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Video related to this article is available below.Issue date: 8/7/08 Section: News
Loans a problem for students
Pamela Ellerman
With the cost of tuition rising faster than income levels, loans provide a last-minute recourse for families nationwide as tuition bills roll in.
Yet the credit crunch has made finding providers for federal loans more difficult and private loans costlier and scarcer, increasing stress for students and families still seeking funds for tuition.
Many experts stress that federal loans are still available. Although up to 124 institutions have announced suspensions in federal loan programs as of last week, according to Mark Kantrowitz, publisher of FinAid.org, most students should be able to procure federal loans but may need to look around before finding a provider.
"We're not seeing the same number of lenders exiting" federal loan programs as last spring, said Justin Draeger of the National Association of Student Financial Aid Administrators.
Even though federal loan programs generally offer better rates and terms, many students opt for private loans for administrative reasons and because of appealing marketing.
Half of all private loan borrowers failed to file a FAFSA, which automatically renders students ineligible for federal loan programs, according to the American Council on Education.
Many borrowers are unaware that shopping for private education loans can potentially lower one's credit score when lenders make inquiries on their credit reports.
Students are also misled by seemingly appealing interest rates - generally reserved for customers with crisp credit scores - and by an abundance of hidden fees.
Up to 28 institutions have suspended private loan programs, which will make these loans more selective and costlier, said Kantrowitz.
Whereas previously customers with credit scores of 620 could find a private student loan somewhere, lenders may now put the cutoff at 650 or even 700.
However, Kantrowitz said he expects the situation to improve for the next academic year as capital markets begin recovering.
Yet the credit crunch has made finding providers for federal loans more difficult and private loans costlier and scarcer, increasing stress for students and families still seeking funds for tuition.
Many experts stress that federal loans are still available. Although up to 124 institutions have announced suspensions in federal loan programs as of last week, according to Mark Kantrowitz, publisher of FinAid.org, most students should be able to procure federal loans but may need to look around before finding a provider.
"We're not seeing the same number of lenders exiting" federal loan programs as last spring, said Justin Draeger of the National Association of Student Financial Aid Administrators.
Even though federal loan programs generally offer better rates and terms, many students opt for private loans for administrative reasons and because of appealing marketing.
Half of all private loan borrowers failed to file a FAFSA, which automatically renders students ineligible for federal loan programs, according to the American Council on Education.
Many borrowers are unaware that shopping for private education loans can potentially lower one's credit score when lenders make inquiries on their credit reports.
Students are also misled by seemingly appealing interest rates - generally reserved for customers with crisp credit scores - and by an abundance of hidden fees.
Up to 28 institutions have suspended private loan programs, which will make these loans more selective and costlier, said Kantrowitz.
Whereas previously customers with credit scores of 620 could find a private student loan somewhere, lenders may now put the cutoff at 650 or even 700.
However, Kantrowitz said he expects the situation to improve for the next academic year as capital markets begin recovering.
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