Panel Bad economy means less access to college

The struggling economy is likely to make it tougher for college students to obtain and pay for loans this fall, members of a federal education panel said Friday.

The panelists, hosted by the U.S. Department of Education's Advisory Committee on Student Financial Assistance, said students face higher interest rates on loans issued by private entities like banks or may not qualify for loans at all as lenders tighten their requirements in light of the sub-prime mortgage crisis and other economic factors.

Over the years, panelists noted that colleges have seen state funding dwindle, changes to student loan programs and economic challenges such as high gas prices in the 1970s and 80s.

"What's unique about today is we're facing all of these things simultaneously, and they all have an impact on our institutions as well as our students," said panelist Donald Heller, director of the Center for the Study of Higher Education at Pennsylvania State University.

The committee, which meets about twice a year to discuss issues involving college access for low and moderate-income students, held the daylong panel discussion at Vanderbilt University in Nashville.

Some panelists said they believe the current economic downturn is different than previous ones because financial markets are having a bigger impact on higher education.

"The wealth that's generated (from financial markets) flows to higher education partly through philanthropy from private donors. And we would expect to see some negative effects from the decline of the financial markets because of that," said panelist John Nelson, a managing director with Moody's (nyse: MCO - news - people ) investor service.

"Then there's the impact ... on the financing of private lenders for student loans. The financial market disturbances have really shut down the student loan market."

Nelson said students who attend large universities with low default rates shouldn't have problems getting private loans, while students at community colleges and other small institutions will likely have trouble qualifying for loans. All college students will probably pay higher interest rates on loans, he said.

"This is peak borrowing season for students, they're just applying for loans for the fall now," Nelson said. "So nobody really knows how bad this impact is going to be. We don't know the scope of this yet."

Based on recent data compiled by the committee, millions of college-qualified high school graduates face financial barriers - including ever-rising tuition and securing loans - that could get much worse over the next decade. The committee estimates that between 1.7 million and 3.2 million people won't be able to attend colleges and earn bachelor's degrees because of those financial barriers.

Panelist Brett Lief, president of the National Council of Higher Education Loan Programs, said state and federal governments need to increase funds for higher education.

He and other panelists say, however, they don't foresee change in the multiyear trend of states giving less and less money to higher education.

"It's (higher education) being ignored, it's being neglected," Lief said. "Right now governors are skittish about raising taxes. When you short-fund public colleges and they have to raise tuition, in essence it's a tax on those that attend state-supported institutions because they're paying more for that education."

http://www.forbes.com/feeds/ap/2008/06/13/ap5116029.html

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Panel Bad economy means less access to college