Massachusetts Educational Financing Authority Suspends Student Loans

As the title says, the Massachusetts Educational Financing Authority won’t be providing any student loans for college kids this 2008-2009 school year, and this turn of events is likely to affect some 40,000 students in the state. Students who need more information about finding a replacement should call the hotline set up by the Massachusetts Educational Financing Authority (MEFA) at the number: (800) 809-0571

As far as I know, this is the largest public breakdown in student loan financing, but the effects of the banking credit crunch are likely to accelerate over the next academic year. If more state financing organizations suspend lending and cut back on other forms of financial aid and scholarships, this financial breakdown is likely to start changing how college and university administrators look at next year’s payroll and budgets. Class sizes may begin to grow and departments may close as schools seek to cut jobs while expanding enrollment.

On BNet, there’s a poll questioning the ethics of the student loan school rating systems that were announced last month and I have to say I am landing on the minority side who sees this as unfortunate, yet unavoidable.

See, the Massachusetts Education Financing Authority isn’t one of those Wall Street investment banks with a few hedge funds and billion dollar CEOs. When you start talking about state higher education authorities like this you’re looking at the publicly regulated institutions set up to provide loans for students who need and deserve an education the most. If the loans can’t go out, then the scholarships they have given every year to the most deserving students will have to be cut back significantly.

“This is a situation where business reality outweighs the greater good”

The reality is simply a limit of available resources, and unlimited ideas of how we can spend those resources for the greater good.  And if the voters in the poll and at elections truly agree that we need continue our current education financing system at any cost, there will need to be more taxes – marginally pushing more homeowners and businesses to cut spending elsewhere or default and enter into foreclosure.

All this to save a debt-based system that leaves our graduates with tens of thousands of dollars to be paid back over decades of compounding interest?  Maybe the business reality is giving us a big hint about what the greater good really is.

Students who filed a FAFSA report early in 2008 will probably be able to get their low rate fixed-interest loans from the federal government, but in 2009 it will be essential for students to file a FAFSA as soon as possible to ensure that something is left in the first-come first-served way in which the federal student loans operate. Even the federal government is going to face a “business reality” where demand for loans outpaces their budgets and administrative capacity to connect those funds with the right students.