razor thin admission rates 2009; is going to be another wild ride due to unknown variables!</p>
<p>How many more parents will steer their kids to the state schools due to tuition? How many students will reduce the number of applications they send out due to 1) too expensive to send out 10 vs. 5 applications 2) family finance reality will dictate "no more shooting for the moon, we can't afford it". 3) cheap loans are no longer availabe (they say this partly drove up tuition rates-- so they should no longer increase). </p>
<p>Maybe more acceptance letters will offered due to the reality of fewer students can afford to attend a $45K-$50K school when in-state is <$25K.</p>
<p>"I audited a major student loan company this summer. It has been difficult enough for the government to get money out for student loans. There is no liquidity in this market either.' </p>
<p>southpasdena. The instability in both the primary and secondary aspects of the student loan market has been developing for some time. Largely because these institutions were effectively given government carte blanche for their operations with little or no regulations in effect to protect borrowers or to moderate these companies conduct. </p>
<p>Ironically the millions given out by the government earlier this year didn't seem to ensure liquidity, all it did seemingly was to allow these companies a little longer to continue their excesses. Some are massively over leveraged, but did chose not to spin off any assets to mitigate that problem. (SMC which has been in trouble has elected to keep virtually all of their subsidiary acquisitions and are even trying to expand into other even more unstable aspects of the credit industry like high rate credit cards)</p>
<p>In all likely hood another factor is that the CEO's of such as SMC and NNC are using the current crises as a lever against the policy makers in the US government. The idea would be the SL industry needs a bailout as much as Fannie Mea, Freddie Mac and their sullied brethren. If they don't get it they will continue to withdraw from providing access to student loans. And since sweet heart governmental policies were written to keep their potential competition out (be it government direct or other companies) its very probable this tactic might work. </p>
<p>The dilemma is that the numbers of the SL proposed bailout would be in the same range (or more) as the FM, Freddie Mac etc bailouts. Because in part any proposed bailout would include losses to these companies resultant from over leveraging and over expansion into subsidiaries. And when the current estimates of 549, 950, 000 some millions owed by student borrowers is factored in it would seem the whole mess is unsustainable. </p>
<p>The Fannie Mae Freddie Mac and sullied associates bailout combined with a proposed bailout for the SL industry would ensure an incredible increase in the federal deficit. As such federal directs, Pell grants, and other programs will assuredly be cut back due to lack of resources. </p>
<p>So yes, it will adversely effect student financial aid. Corporate Student loans (which never should have been allowed to become as predatory as they have been) will become increasingly difficult to get. </p>
<p>Already the whole situation is a hapless dichotomy especially when students at gateway schools are considered. In a poor economy there is an impetus to obtain training or advance ones education. But the people in the lower orders do not have much of a financial reserve to engage in such activities. And in order for them to go to school under our current system loans are needed, which they will have difficulty paying because of their economic constraints...which compel them to go to colleges in the first place...</p>
<p>And steering students to a state school may not help all that much. Excepting a few shining states funding for these institutions has not kept up with the general costs. Costs which incidentally have outpaced every other measure in the economy, in part because academia got too close to the student loan industries bingo festivities.
But reduced state support compels schools to become reliant on the corporate people for much of their funding (via student loans) but these loans are being cut back. So although tuition is cheaper at some state schools it will not stay that way due to these changes in the educational funding systems. And absorbing the new class of student (those who'd normally attend privates or Ivy's) will also ironically drive up tuition. Simply because the State U's will spend even more money (which they may not have) on glitter to attract these same students.</p>
<p>Good gods only two days after the conjecture they're actually trying to do it...some very disturbing implications to these proposals. Which will definitely have an influence on financial aid in a probably detrimental manner. </p>
<p>From... Administration’s</a> $700-billion bank bailout could aid student lenders - CSUN University News Clippings
The source article is in today's "Chronicle of Higher Education" </p>
<p>Administration’s $700-billion bank bailout could aid student lenders</p>
<p>(September 24, 2008)</p>
<p>By PAUL BASKEN</p>
<p>Washington</p>
<p>The Bush administration, in asking Congress for a $700-billion bailout of the banking industry, has proposed including authority to help struggling student-loan providers in ways that go beyond the financial-rescue provisions approved by Congress this year.</p>
<p>Treasury Secretary Henry M. Paulson Jr. confirmed at a Senate hearing on Tuesday that he wants the right to use taxpayer money to purchase the assets of student-loan companies as part of a package of “broad authorities” to seek to restore the health of capital markets.</p>
<p>Mr. Paulson did not outline his plans for using that specific authority, leaving representatives of both lenders and borrowers uncertain as to whether the provision would help more students attend college or whether it would be just another tool to help banks deal with wider economic problems.</p>
<p>“The details are not out there,” said John Dean, a lawyer representing the Consumer Bankers Association. Administration officials and lawmakers are hurrying to craft the bailout plan, and “it’s quite possible that they’re being cautious in working out the details,” Mr. Dean said.</p>
<p>The Bush administration and Congress already approved legislation in May that lets providers of federally subsidized student loans sell to the government their assets that are based on newly issued loans, giving the companies cash so they can issue new loans to more students (The Chronicle, May 5). Lawmakers from both parties called the action necessary to avoid the possibility that some students might not find a willing provider of federal loans this fall.</p>
<p>That rescue plan was devised after loan companies complained of financing troubles attributed to a rash of mortgage defaults. Since then, problems with mortgage defaults have continued to roil the U.S. economy, prompting the Bush administration in recent weeks to take a series of drastic measures, including the bailouts of Fannie Mae and Freddie Mac, the mortgage giants, and American International Group, the nation’s largest insurance company, and a ban Friday on stock-trader betting against the shares of hundreds of struggling companies.</p>
<p>Mr. Paulson, in describing to lawmakers the administration’s request for another $700-billion in authority to purchase bank assets, offered the Senate banking committee no specific limits on the ways in which he might use that power to help student-loan providers. For some industry experts, that raised the possibility that lenders could go beyond the terms established in May and sell the government assets based on older federal loans and assets involving private student loans.
