Student loan agency to run out of money

By Art Jester - ajester@herald-leader.com

The state agency that provides loans to Kentucky's college students will “effectively run out of money” Friday until about Aug. 21 as it awaits new federal funds intended to alleviate a national crisis in student loans.

The Kentucky Higher Education Assistance Authority, and its lending arm, The Student Loan People, will finish giving out the available funds Thursday, said James R. Ackinson, KHEAA's executive vice president.

The credit crunch is expected to inconvenience some students, but officials remain confident that everyone who needs a loan will get one.

Ackinson said KHEAA is awaiting approval of a $50 million “bridge loan” that would allow the agency to make loans, paving the way for reimbursements under a new federal program.

With the bridge loan, The Student Loan People can issue $35 million to 16,000 students, he said.

“We expect to meet all federal student-loan needs” this year, Ackinson said.

KHEAA's “empty pockets” are likely to be a hassle for some students.

Shelley Park, Eastern Kentucky University's director of financial aid, said the issue “will not delay or prevent any of our students from beginning classes” Aug. 25.

EKU expects 15,000 students this fall, of whom 80 percent get financial aid, Park said. For students who could be temporarily short on funds to buy textbooks, EKU is issuing vouchers to cover the cost, which students must repay.

At Northern Kentucky University, the issue will probably “be seamless to our students” because federal funds should arrive soon, said Leah Stewart, director of student financial assistance.

NKU will open classes Aug. 25 with an anticipated enrollment of 15,000 students. About 75 percent to 80 percent receive financial aid.

Ackinson said KHEAA has been communicating with financial aid offices, requesting the universities' patience until the bridge loan arrives.

Jonathan Miller, secretary of the state Finance and Administration Cabinet and a KHEAA board member, said that Gov. Steve Beshear “has asked us to explore all avenues to keep the student loan program viable.”

Miller said efforts are preliminary, but added that “we're optimistic we'll able to solve this problem.”

After KHEAA uses its $50 million bridge loan, the agency expects to make an additional $175 million in loans this fall to 76,000 students.

By Friday, the state agency will have issued $40 million in loans to 18,000 students since July 1.

For the entire 2008-2009 academic year, KHEAA estimates that it will lend $500 million to 110,000 students. The average annual loan will be $4,500, paid with $2,250 for fall 2008 and an equal amount for spring 2009.

The University of Kentucky, which starts classes Aug. 27, and Morehead State University, which begins school Monday, are not affected by the KHEAA situation. Those schools are in a federal loan program that operates directly with the campuses.

The nation's student loan crisis has two origins. One was a change last year in federal policy that reduced the profit for private lenders, causing many of them to stop making student loans.

For example, several commercial lenders notified the Kentucky Community and Technical College System this summer that they wouldn't be offering its 90,000 students loans this fall. At the time, the school was hopeful The Student Loan People could provide loans to the 15 percent to 20 percent of KCTCS students who might need a new lender.

The other key factor in the national crisis has been the tightening of the credit market after many mortgages were foreclosed.

Students with questions about loans should contact their campus financial aid office or call KHEAA on its toll-fee line at 1-888-678-4625.