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Paying for College

The Money's There for College

Reports of lenders leaving the loan market have students worried. But fears are overblown.

Like six million other students, Maggie Miles counts on the government-backed loans known as Staffords to help pay her college tuition. But recent turmoil in the financial markets and the departure of some major lenders from the student-loan business have provoked fears that these student loans will dry up. "I know I've been worried," says Genna Miles, Maggie's mother.

The Miles family, of Manteo, N.C., can rest assured that the loans are available, according to Larry Warder, of the U.S. Department of Education. Still, some students may have to look harder for a lender or use a different one than they did last year.

Students at schools that participate in the Federal Direct Loan Program get Stafford money from Uncle Sam and will have no such difficulty. Those who go through private lenders, as most borrowers do, should line up a lender now to avoid a squeeze if the market shrinks further.

If many more private lenders jump ship, federally designated state agencies will step in to find or act as lenders of last resort. The DOE recently asked agencies to brush up on procedures for such a step. "They wanted to make sure all precautions are taken," says Justin Draeger, of the National Association of Student Financial Aid Administrators.

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Students who supplement government-backed loans with private loans can expect lenders to demand a credit score of at least 650 (when 620 once sufficed). Students with no credit history or a poor one will need a co-signer to get these deals.

WATCH NOW: Our free Borrow Smart video offers a no-nonsense guide to understanding student loans.