As the government officials meet to find a way for the $700 billion bailout of U.S. financial institutions to benefit taxpayers, many students may wonder where they stand when it comes to the financial system’s crisis.
House and Senate negotiators from both parties said Thursday they had reached general agreement to move forward with the administration’s proposed $700 billion bailout of the financial system, authorizing unprecedented government intervention to prevent what President Bush warned could be a widespread economic collapse, The New York Times reported Thursday.
After a three-hour meeting, Republicans and Democrats said the legislation would include limits on the pay packages for executives of firms that seek assistance and a mechanism for the government to take an equity stake in some firms, so taxpayers have a chance to profit if the bailout plan works, The Times reported.
The crisis on Wall Street has generated widespread concern about the status of investments and loans.
James Hille, the university’s chief investment officer, said TCU’s endowment is $1.2 billion worth of short-term assets the administration uses not only to cover the costs of operating TCU but also long-term assets to provide financial stability as long as the university exists. Hille said the university has been paying out at or above 5 percent of the endowment to pay for annual operations for at least the past decade.
“That helps substantially but since this crisis hit, it has ebbed a little bit, but all of the endowments are ebbing right now,” Hille said. “There’s no place to hide, as they say.”
Hille said the university will be affected by the financial situation but less than most universities. He said TCU has a diversified portfolio of assets that keeps the endowment’s value steady.
Hille said the endowment’s holdings are not revealed to the public because if other universities had access to how TCU invests, they might copy the investment style. As a result, the university would lose its competitive edge and possibly its money managers to other universities who don’t have to disclose their investments. The endowment is disclosed to the Board of Trustees, which act as the students’ representatives, he said.
On the other hand, more lenders are hesitant to give out credit, and student loans are more expensive, said Michael Scott, director of scholarships and financial aid.
Scott said students should seek federal loans like the Federal Stafford Loan and Federal Perkins Loan before they turn to private loans not backed by a government guarantee. Scott said the problem is that in the past the government hasn’t increased the amount a student can borrow with federal loans. The result has been a gap where students have had to rely on other sources, but there is optimism as federal loan limits have increased this year, he said.
Scott said as some small lenders stop their student loan programs, there’s less competition with larger lenders and banks. With budget cuts looming, lenders are not offering as many incentives to attract potential customers to their service, he said. Incentives like those that offer a reduction in the interest rate after making enough payments on time are called “borrower benefits,” he said.
“The smaller lenders that have gone out of the student loan program, that was because they don’t have the resources to pull in new loan capital,” Scott said. “The lenders like CitiBank and Chase do, so they have remained active in the program, which has narrowed the field down,” Scott said.
Scott said TCU students are reliable customers for private lenders because they pay their loans back and generally have low default rates. Scott said he advises students to not borrow any more than necessary, and to take out as much as they can on federal rather than private loans. When considering taking out student loans, students should look at how they can cut their expenses, Scott said.