The credit crunch is starting to take its toll on college students: Several students who have turned to banks or private companies to borrow extra tuition cash in recent weeks have been shocked and penalized when the checks they received were refused. There haven't been any reports of problems with federally guaranteed Stafford student loans or PLUS parent loans.
Michael Libman, a senior at San Diego State University, said he applied for an Astrive private loan of $10,000 in February so he could pay his last semester of fees and graduate this summer. He says Astrive took weeks to send him a check after approving his application, then, when he finally received the check, it bounced. He had to ask his parents to put his school fees on their credit card so that he could finish his last semester. Libman says he called Astrive repeatedly, but, despite the company's assurances that the problem was fixed, the check bounced again on his second attempt. Astrive hasn't yet sent him a good check, he says, and he needs the money to pay back his parents, who are saving up for the college costs of his two younger brothers. Libman is working six days a week to raise extra cash, and he's cutting costs. "Ramen is my friend," he says ruefully.
Chris Blawat, a prechiropractic student at Ivy Tech in Lafayette, Ind., was relieved when he got an $8,500 Astrive private loan check in April. He deposited it, saw that it was credited in his account, and started writing checks to cover rent, utility bills, and other expenses. Then, four days later, his account was suddenly overdrawn by $4,000, and he had racked up more than $600 in bad-check and insufficient-funds fees. "I had to live off my friends and my girlfriend" for several weeks, he says, until Astrive finally sent him a good check on April 24. He says he's still waiting for Astrive's promised check to cover the banking fees he had to pay when the first check bounced.
Astrive is a prominent marketer of private loans whose ads are familiar to watchers of late-night television and visitors to education-related websites. Company spokeswoman Janice Walker says the problem was a glitch that was quickly identified and fixed. Astrive has attempted to reach all affected students, has been sending out valid checks, and is covering bad-check fees and related expenses for affected borrowers.
Astrive is a brand of Boston-based First Marblehead, one of the nation's oldest and biggest packagers of private educational loans. Walker, First Marblehead's vice president for corporate communications, says the problem was caused by the bankruptcy of the nonprofit agency that guaranteed Astrive's student loans, the Education Resources Institute Inc. TERI, which guarantees private student loans for more than a dozen banks and marketers, filed for bankruptcy April 7. In the past year, TERI had been suffering from an increase in defaults on private education loans made years ago. Some Wall Streeters began to worry late last year that TERI hadn't set enough aside to pay off its guarantees. As worries mounted, Moody's downgraded TERI's rating to junk status, which made it very expensive for TERI to raise cash and pushed the company to seek court protection.
Because of TERI's financial and legal troubles, several hundred loan checks sent out in the names of some of its clients, including Astrive, bounced, TERI says. In a letter sent to colleges on May 7 and posted on TERI's website, TERI acknowledged that there were still delays in disbursing some student loans, but it said it hoped to resolve those problems soon.
TERI has set up a hotline for students affected by the bankruptcy: 888-563-7050.