Student loans and the credit crisis

The news earlier this month that the New Hampshire Higher Education Loan Corp., or NHHELCO, was suspending its alternative student loan programs may have seemed like just a small part of a seemingly interminable spate of bad-to-worse news about the health of the nation’s credit system. In some ways, it may be. But in one very important way, it is not.

NHHELCO – a conservatively run student loan organization that’s respected by its peers throughout the country – has found itself a victim of the turmoil and uncertainty that are afflicting the nation’s credit and capital markets. Normally – meaning just months ago – NHHELCO would find itself paying about 3 percent to bondholders in order to help fund its loan portfolio. Not a giant return, but one in line with an organization that was disbursing loans averaging about 6 percent annual interest.

At this point, student loans still average about 6 percent, but because a recent auction of student loan bonds failed to attract suitable bids, NHHELCO and others participating in the bond issue will be forced to pay 18 percent to their bondholders. In short, the loan organizations now find themselves in an impossible situation.

Because of that, NHHELCO decided to quit – at least for the time being – the alternative student loan business.

Alternative loans are loans that are not backed by the federal government. They are made directly to students who need resources beyond that of the assistance they receive from the college itself, through the federal Stafford Loan program and from their families. In other words, if a year’s college tuition is $18,000 and a student’s aid package totals $10,000, the student would have had the option of taking out an alternative loan to fund the difference.

In 2007-08, NHHELCO disbursed 4,769 alternative loans to New Hampshire residents, and another 1,500 were disbursed to non-residents. Without the alternative funding, it’s anyone’s guess how many of those more than 6,000 college students will be able to continue pursuing their education. And that’s only in the small state of New Hampshire.

This is an issue that must be addressed sooner rather than later. For years, we have been told about not just the importance, but the necessity, of education in the future of the American economy. The failure to enable tens or even hundreds of thousands of students to pursue their education because of an overheated, greed-fueled adventure into subprime mortgage lending would be nothing short of a national disgrace. A nation that can spend hundreds of millions, if not billions, on funding Iraq and Afghanistan’s education systems has the moral responsibility to find a way to resolve this deplorable situation at home.

Second District Congressman Paul Hodes is one of several members of Congress to ask the federal Departments of Education and Treasury to figure out a way to inject some funds into the alternative student loan system. We hope that other members of our congressional delegation join him.