US credit crunch hits education as banks abandon student loans
One of America’s leading banking associations has given warning that the United States faces a growing educational apartheid as some lenders withdraw from student loans amid new evidence that the credit crisis has spread across all types of borrowing.
In the past fortnight, some banks, including HSBC, have pulled out of the $85 billion (£42 billion) a year US student loans market, fuelling anxiety that the turmoil that hit debt markets on Wall Street last summer is spilling over into the wider economy and making credit more difficult to secure for ordinary American households.
In the US, many undergraduates take out a federal guaranteed loan and top up their financial needs with a private loan from lenders such as Bank of America, JPMorgan Chase and Citi-group. In the academic year 2005-06, $17 billion in private student loans was used to finance higher education.
Banks have become reluctant to offer private student loans because worsening credit conditions have meant that they cannot package up the loans and sell them on.
Although the brightest students who win places at America’s rich Ivy League universities will be affected less because of generous bursaries - which do not have to be repaid – less able students applying to other institutions are expected to face difficulty in securing private loans to fund their study. At one end of the field is Harvard University, with $34 billion of endowments, and at the other are many community colleges and low-tier universities with limited resources.
Joe Belew, president of the Consumer Bankers’ Association, said: “Some of the banks are getting out. Part of the reason is that Congress has cut the fees they could charge, making some loans pretty much unprofitable. But part of the reason is that they can’t securitise the debt. The problems they have had with mortgage-backed debt – it’s the same thing at play in student lending.
“We have talked to some of the banks about this. It’s a painful decision to pull out because of the nature of the clientele – everyone wants to be in the business of helping people get ahead, but at the end of the day you still have to deliver value to shareholders. At the moment, it’s a fine line between hanging in there and pulling out. It’s a murky situation.
“If the overall market is contracting, then those students with poor credit scores or without the rich uncle co-signers [loan guarantor] may have real problems funding themselves.”
Last week, Iowa Student Loan said that it would soon stop offering private loans altogether. The group, which made 29,000 student loans last year, said: “This is really a reaction to the economy’s recent situation, the sub-prime market in particular.”
Within the past fortnight, Montana Higher Education Student Assistance Corp said that a lack of appetite for buying debt such as student loans had led to its interest costs to finance such borrowing rising by a tenth, or $3.4 million, since the beginning of February.
Several members of Congress have urged the Bush Administration to stabilise the market after the National Association of Independent Colleges and Universities gave warning that student loans have become far harder and costlier to obtain since the credit crisis.
Last October, as the credit crisis on Wall Street was gathering pace, Washington introduced legislation limiting the returns that banks could extract from student loans.
Concern over funding for students is also spreading to Ivy League institutions. The University of Pennsylvania’s head of financial aid, William Schilling, has just written to banks demanding assurances they will continue to offer student loans.
Speaking to The Times, Dr Schilling said: “We want the banks to tell us whether they will continue to offer [federal] loans and private loans for the next academic year. The key thing is not just whether they will lend at all, but what the terms will be.”
Dr Schilling said that although some of the loans are guaranteed by Washington and are therefore “very low risk”, the market for them “has just gone away”.
Kids with knack for computers help classmates, teachers
The Edison Middle School students in the computer lab after school are making "sprites," images they'll use to play a computer game. They'll learn how to program the images to move them around in a virtual room they build.
It's not homework. The members of an after-school computer club are learning to use Game Maker software because it's fun. But it also builds their computer skills and knowledge, says Laurie Jacob, the instructional technology specialist at Edison.
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A few students are helping the others learn. The students are not only teaching each other. They're teaching the teachers how to use software programs. They're helping in computer lab classes. They're troubleshooting problems with equipment.
They are an important part of the school's technology program, Jacob says.
Several years ago, the money for an aide who did computer maintenance and troubleshooting at Edison was cut from the school's budget. Jacob noticed that a number of students liked to hang around the computer lab. So she began training some of them.
"I would watch for students who had some knowledge ... or just really wanted to help others," she said. "If you were teaching something, they'd hop up and go help somebody who was a little bit behind."
The Edison Tech Squad was born. The students meet during their lunch period and learn how to use the school's software programs, how to identify common computer problems and how to maintain the wireless laptops.
The students also help with Tech Tuesdays – districtwide computer training sessions for teachers – and they teach other students during the after-school computer club, as well as in the computer labs. They taught an animation program to students in an art class.
They've put together presentations with photos and video for the monthly student convocations at the school and taken field trips to Parkland College and Volition.
"Some people think it's all boring and stuff," said eighth-grader Kayce Paine. "(But) sometimes we get to do animation and games. It's not all manuals and boring stuff."
Eighth-grader Samone Thompson likes using a lab management program that lets a teacher and students see each other's screens, to better demonstrate something and monitor who is having difficulty or not doing the work.
