During the financial market’s bloodbath last week, there were several reports that the unraveling was due primarily to a lack of credit – extending from the mortgage market to auto loans to even student loans for college.
Credit standards have tightened for private loans and home equity loans that many families use to help pay for college, but federal student loan programs have been unaffected by the events of the last couple of weeks, some in the student loan business told inside ARM.
“For the most part, students are able to get funding,” said Harrison Wadsworth, special counsel to the Consumer Bankers Association. “The federal legislation that passed in May provides some better liquidity.” The legislation that Wadsworth referred to raised the limits on how much borrowers could receive in student loans (“House Passes Student Loan Bill to Ease Credit Limits,” May 2).
However, private student loans, like other consumer loans, have been more difficult to get because lenders are carefully scrutinizing credit scores, incomes and capacity to repay of borrowers, Wadsworth said.Another problem is that hundreds of lenders have stopped making the private loans and are providing only federally guaranteed student loans. For example, Key Bank, which had been one of the top 10 student lenders at one time, now offers only federally sponsored programs, a bank spokesman said.
Additionally, home equity loans and lines of credit, which many families had been using to fund college education, have dried up as real estate has plummeted in value, Wadsworth said.
“It’s definitely going to be harder for some” to finance a college education, Wadsworth added.How much more difficult depends on a family’s credit score and the institution the student is attending. All of the University of Notre Dame students who were getting federally guaranteed student loans from lenders who have since dropped out of the program have been able to find other forms of financing, said Joe Russo, the university’s director of student financial strategies.
About 140 lenders dropped out of the federal lending programs, according to Russo.“We do try to make costs affordable for everyone,” Russo said. One of the largest sources of aid for families is tuition reduction by the university, according to Russo. The annual cost of attending Notre Dame, including tuition, room and board is $47,000.
Russo adds that some of the provisions of the recently approved bailout package could provide some help for those seeking college financing because the bill is designed to promote more credit availability.
Purdue University Calumet, primarily a commuter campus located about an hour west of Nortre Dame, has also seen families have a harder time getting approved when applying for private loans, according to Mary Ann Bishel, director of financial aid and student accounts. However, students who are getting aid through the government’s direct loan program have been unaffected, Bishel said. Wadsworth also pointed out that the most recent credit problems have arisen after students had loans funded for the current school year. He was unsure how those who need additional funding for the next semester might be affected.
Source: http://www.insidearm.com
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