Loan Programs Will Leave Some Students Behind

How bad is the student loan market, really? That depends on who you are.

Traditional, dependent students, with creditworthy families, should find enough money for school year 2008-09 without much trouble, although they will probably pay higher fees than they did last year.

Independent students with modest credit histories and no co-signer will have a harder time, especially if they are starting their freshman year.

Students attending for-profit career schools and some community colleges may have to scramble.

Parents with minor delinquencies will be allowed to borrow through the federal program, but those caught in the foreclosure trap will be shut out.

About 70 private and nonprofit lenders -- including one-third of the top 100 -- have quit offering government-insured loans through the Federal Family Education Loan Program, or FFEL. FFEL includes Stafford loans (for students) and PLUS loans (for parents). The lenders can't raise all the money they need to keep their programs going at a profit because of the turmoil in credit markets. A new federal program is stepping into the breach, but it won't help everyone.

About 1,990 lenders remain in the market, a few big but most of them small. College financial aid officers will expand the list of banks and other sources they work with. The aid office should be your first call when you are rounding up money. Schools need to find you a loan so that you can pay the tuition.

Still, some families who typically borrow through FFEL -- especially parent loans -- are going to be squeezed out, says Mark Kantrowitz of FinAid.org, a leading site for information on scholarships and loans.

The government also runs a Direct Loan Program. It lets parents and students borrow directly from the Education Department, bypassing the banks. About 1,100 schools already participate in Direct Loan. Because of the failures in the private market, about 350 have newly applied to join. If your school offers this option, all students can borrow the maximum allowed.

It's borrowers in the private, FFEL market who might face rejection. Here's who is at risk:

· Students with low credit scores -- lower than 650 or even 700 (out of a maximum 850). They probably have too much credit card debt or several missed payments. Last year, they could get a loan. Not this year.

· New borrowers. They stand last in line. Lenders with limited funds will first use the money to get current borrowers through school. If they graduate, they're more likely to repay their loans.