Pennsylvania student loans still plentiful, agency says

INQUIRER STAFF WRITERS

No need for college students to panic.

That was the word yesterday from the state agency charged with helping Pennsylvania students pay for higher education after the agency announced it would no longer make loans from its own funds.

Other sources of money remain available through the agency, and scholarships and grants will still be issued, officials said.

"From a student perspective, there should be no disruption or difficulty," State Rep. William Adolph (R., Delaware), chairman of the Pennsylvania Higher Education Assistance Agency, said in a statement. The agency administers student loans and grants.

In recent weeks, student-aid providers across the country have been forced to halt or reduce lending because of failed bond auctions and turmoil in capital markets triggered by the subprime lending crisis.

Two weeks ago, PHEAA decided to suspend loans it makes to nonresidents through the Federal Family Education Loan Program (FFELP). The agency is now notifying colleges and universities that it will suspend in-state loans effective March 7, acting president and chief executive officer James Preston said.

"These types of failed auctions were unimaginable before the subprime mortgage meltdown," Preston said in a statement released yesterday. "Widespread lack of confidence in the capital market has spilled over . . . driving up our cost of borrowing and denying us the capital needed to fund new student loans."

Keith New, a PHEAA spokesman, said: "There are other lenders who can pick up the volume.

"Pennsylvania families shouldn't be panicked about this," New said. "People applying for new loans shouldn't notice a problem at all."

PHEAA's main business is servicing and guaranteeing loans and administering grants and scholarships. Unlike a bank, the agency has no depositors, so it raises some money by selling bonds at auction. But investors are now skittish about buying those bonds, at least at a rate that would yield a profit. PHEAA intends to resume issuing student loans once capital markets settle down, the agency said.

PHEAA is one of more than 400 lenders who provide money for the agency's low-cost KeystoneBEST student-loan program.

About 500,000 Pennsylvania students currently attend postsecondary school in the state with the aid of a low-cost FFELP loan.

Despite official assurances, Rep. Josh Shapiro (D., Montgomery), who has criticized PHEAA for wasteful spending, said he was "very alarmed that Pennsylvania students are going to find themselves with fewer options" for funding higher education.

"I think the fact that the student-loan industry across the country is facing this lending crisis demonstrates that we have a broad economic problem," Shapiro said, "and I'm hopeful that PHEAA will be creative in how it meets these challenges so students will not be harmed."

Rep. Dwight Evans (D., Phila.), chairman of the House Appropriations Committee, moved PHEAA's annual budget hearing up a week when he learned last week of its dire financial picture.