NASFAA's Clouded View

Blog Post
July 23, 2008

By Ben Miller and Stephen Burd

As individuals on the "‘front lines" of the financial aid process, financial aid administrators offer an important perspective on the credit crunch's daily effects on student loan availability. As such, the results of a recent survey that the National Association of Student Financial Aid Administrators conducted of its members provide some interesting ground-level impressions of the credit crunch. Unfortunately, this viewpoint is almost entirely clouded by the 30,000-foot spin the organization's leadership has put on it. Needless to say, the association's close ties to the student loan industry remain firmly evident.

On its face, the survey suggests that immediate federal loan availability concerns have been largely satisfied, though worries remain about discriminatory lender practices (i.e. banks refusing to lend to students at community colleges and for-profit trade schools) and the long-term fiscal health of the student-loan market. The vast majority of respondents, for example, said actions that Congress and the Bush administration have taken in recent months have "eased the student loan crunch problem" for now. And only a relatively small proportion of aid administrators (about 25 percent of those surveyed) are worried enough that they have put contingency plans in place to prevent any disruptions in loan availability for their students.

That nuanced take is completely missing from NASFAA's spin on the survey. In a press release announcing its findings, the association twists the data into a picture of panic and a call for more action.

Case in point, the press release starts by stating that the "vast majority (90 percent) of student financial aid administrators said they are concerned about the student loan crunch." But look at the actual results: only 44 percent of the survey's 1,078 respondents reported being "very concerned" about the credit crunch. Another 46 percent said they were "somewhat concerned," but there's a big difference between being "somewhat" and "very" concerned about an issue. Lumping the two together is misleading, if not disingenuous.

Perhaps a better way to gauge aid administrators' level of concern is whether they have an emergency backup plan in place for loan availability. According to the survey, the majority of respondents (54 percent) said they didn't believe that having such a plan was necessary. But in its press release, NASFAA glosses over this finding. Instead, it focuses on the fact that only one quarter of respondent institutions currently have some alternate strategy for loans in place. This gives the reader the misleading impression that most schools are unprepared for possible problems, potentially leaving students in harm's way.

At first glance, NASFAA's decision to sound the alarms now is curious, especially when the report itself acknowledges that the responses the government has taken to the student-loan credit crunch "are having a positive effect." The report notes that some lenders that had stopped making federal loans earlier this year have reentered the market and that the Department of Education has "stepped up its efforts" to streamline the process it uses to transition schools into Direct Lending.

But the association clearly has an ulterior motive -- to persuade federal officials that a crisis still exists and that more needs to be done to help lenders in the Federal Family Education Loan (FFEL) program weather the storm. The group makes that clear when it states in the first sentence of its press release that "more than half of respondents (52 percent) believe that the recently enacted Ensuring Continued Access to Student Loans Act does not do enough to ensure future loan access for students."

The association's stance is not all that surprising considering that the group has been one of the chief proponents of legislation that would provide the loan industry with an even larger bailout than Congress and the Bush administration have already provided. That bill, which, which has been championed by Sallie Mae and sponsored by the loan giant's favorite Democrat Rep. Paul Kanjorski of Pennsylvania, would allow the Treasury Department's Federal Financing Bank and Federal Home Loan Banks to inject cheap federal capital into the student loan market.

Progress on that legislation has come to a grinding halt, as concerns about the student loan crunch have eased on the hopes that the financial markets are beginning to stabilize. Without any proof that students' access to federal student loans is in jeopardy, federal officials are understandably reluctant to provide a potential windfall to the loan industry.

Facing that type of resistance, NASFAA is stepping up its efforts to rally support for the legislation. In a recent letter to Sen. Patty Murray (D-Wash.), Phil Day, the association's president, reaffirmed his support for the measure, saying that it would help ensure "that all eligible students are able to get the loans they need for school. "

The funny thing is that many of the aid administrators surveyed expressed concern about "inaccurate media reports that tend to scare families" about the availability of loans "rather than to inform or help them." Of course, NASFAA officials didn't highlight this concern in its press release. Because if they had, they surely would have had to come clean about why they are still pushing the panic button.