When Lehman Brothers declared bankruptcy on Sept. 15, a number of the bank's employees -- alumni with outstanding student loans -- called Ron Hiser, director of Dartmouth Student Financial Services, to warn him that they did not know whether they would be keeping their jobs.
Though Hiser said it is too early to tell how the economic downturn will affect the "re-payability" of student loans in general, he predicted that some Dartmouth students will be unable to continue payment.
There are about 5,500 Dartmouth students and alumni with outstanding loans, Hiser said. Members of the Class of 2008 who received financial aid would likely have had $18,800 in loans for each of their four years, according to Virginia Hazen, director of financial aid.
If a student cannot repay his or her loans, the course of action depends on the kind of loans the student has taken out, Hiser said. Repayment of Perkins loans, which comprise about one third of the loans that SFS manages, is dictated by the federal government. Those who default may be eligible for unemployment deferment, in which case the loans are usually suspended for about six months, Hiser said.
Loans can also be placed in forbearance, which allows for a 36-month delay on payment. The College sets the terms for its institutional loans, which also have 36-month forbearance options, Hiser said.
Between 20 and 30 students and alumni default on their loans each month, according to Hiser. While he said he does not know how that number compares with other schools, Dartmouth ranks among the top schools for repaying Perkins loans. According to a U.S. Department of Education press release, the percentage of students nationwide who default on their Perkins loans was 5.2 percent in 2006, the most recent year for which data was available. In comparison, Hiser said Dartmouth's cohort default rate has averaged 1.29 percent in recent years.
"Once they get over the [initial] difficulty, they tend to get back on track," he said.
Current Dartmouth students will be better positioned to weather the financial crisis than their peers at other schools due to the College's new financial aid program, according to Mark Kantrowitz, publisher of FinAid.org. The new program, implemented this fall, replaced all student loans with scholarships beginning with the Class of 2012, and replaced 50 percent of loans for all returning students.
As the credit crisis continues, though, student lending options are dwindling. Although the Office of Admissions and Financial Aid does not track private lenders, it does provide students with a "preferred lender list," based on organizations from which students have previously borrowed, Hazen said.
The eight lenders on that list as of May 1, 2008, have all laid off staff or cut back on the loans they disburse.
"Even after we were promised they would stay as lenders this year, we check the lenders we 'know' are available and keep seeing changes," Hazen said.
Both the New Hampshire Higher Education Loan Corporation and Bank of America -- the top two choices for federal undergraduate loans for Dartmouth families during the 2007-2008 year -- suspended their private and consolidation loan programs. In July, Citibank Student Loan Corporation, a preferred lender for both federal and private loans, eliminated 28 percent of jobs, according to FinAid.org. Sallie Mae has also let go over 1,000 employees this year, according to FinAid.org.
Despite those cutbacks, Hazen said she has not heard of a Dartmouth student who was unable to get a private or Stafford public loan. Stafford public loans are awarded by the Office of Financial Aid as part of the financial aid package. But Hazen added that it would be difficult to work out a course of action if students were unable to get loans in the future. In past years, there have been students who were unable to acquire loans because they failed credit tests. Now, it would be difficult to determine whether students are unable to get private loans because of the current financial situation or because they would have failed the credit test anyway, Hazen said.
"We've had so much fluctuation in the loan markets recently that it's very difficult to figure out the pieces," she said.
Dartmouth students remain very attractive to remaining student lenders, Hazen said. He added that Dartmouth students have collectively established credibility as borrowers.
"We would be in the same league as other Ivies and top-tier schools, where repayments are usually pretty good in a downturn," he said.
Outside of Dartmouth, New Hampshire college students have encountered more difficulty, according to Tara Payne, vice president of marketing and communications for the New Hampshire Higher Education Assistance Foundation. NHHEAF, a nonprofit organization that works with New Hampshire college students, recently surveyed clients about how they were faring in the wake of the crisis. Many students at other institutions reported that they were able to enroll in their fall courses but were unsure about their futures, Payne said.
"They didn't know how they would do it second semester without a solution," Payne said.