"I like that, being able to keep people from doing what they're not supposed to do," Samone said.
"If a student is having trouble, they can watch what you're doing and understand it more so they can do it by themselves next time," Kayce added.
Clark Chen and Jody Hankel, both seventh-graders, used computers a lot before they got to middle school. Clark has done some programming, and both boys wanted to learn more. Mariam Saadah, a sixth-grade student, likes to know how technology works and how it does different things. Seventh-grader Adrian Rochelle likes helping with Tech Tuesdays and working with the Smart Board, an interactive white board.
Kayce said the tech squad gets to know other students in the school by helping in computer labs.
The students are sometimes allowed to leave class to help in the computer lab or with a piece of equipment. But Jacob said they need the permission of their teachers to do so, and they must be keeping up with their homework to participate. Jacob keeps copies of their schedules and they don't leave any core class periods.
Jacob's favorite part of her job is working with students.
She needs to be able to trust the students, because they have access to codes and keys for the equipment not available to other students. Along with the trust comes the respect of their classmates, Jacob said, when they see the tech squad members given the responsibility of moving and maintaining the equipment.
It also gives them a boost to provide help to other students and to teachers.
"It's interesting for them to see, wow, teachers struggle with things too," Jacob said.
"They're giving help rather than always feeling like they need help. I definitely think it helps their self-esteem," she continued. "It's fun be around other people who enjoy the same thing. They make friends across the grade levels. It gives them confidence, where you get it and can pass your knowledge on to somebody else."
Plus, she said, "We just have a lot of fun."
The Edison Middle School students in the computer lab after school are making "sprites," images they'll use to play a computer game. They'll learn how to program the images to move them around in a virtual room they build.
It's not homework. The members of an after-school computer club are learning to use Game Maker software because it's fun. But it also builds their computer skills and knowledge, says Laurie Jacob, the instructional technology specialist at Edison.
Advertisement
A few students are helping the others learn. The students are not only teaching each other. They're teaching the teachers how to use software programs. They're helping in computer lab classes. They're troubleshooting problems with equipment.
They are an important part of the school's technology program, Jacob says.
Several years ago, the money for an aide who did computer maintenance and troubleshooting at Edison was cut from the school's budget. Jacob noticed that a number of students liked to hang around the computer lab. So she began training some of them.
"I would watch for students who had some knowledge ... or just really wanted to help others," she said. "If you were teaching something, they'd hop up and go help somebody who was a little bit behind."
The Edison Tech Squad was born. The students meet during their lunch period and learn how to use the school's software programs, how to identify common computer problems and how to maintain the wireless laptops.
The students also help with Tech Tuesdays – districtwide computer training sessions for teachers – and they teach other students during the after-school computer club, as well as in the computer labs. They taught an animation program to students in an art class.
They've put together presentations with photos and video for the monthly student convocations at the school and taken field trips to Parkland College and Volition.
"Some people think it's all boring and stuff," said eighth-grader Kayce Paine. "(But) sometimes we get to do animation and games. It's not all manuals and boring stuff."
Eighth-grader Samone Thompson likes using a lab management program that lets a teacher and students see each other's screens, to better demonstrate something and monitor who is having difficulty or not doing the work.
"I like that, being able to keep people from doing what they're not supposed to do," Samone said.
"If a student is having trouble, they can watch what you're doing and understand it more so they can do it by themselves next time," Kayce added.
Clark Chen and Jody Hankel, both seventh-graders, used computers a lot before they got to middle school. Clark has done some programming, and both boys wanted to learn more. Mariam Saadah, a sixth-grade student, likes to know how technology works and how it does different things. Seventh-grader Adrian Rochelle likes helping with Tech Tuesdays and working with the Smart Board, an interactive white board.
Kayce said the tech squad gets to know other students in the school by helping in computer labs.
The students are sometimes allowed to leave class to help in the computer lab or with a piece of equipment. But Jacob said they need the permission of their teachers to do so, and they must be keeping up with their homework to participate. Jacob keeps copies of their schedules and they don't leave any core class periods.
Jacob's favorite part of her job is working with students.
She needs to be able to trust the students, because they have access to codes and keys for the equipment not available to other students. Along with the trust comes the respect of their classmates, Jacob said, when they see the tech squad members given the responsibility of moving and maintaining the equipment.
It also gives them a boost to provide help to other students and to teachers.
"It's interesting for them to see, wow, teachers struggle with things too," Jacob said.
"They're giving help rather than always feeling like they need help. I definitely think it helps their self-esteem," she continued. "It's fun be around other people who enjoy the same thing. They make friends across the grade levels. It gives them confidence, where you get it and can pass your knowledge on to somebody else."
Plus, she said, "We just have a lot of fun."
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