No longer a lender

By Zak Stambor

Joshua Trampier, AM’02, an eighth-year Near Eastern languages and civilizations doctoral student, was working on his dissertation July 2 when he received a distressing e-mail from the Student Loan Administration. The University had dropped out of the “school-as-lender” program, the e-mail message said, because its lending partner, the Illinois Designated Account Purchase Program (IDAPP), was unable to renew its credit line. 

Immediately Trampier, who has accumulated $43,000 in loan debt during his graduate work, browsed the Student Loan Administration Office’s “Suspension of University-IDAPP student loan partnership” frequently-asked-questions Web site. Then he reread the e-mail to figure out what would happen to the benefits he had received through the school-as-lender program, a federal government plan that allows colleges and universities to act as loan providers to their students, even though a private lender like IDAPP actually provides the money. Borrowing this way, Trampier had no origination fees and a 2 percent interest-rate reduction after his first 48 consecutive on-time monthly payments.

Both the e-mail and Web site highlighted the University’s offer to help students find a new lender, to honor the 2 percent rate decrease for existing loans, and, if necessary, to provide students a cash advance to cover expenses until they secured a new loan. To obtain the cash advance students would not need to sign a promissory note or meet any technical conditions. And for students who encountered difficulty securing loans, the University said it would not charge late fees or restrict enrollment or course selection.

But despite the University’s efforts to minimize the impact, Trampier remains concerned about the loss of the program’s perks. “Students really benefit from the program,” he says, noting that in eight years, “I’ve saved $10,606 from it alone.”

Since 1996 the University had partnered with IDAPP to offer students Federal Stafford, Graduate PLUS, and alternative loans. The relationship’s abrupt end in late June came as a “complete surprise,” says Kimberly Goff-Crews, vice president and dean of students. “There were all indications they would have the money.”

In the past three years the school-as-lender program has faced accusations from Massachusetts Senator Edward M. Kennedy and other legislators that universities profit from taking on student loans. Yet Chicago’s decision to end the program, says Goff-Crews, was made only after IDAPP officials said they couldn’t offer funding because of the lack of liquidity in the market. A team of administrators, including Goff-Crews, the bursar, and the vice president for administration and chief financial officer evaluated finding new lenders but chose not to go that route or to use University resources to back the loans. Other institutions that made similar moves this year, withdrawing from the school-as-lender program because of concerns about the volatile economy, include Yale, Duke, Michigan State, and Tufts universities.

Because Chicago is not the first institution to face this situation, the administration is “pretty confident,” Goff-Crews says, that students will be able to get loans based on other schools’ experiences. Nonetheless the decision left Trampier, along with nearly 3,000 other graduate and professional-school students, and ten undergraduates, scrambling. In the end, Trampier and his wife, a doctoral student at the University of Illinois at Chicago (UIC), decided to take out a larger loan from UIC because they couldn’t find a better rate on the open market.

While most affected students have had little trouble obtaining new loans, many have been forced to pay new-lender fees, undergo individual credit checks, and pay higher rates.

For most of the approximately 300 affected international students, who pay interest rates of 7 percent on their loans compared to domestic students’ 4.5 percent rate, finding new loans has been difficult. But “we are making sure there is funding available to them,” says Goff-Crews, adding that as of mid-August, because of unstable marketplace conditions caused by the global credit crunch, the administration had yet to determine how exactly it would make such funding available.

It’s too soon to tell whether this is a one-year blip or the start of a shift in University’s funding approach, says Goff-Crews. “Things are just so chaotic right now,” she adds. “We’ll have to keep our eyes on the market all the time to figure out how we’ll go forward.”

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