The current economic crisis has many college students across the country wondering if they will be able to afford to pay for their college education. However, for Vermont State Colleges the current economic state hasn’t caused big changes – yet. Vermont State College students will still be offered loans and financial aid. And as for students’ or parents’ ability to repay student loans, the outcome has yet to be seen.

“We haven’t seen big changes,” said Irene Racz, director of Public Affairs for Vermont Student Assistant Corporation. “It’s not going to happen quickly.”

In fact, Racz said the effects of the economy on students’ and parents’ ability to repay will not be seen until next year because the information collected by the federal government is recorded a year after the fact.

The Perspective of One Vermont State College

The current default rate for Castleton State College is 2.8 percent, said Bill Allen, Castleton dean of administration

“This number reflects the students who are already in repayment. So it doesn’t reflect current economic conditions,” said Allen. “We are very lucky here at Castleton because our rate is usually at or below the national average.”

And although lenders have tightened up the loan process, it hasn’t affected the ability of students to get a loan, said Kathy O’Meara, director of financial aid at CSC. She also believes Vermont students will continue to be offered federal loans and grants.

“It’s monitored by the government. And we hope that the government doesn’t go broke,” said O’Meara.

Being Smart with Student Loans

At CSC, the process of giving students loans is not taken lightly.

“We remind students that loans have to be repaid,” said O’Meara.

And to drive home the point, students at CSC receive loan entrance counseling and exit counseling to embed their financial obligations into their minds.

Students can also be smart with the types of student loans they borrow to fund their college education.

Racz says that VSAC recommends students use the federal Perkins and Stafford loans first. Then if they still need money, parents can take out the federal Parent Plus loan, which goes in the parents’ names. The last resort for students should be private loans.

“On private loans, there are no caps on interest rates. And there are no payment options. If students have difficulty repaying it affects their credit,” said Racz.

In a CBS article, Bob Shireman, president of The Institute for College Access and Success, and Mark Kantrowitz, publisher of finaid.org, recommended that students fully exhaust all possibilities for receiving federal aid before turning to alternative or private loans. They stated that students sometimes don’t fill out the free application for Federal Student Aid (FAFSA) because they think they won’t be eligible for aid or because the application for alternative loans is easier.

Sen. Edward Kennedy, head of the Senate Education Committee, reported in the same article that an estimated 40 to 60 percent of students haven’t taken full advantage of federal options for financing college.

“VSAC is so much better with customer service [then private loan lenders],” Allen said. “They have the ability to keep giving loans because they are so fiscally conservative and they have had good credit in the past. They are one of the few organizations to raise money off of bonds.”

When Financial Trouble Hits

So what can you do when times get tough and the payments can’t be made? Well, first off, don’t ignore the problem, experts say.

“We strongly encourage people to call us as soon as they are experiencing trouble making payments,” said Racz. “There are different payment structures available to them. There’s a lot we can do to protect them. The ramifications of default are terrible.”

Specifically, students and parents can ask for deferments or forbearances on student loans. As reported on the VSAC Web Site, a deferment is a specific period of time during which borrowers are approved to cease making payments of the principal on the loan.

Forbearance is a short-term, temporary suspension of payments or a reduction in the payment amount. However, forbearance is intended to help borrowers if their having financial difficulties and do not qualify for a deferment.

Defaulting on a loan occurs when the borrower consistently fails to make installment payments for a specified period of time during the repayment period. The consequences students face for defaulting are serious.

“If students are smart, they can do things so their never in default,” said Allen. “Students never want to be in default.”

If they do default, a fee of up to 24 percent can be added to the loan balance, employers can be ordered to send part of your paycheck to them, your credit rating drops and you could end up in court.

Student Worries

CSC students have expressed many concerns about the current economic crisis and the effects it could have on their future. Senior Robert Vannoordt is one student who is nervous about life after CSC.

“I’m definitely worried about finding a job, especially when all these people who are getting laid off are looking too,” said Vannoordt. “I’m also worried that if I don’t find a job, making payments on my loans will be hard when I don’t have an income coming in.”

Students who are returning to CSC next year may want to plan out their finances before the start of the semester.

Heidi Whitney, director of Budgets and Financing, says that if students have balances on their accounts they will not be able to register for classes. There are payment arrangements available to students, but until the balances are paid in full, students still cannot register.

Whitney said there are some exceptions, considered on a case-by-case basis, where the student will be allowed to register, like if a student only owes “a couple hundred bucks.” But if the student owes several hundred dollars or even thousands, the rule applies.

“Many students have taken semesters off to work and come up with the funds necessary to attend,” said Whitney. “We don’t want them to dig a deeper hole.