What Student Loan Squeeze?
There is still money available; here's where to find it.
By Jane Bennett Clark, Senior Associate Editor, Kiplinger's Personal Finance
August 13, 2008
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Still haven’t nailed down your student loans for the coming semester? Worried about your chances of getting money amid reports that student loans have dried up? Fear not. Federal loans, the best and by far the most prevalent student loans, are still available.
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As for private loans, which make up a relatively small part of the student-loan universe, students with good credit and a creditworthy cosigner can still get those, too. But expect to pay higher fees and interest rates than in past years. Here’s the skinny.
Stafford Loans: Still Available
A few months ago, the picture for all student loans looked grim. Many lenders, including several big ones, were having trouble financing the federally backed student loans known as Staffords. That represented potential disaster for the six million students who rely on these loans, which offer a fixed interest rate (6.8% or less), flexible repayment and other generous terms.
Lawmakers averted the crisis by giving the Department of Education authority to buy back the loans from lenders or otherwise provide financing for them. The move staunched the flow of lenders out of the student-loan market but didn’t stop it altogether. Since last spring, more than 100 private lenders -- most recently Brazos and the Massachusetts Educational Financing Authority -- have suspended some or all of their federal student-loan programs, according to Mark Kantrowitz of Finaid.org. But other lenders, including big players such as Sallie Mae, PNC and Citibank, have picked up the slack.
The effect of all this drama? For students who attend schools that participate in the federal Direct Lending program, none: Those students borrow directly from Uncle Sam. As for students who borrow their federal loans through private lenders, as most do, those who haven’t already lined up a lender should head straight to the financial-aid office, says Kevin Walker, of SimpleTuition.com, a student-loan comparison site. "Those offices are on the front lines. They know who is making the loans and who isn’t."
Private Loans: Tough to Get
The solution isn’t as easy for families who still hope to secure private loans, which some families depend on to fill any gap between federal loans and the cost of tuition. About 30 lenders, including Bank of America and Wachovia, have lately dropped or suspended their private student-loan business, and lenders who remain have tightened their underwriting criteria.
Where once students with poor credit -- say, a FICO score of 620 -- could get one of these loans, it now takes a score of 650 or higher plus a creditworthy cosigner. And borrowing the same amount of money will cost more in interest rates and fees than it did a year ago.
Reader Comments (2)
Posted by: CPell, Jr. at 08/14/2008 10:50:49 AM
...this piece...misleads the vast majority of American students with family means too large for institutional/merit/need-based aid, but without the liquidity to fund the gap between Federal maximums and total cost of education, even at public schools....the Direct Loan program (i.e., Democrats) trying to cover their backsides for the overtly partisan debacle they created in the education financing arena. Maybe if you covered students attending the right insitutions, i.e., publics & community colleges, but for most middle class americans headed to their "reach" schools, they will definitely encounter a significant financing gap.
Posted by: phil at 08/16/2008 12:50:52 PM
Our situation is not unlike most American Families who are striving and fighting for every dollar they earn. Yet the Gov't and the Financial institutions have made the mid American dream non-existent. Paying high interest on student loadns which to me should be near zero if we want our American Youth to study and become the new America we need. Instead Gov't., Universities and Financial Institutions have become wrapped up in the FAFSA which if you are not in a minorty, low income or a 4.0 student then your chances of receiing federal, state or any other assistance has become zero. As for the Stafford or other Fed./State funds to the student forget it. I have three young American Adults that require assistance because quite frankly dear ole' Dad is tapped and even when he does co-sign can not help his children. There go the "No child left Behind"...thank you very much.