She adds that deadlines will be more flexible for families who formerly borrowed through MEFA. “There’s more paperwork and more last-minute running around,” Reilly admits. “But I haven’t had anyone come back and report that they couldn’t get funding.”
“If you go to the store and there’s fewer brands of cereal, that doesn’t mean you still can’t buy cereal at all,” says Daniel Barkowitz, MIT’s director of student financial aid and student employment. “It’s not a crisis. It’s unfortunate for the students who’ve used [MEFA] in the past. It’s unfortunate that they’ll need to seek out other lenders. But the tendency to panic isn’t warranted.”
Barkowitz is circumspect of MEFA’s troubles. “The higher-education financial landscape changes all the time,” he says. “Since ’92 there’s been an explosion in this business in terms of volume. It may be a natural part of the cycle, boom, and busts.”
They warned us
MEFA is more subject to those vagaries than are banks. “One of the benefits of MEFA is that they’re not using private-capital funding — their strategy has been to use tax-exempt municipal bonds, the way highways and bridges are funded,” explains Barkowitz, who used to work for MEFA. “And right now the bond market is having real problems.” So, on the plus side, MEFA was able to lock in loans at a lower interest rate than other lenders; the downside, however, was that their footing was much less secure. Another bonus of MEFA was its approval process — loans were approved not based on income level but on FICO score (an individual’s credit worthiness); anyone with a score over 660 was automatically granted a loan.
MEFA’s Graf is quick to discuss his organization’s community-mindedness — with branches focused on investor education, college-savings plans, and guidance-counselor training — and underscores the agency’s vulnerability. “This has been some time coming,” he admits. “We started to see cap markets’ difficulty in September. Not just MEFA, but all kinds of nonprofit lenders were having a great deal of difficulty and were unsuccessful going to market. That problem continued through spring and summer, where nobody was able to secure funds for the new year — liquidity dried up.” He emphasizes that MEFA’s non-loan programs will continue.
But if MEFA knew this issue was looming, why were so many people caught off guard? “We honestly believed we’d be in the market,” says Graf. “And I visited nearly every school; we spent a lot of time in the schools and community and really talked directly to the schools and to the students through letters and e-mail. And we’d said we’d let people know by the end of July if we could secure funds, but we needed to be honest.”
He also notes that potential customers can sign up for monthly MEFA e-mails to find out the latest on the agency’s financial health. For those who were paying attention, it seems, the blaring news headlines shouldn’t have been such a shock. Unfortunately, most people’s eyes glaze over when it comes to the details of college lending.
Uncertain futures
Not everyone agrees that consumers had fair warning. At Wellesley College, 55 percent of students receive financial aid to offset the school’s $47,967 annual tuition. Consuela Valdez answers the phones at the school’s financial-aid call center, soothing parents and students who want to know where their money’s going to come from.
