On July 28, news broke that the Massachusetts Educational Financing Authority (MEFA) had fallen on hard times, and the 26-year-old nonprofit college-loan agency was suspending all lending efforts due to capital-market dislocation. Roughly 40,000 loans totaling a reported $510 million were issued in 2007; this year, the good times are officially over. Students who depended on the agency to help finance their college educations are going to have to look elsewhere for cash.
MEFA issued this grave-sounding statement in the wake of the news: “As disruptions in the capital markets continue, MEFA regrets that at this time we have been unable to secure funding for 2008–2009 academic year education loans. While we continue to pursue every possible option, raising the necessary funds to offer fixed-interest-rate private-education loans is taking longer than originally projected and has become even more challenging. Thank you for your patience during these unprecedented economic times.”
The timing was unfortunate, to say the least. MEFA confirmed its woes just before August 1, when many tuition bills come due. The media was quick to pounce on MEFA’s troubles as a massive crisis, but is the truth quite so bleak?
Well, yes and no. The circumstances that forced MEFA under do indeed indicate a grim forecast for the national economy; however, local students have options — albeit at a price.
Other people’s money
Economic times might be tough, but for what it’s worth, local college administrators don’t appear particularly alarmed. “It seems like more of an inconvenience than a crisis,” says Patricia Reilly, director of financial aid at Tufts University.
While MEFA’s loans were by far the most attractive, thanks to their fixed rate, there are other choices. Federal PLUS loans, at an interest rate of 8.5 percent, are available to parents of dependent students. And other federally backed lending programs — namely low-interest Stafford and Perkins loans — are out there for students who qualify, though the amounts you can borrow through such programs is limited, and there are need-based eligibility requirements.
Students are also free to prowl the private-lending jungle, populated by non-federally-backed lenders offering variable-interest rates.
Though MEFA officially announced its plight at the end of July, those in the know had been bracing for this eventuality for some time. For anyone looking, the writing was on the wall. According to Tom Graf, president of MEFA, the agency had been in touch with parents, students, and colleges as early as winter 2008, warning them that funds might dry up due to economic tumult. Ostensibly, college financial-aid offices were aware of the precarious situation long before the news was confirmed, and should have communicated it to parents.
Many colleges and universities are sensitive to the circumstances, and are giving Massachusetts students extra leeway and guidance when it comes time to pay up. At Tufts, where tuition is $37,952 per year and about half of all students receive some kind of financial aid, approximately 250 students relied on MEFA. Reilly says that Tufts’ financial-aid office contacted all families who had borrowed from MEFA in the past to inform them of other options.
“The most common [alternative to MEFA] is the Federal PLUS loan,” says Reilly. “The interest rate is slightly higher than MEFA’s was last year. We also have private loans listed on our Web site that we recommend people look at — variable-rate loans.”