Baker University may be many miles from Wall Street, but the recent rough days for the stock market can still have an effect on Baker students.
Last week began with the filing for bankruptcy protection by Lehman Brothers, an investment firm and holding bank, followed by the $85 million rescue of AIG on Tuesday. It’s the failure of some banks, not the dive in the stock market numbers, which could most affect students.
“Lots of banks and lenders are now being held to a higher standard,” Alan Grant, associate professor of business and economics, said.
Students obtaining Stafford Loans go through a lender, but the recent difficulty in the financial markets and Congressional regulations has some lenders backing out of the student loan business, Director of Financial Aid Jeanne Mott said.
Mott said in the past six months about 500 students from all the Baker University campuses have had to change lenders; but so far, none have had difficulty with the process.
“The biggest change is that they will have loans from more than one company; so they may want to consider loan consolidation more quickly,” Mott said.
The Baker University Financial Aid Office suggests U.S. Bank in Lawrence, Wachovia of Sacramento, Calif., Commerce Bank of St. Louis in St. Louis, Mo., and Bank of America of Columbus, Ohio, as Stafford Loan lenders.
Lowell Jacobsen, professor of international business, believes the government’s aggressive $700 billion plan to buy troubled mortgage assets will help reassure student loan lenders. For Jacobsen, the market crisis wasn’t a complete surprise.
“I do not think many economists or others studying the macroeconomy have been surprised by the nevertheless remarkable events of the past week,” he said. “We have known about the toxic mortgage-backed securities held by financial institutions for some time.”
Grant explained problems that contributed to the market’s weakness recently was the practice of banks and mortgage companies making unrealistic loans that they sold to a larger company like Freddie Mac or Fannie Mae.
“The agency packages and sells the loans to other companies,” Grant said. “The large investment banks that failed recently held many of these.”
Some of the companies, like AIG, are not allowed to fail and receive help from the government. Grant explained the government has an unstated rule that some companies are too large to fail and the collateral damage would be too great.
Baker’s involvement with the issue does not stop at Stafford Loans. The university endowment is also invested through the stock market. Jo Adams, vice president of financial services, said the university works through an investment firm.
“We’re just like anybody else,” she said. “We see and feel those changes, but we’re different in that we’re in it for the long haul.”
When determining a budget or analyzing its finances, the university studies the past three years of finances to allow for stock market variations.