Student Loan money drying up?
Today’s newspaper is reporting the credit crunch is drying up money for student loans. People who are in the middle of going to college are being forced to withdraw because there is no money available. These are those private loans most students are forced to take out.
Have you heard about this and know anyone who is affected?
There is a LOT happening in the student loan industry right now. I’ll go into some of the changes to both the Federal Student Loan programs and private educational loans.
The Federal Student Loan Programs (Federal Stafford, Federal PLUS, etc.) are regulated by the Federal Government (commonly referred to as “The Feds”, i.e Congress and the President). Regulations have been passed which made some significant changes. Some lenders which have participated in the programs are pulling out because they are no longer making the profit they once were. Also, there have been no significant increases in annual student loan limits (which are also regulated by The Feds) for a long, long time (in 1992, the annual loan limit for base Stafford loans for graduate students increased from $7,500 to $8,500, and in 2006, the Higher Education Reconciliation Act increased the base Stafford amounts for first year students from $2,625 to $3,500 and for second year students from $3,500 to $4,500). It’s also important to note that, while the ANNUAL loan limits increased by a tiny amount, the TOTAL loan amount that undergraduate students are allowed to borrow during their whole college time stayed the same. So you can see a few of the problems which have to be fixed by The Feds. But the good news is, as far as Federal Loans go, they should be available to all eligible students who want them, regardless of the “credit crunch”.
Now for the private educational loans… Since the Federal Loan Programs haven’t increased the way college costs have (think back to college tuition in the 80s versus now), lenders started offering “private” or “alternative” educational loans to supplement the Federal Loans. These are based on credit history and ability to repay, so lenders can pick and choose who actually gets them. And when the economy is down, they select only the “highest quality” borrowers to receive the loans. This, of course, impacts those students without credit-worthy co-signers, or anyone else who will be denied these loans.
So that’s my 30-second student loan synopsis. If you want more information, you can always sign up for my weekly email newsletter. Good Luck!
