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Subprime woes: College students at risk

Posted February 29, 2008

"At a time when tuition, books, housing, and food are putting a serious pinch in nearly every college student's bank account, rising fees for student loans could be the test that fails the higher education community. " – Andrew Snyder 

By Andrew Snyder

Baltimore (TFN) – It is official.  The nation is not in danger of a crippling recession.  At least, that is the latest words of wisdom from President Bush.  Even with our grand leader's positive thoughts, think twice before buying that new yacht or betting your retirement stash on a booming stock market.  After all, Ben Bernanke and the boys with their thumbs on the pulse of the economy see things a bit differently.

Just yesterday, the Fed chief told a congressional committee that he believes some of the smallest of the nation's banks could be headed for real trouble.  There will be closures, he said. 

If that is not a sign of trouble ahead, I do not know what is.

The trouble is already starting to pop up and spread across the economy in ways many folks had not thought of.  For a perfect example, look at some news from my home state, Pennsylvania.  Thanks to the sub-prime fallout, the state's college students are going to have a tougher time finding loans next semester.  News like that will have a serious impact across many arms of the economy.

Need a loan, take a loan

The Pennsylvania Higher Education Assistance Agency (PHEAA) announced yesterday, just about the time Bush was exemplifying the strength of the economy, it would temporarily suspend new in-state loans.  Why? Because its sub-prime losses have taken all of the agency's cash.  It would have to borrow money if it wants to offer new loans. 

The agency is in a very sticky situation. Thanks to its bad decisions, hundreds of thousands of college students left studying their options.  But PHEAA says not to worry, as there are over 400 other lending agencies in the state.  I can't help but think they are in similar situations.  After all, the only reason we are hearing of PHEAA's problems is because we have to.  It is a government agency.  More than likely, there are closed-door meetings taking place at similar lenders across the nation.

No matter what, PHEAA's loan halt is going to impact the cost of loans for students across Pennsylvania.  At a time when tuition, books, housing, and food are putting a serious pinch in nearly every college student's bank account, rising fees for student loans could be the test that ultimately fails the higher education community.

Nationwide credit crunch

Whether this evolves into a nationwide crisis is yet to be determined.  I think we may get lucky and bad news from lenders like PHEAA may be isolated incidents.  Nonetheless, it is a fantastic example of how the entire economy is being affected by faulty lending practices.

Like I have said many times before, when this nation's economy takes a major turn for the worse, there is usually a single culprit… credit.  I hope we can dig ourselves out of this mess before it drags the markets down with it, making this a historical event.

As investors, we have to study the situation and take appropriate action.  Right now, safety is a good bet.  Do not expect to get rich from the equities market this year, although there will be some great opportunities.  Your ultimate goal must be to simply get out ahead.  It will happen. You just have to be diligent and pay attention to the clues around you.

Fortunately, you have come to the right place. 


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Posted by Andrew Snyder · Filed Under US Stocks and Markets 

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