$700B bailout might stabilize student loans

Wall Street is scrambling for solid ground in the wake of government buyouts, but MSU officials said students using federal student loans have very little to fear.

A $700 billion bailout package being debated before Congress could provide some financial relief for banks and other businesses feeling the effects of a slumping stock market.

Naveen Khanna, an MSU finance professor, said the federal buyouts will give banks higher confidence in doling out student loans.

“It makes the situation better for students if the bailout comes through,” Khanna said. “Banks will feel more comfortable giving loans and have more money to give out. Hopefully, students will have more funds available to them for loans.”

In an address to the nation last night, President Bush explained what the bailout would entail and urged Congress to pass it.

“This rescue effort is not aimed at an individual company or industry,” he said. “It is aimed at the overall economy to help the American people meet their daily needs and create jobs.”

Richard Shipman, MSU’s director of financial aid, said because MSU operates its financial aid program through the U.S. Treasury, he is confident in the stability of its program.

He said he was concerned about money being taken out of the treasury that is intended for student loans, but that situation is unlikely.

“That would be the meltdown, but I can’t see that happening with the treasury,” Shipman said. “I just can’t see that being an issue.”

Even though the bailouts should calm a few bankers’ nerves, Khanna said there’s no real timetable for a direct increase in banks giving loans to students.

“I don’t know what the priorities of banks are,” Khanna said. “It depends on what activities they find to be most profitable. They have to look out for themselves.”

The university previously operated its financial aid program through federal banks, but many of them pulled out of the program in February because the state of Michigan had to stop purchasing loans from them. Moving the program to the U.S. Treasury became a move to secure students’ education.

“My kind of wisecrack is always, ‘If the U.S. Treasury collapses, we have bigger problems than student loans to worry about,’” Shipman said, laughing.

Andrew Struska, a journalism junior, said he gets federal loans to pay for school. He said his loans are mostly safe, but the situation on Wall Street still worries him.

“The situation is what I’m concerned about,” Struska said. “But for myself personally, I’m not overly concerned.”

Joyce M. Banish, vice president of marketing for MSU Federal Credit Union, said her credit union is set up so its members are its owners.

“When you’re borrowing from the credit union, you’re borrowing from your neighbor, your co-worker, your friends and so on,” Bannish said.

“So there’s a strong allegiance to repaying.”

Shipman said the students who should have the greatest amount of concern are those with private loans.

Data from the Office of Financial Aid shows that through 2007-08, more than $28 million was received by the university from private loans.

Shipman said the current way private student loans are advertised causes him to worry about students getting caught up in loans that might not be good for them.

“You can see an add on TV that says, ‘Oh, I got a loan for $40,000!’” he said.

“What they don’t say is ‘I got $40,000, I’m going to pay back $60,000 and I only needed $20,000 but I got $40,000.’”