529 industry takes the next big step

The Section 529 college savings plan industry is reaching out to its counterparts at financial aid and student loans groups to hold a first-of-its-kind summit in Washington in late May or early June, InvestmentNews has learned. Rising college costs, a worsening credit crisis and a maturation of the college savings business helped spark the initiative, according to industry leaders. The summit will be conducted in a roundtable format involving leaders from the three groups as well as academics, according to Kevin McMullen, chairman of the Washington-based College Savings Foundation, an advocacy group for the 529 industry that is organizing the meeting. "This has been an unexplored opportunity for too long," said Mr. McMullen, counsel for State Farm Insurance Cos. in Bloomington, Ill. He called the initiative a "next step" for the 529 industry to engage in the "bigger picture" of college affordability. Until now, "there's been an incredible disconnect between college savings and financial aid," said Peter Mazareas, CSF vice chairman.

LACK OF COMMUNICATION

"We haven't been communicating in any meaningful way, if at all, and we have exactly the same goal," he said. "We need to start talking about a range of common issues that we have, including communicating to students and parents, marketing and government policy." The need for savings, aid and loan organizations to cooperate has been underscored by the continuing crisis in the credit markets, which is beginning to restrict availability of funds for students and parents, according to education professionals. One of the country's biggest originators of student loans, Lincoln, Neb.-based National Education Loan Network, said last month that it was cutting back its involvement in the business. NELN will "aggressively reduce expenses" in the student loan business, said chairman and chief executive Mike Dunlap. "The ongoing turmoil in the credit markets is much worse than we anticipated and the duration of the disruption is unknown," he said. Another lender, the College Loan Corp. of San Diego, reportedly plans to leave the federal student loan business next month. And student loan king Sallie Mae (a subsidiary of Reston, Va.-based SLM Corp.), which has a $164 billion loan portfolio, has eliminated its non-standard private loan program for students who didn't initially qualify for standard private loans. What's more, according to Sallie Mae spokeswoman Martha Holler, the lender has tightened its underwriting criteria for standard private loans for students. "Credit is definitely tightening," Brett Lief, president of the Washington-based National Council of Higher Education Loan Programs, said in an interview. "Parents and students are not going to be able to plan on the government helping them out. They're going to have to do it themselves."

SUBPRIME STRIKES AGAIN

As home values drop, the credit crunch could also restrict money available to parents for college by making home equity loans harder to come by, Mr. Lief said. As lenders require higher credit scores for private student loans, fewer students will be able to get them, he added. "Borrowing will be more ex-pensive and harder to get," agreed Barbara Tornow, a Boston-based educational consultant who recently retired after serving as the chief financial aid administrator at Boston University for 20 years. "It's another reason parents are going to have to save for college." One of the biggest challenges in creating a coordinated effort among college savings, financial aid and student loan professionals is timing — a 529 plan should be started as early as possible, while financial aid and loans aren't discussed until students begin applying to colleges. "The children are our customers today and their customers tomorrow," said Scott Gates, director of Kansas' Learning Quest 529 Program in Topeka. "Once students apply for financial aid or loans, they don't need our products anymore." While the timing issue had been a stumbling block to coordinating the efforts of savings, aid and loan professionals, industry observers say the time is now right for more cooperation. "Realistically, most people won't have enough money for college with savings alone, and may be discouraged," said Scott Prince, vice president of marketing for The Educational Resources Institute, a Boston-based nonprofit organization that guarantees student loans and promotes educational opportunities. "By working together, we can show them that there are ways to have enough money for college using aid and loans, and that can give them an incentive to keep saving," he said. "People think that saving for college will hurt their chances of getting financial aid and any effort that sharpens the message that savings, aid and loans are all needed for college is welcome," Mr. Prince said.

COLLABORATION

Savings, aid and loan executives need to work with higher educational associations such as the Washington-based National Association of State Financial Aid Administrators, the New York-based College Board and regional college administrative councils, said Ms. Tornow and Mr. Lief. "Working with the right groups is critical, and these type of groups are the most mission-driven," Ms. Torn-ow said. Alumni associations would also be ideal partners because "they have access to the college presidents and can mobilize people at colleges," she said. Coordinating savings, aid and loan information will also help financial advisers, said Mr. Mazareas, who is also chief executive of Nahant, Mass.-based Strategic Advancement Group Inc. "It helps educate parents better," he said. "It will put college in a much broader picture, and help advisers come up with a more complete financial plan." Charles Paikert can be reached at cpaikert@crain.com.