Mich. drops loan program; may not affect MSU students

The state of Michigan has temporarily withdrawn from a federal student loan program, citing the nation’s credit crisis as its reason.

The move, however, isn’t expected to have a large impact on MSU students, said Rick Shipman, director of the MSU Office of Financial Aid.

On Monday, the state officially withdrew from the Federal Family Education Loan Program, which uses private lenders to make federal loans, more than two months after the state suspended its Michigan Alternative Student Loan, or MI-LOAN.

Shipman said MSU students will be safe from financial distress.

“Students at MSU don’t really have to worry,” Shipman said. “We’re ready to move to a loan program that’s fully functional.”

More than 21,000 MSU students and about 5,000 parents utilized federal loan programs, borrowing about $260 million from such programs in 2006-07.

The 570,000 loans currently held in the Michigan Higher Education Student Loan Authority’s portfolio, which account for more than $2 billion, are unaffected by the decision.

Deputy State Treasurer Tom Saxton said between 70,000 and 80,000 Michigan students annually participate in the program.

“The loans issue is all related to markets,” said Terry Stanton, a spokesman with the Michigan Department of Treasury.

“This is an issue nationally with a number of states being affected.”

Saxton said many people were drawn to FFELP because it offered benefits to borrowers, such as waiving processing fees and zero percent interest for consistent on-time payments.

Students still have the option of investing in the Federal Direct Loan Program, or FDLP, a program in which the federal government supplies loans.

Saxton said he is unsure when Michigan will rejoin FFELP, but Mark Kantrowitz, publisher of FinAid.org, said he doesn’t expect it to be soon.

The problem with the student loans market, Kantrowitz said, is that it’s tied to the mortgage market.

With lenders supporting homeowners with subprime lending — loans at a higher interest rate to borrowers with poor credit history — banks are sitting on shaky ground.

Kantrowitz said foreclosures aren’t expected to peak for several months, meaning student loans will worsen through the next year.

“There needs to be government intervention,” he said.

“They need to inject liquidity into the student loans system. They need to provide lenders with a source of new capital to make loans.”

MSU said it would advise students and parents to take advantage of the FDLP, which uses the same application as the Free Application for Federal Student Aid.

Saxton said students would benefit most by seeking assistance from their financial aid offices.

“Students need to work more closely with their financial aid offices,” he said.

“They are working with lenders who are still participating in loans programs.”

Staff writer Justin Harris contributed to this report.