Concerns About Private Loans</p>
<p>Private loans, which banks issue outside the government system of federal subsidies, are becoming increasingly costly and difficult to obtain as more students default on them. The College Board has estimated that lenders issued $18.5-billion in private loans in 2007. The amount of private loans being made available has declined this year by an amount in the range of $3.4-billion to $5-billion, according to estimates by Student Lending Analytics, which advises colleges on student-loan options.</p>
<p>The plan suggested by Mr. Paulson “would clearly free up balance-sheet capacity for lenders to make more loans,” said Tim Ranzetta, president of Student Lending Analytics. “What remains less clear is whether lenders would make loans to higher-risk borrowers, who are currently shut out of the private-loan market.”</p>
<p>Direct benefits to students aren’t likely, said Sameer Gokhale, an industry analyst with Keefe, Bruyette & Woods. If the government offers to buy student-loan debt at roughly the same type of discounted rate it will probably offer to holders of defaulted mortgages, many banks won’t find it worthwhile, especially when the government attaches other punitive conditions like limits on executive compensation, Mr. Gokhale said.</p>
<p>And if the government offers a better rate for student-loan debt than it does for mortgage-based debt, banks holding defaulted mortgages would probably sell their student-loan portfolios but then use the proceeds for other business needs, he said.</p>
<p>“If the liquidity is not being used to make new student loans, and it’s being used to make other types of loans, then it doesn’t really help students,” Mr. Gokhale said.</p>
<p>As with the government’s plan for mortgages, the proposed bailout by the government would help the lenders without sparing the borrower from the debt. And in the case of private student loans, borrowers are barred in most instances from escaping that debt through bankruptcy.</p>
<p>Any federal bailout plan involving student loans must restore those bankruptcy protections, said Alan M. Collinge, founder of StudentLoanJustice.org, a grass-roots organization for borrowers.</p>
<p>“If the federal government does decide to purchase these loans, it should be at a deep, deep discount,” Mr. Collinge said. “And the borrowers should not be responsible for repaying more than the government paid for these loans, ultimately.”</p>
<p>At the Senate banking committee hearing, Mr. Paulson was pressed by a fellow Republican, Sen. Jim Bunning of Kentucky, to explain why student-loan debt should be included in his bailout authority.</p>
<p>The secretary said the “vast bulk of our effort” will be aimed at purchasing mortgage-based debt but said he needed the power to act wherever necessary. The overall economy will be helped when “capital flows more freely” throughout the marketplace, Mr. Paulson told Mr. Bunning.
Lobbying by Lenders</p>
<p>Spokesmen for major student-loan providers, including Sallie Mae and Citibank, declined to comment on Tuesday about whether they pressed Mr. Paulson for consideration of student-loan debt in his plan.</p>
<p>Sallie Mae, the nation’s largest student-loan provider, was included by the Securities and Exchange Commission on a list issued last week of several hundred companies, mostly banks, whose stocks are so troubled that the SEC has temporarily banned investors from betting against them on the stock market.</p>
<p>Jennifer Zuccarelli, a spokeswoman for the Treasury Department, said she did not know who may have lobbied the department on behalf of student-loan providers. “A lot of people call us asking us for things,” Ms. Zuccarelli said. “That doesn’t mean that we do it, or that we do it because they’ve called us and asked us to.”</p>
<p>Lawmakers from both parties expressed skepticism toward Mr. Paulson’s bailout proposal. Sen. Barack Obama, the Democratic party’s nominee for president, said in an interview with Fox News that was broadcast on Tuesday that he needed to see justification for elements of Mr. Paulson’s plan, including the eligibility of student-loan debt.</p>
<p>Mr. Paulson and Ben S. Bernanke, chairman of the Federal Reserve, must “evaluate how big of a problem, for example, student loans would be relative to stalling the liquidity problem,” Mr. Obama said in the interview, according to a transcript provided by Fox. “They have not answered that question definitively.”</p>
<p>Sen. Richard C. Shelby of Alabama, the top-ranking Republican on the banking committee, closed the hearing by warning that Mr. Paulson should let market forces teach investors necessary lessons. “I’m not sure people will learn,” Mr. Shelby said, “if this goes through.</p>