Despite Credit Crisis, Most Students Have Found Loans
Sunday, August 31, 2008
The national credit crisis has caused confusion and some last-minute scrambling for college students and their parents, but most of them have been able to borrow the money they need to pay for school.
Students, schools and analysts who monitor lending said it's good, if surprising, news, given the financial turmoil in the credit markets.
"We haven't had a single student turned down for a loan," said Melissa Gregory, college director of financial aid at Montgomery College. She was surprised, especially because earlier this year some banks announced that they would no longer lend to students at community colleges.
More than 130 lenders have pulled out of the student loan market, according to Mark Kantrowitz, publisher of finaid.org. That included some dramatic departures late in the summer, just when tuition bills were going out.
"What's especially challenging this year," said James Boyle, president of College Parents of America, "is that the [college] financial aid offices are themselves sort of reeling from various lenders dropping out . . . it's difficult for the financial aid offices to keep pace, let alone for parents to understand it."
Federal aid has remained by far the biggest source of loans. But during the past decade, the private market rose dramatically. Now, however, many banks have adopted stricter rules, trying to lower their risk, so the hardest-hit are students who don't have credit, have poor credit, or don't have someone to co-sign a loan.
Some financial aid officers see a bit of a bright side to all of this: It could make families more apt to choose federal loans, which offer more protections than private loans, such as deferments, more-flexible payment plans and loan forgiveness options.
Congress and the Department of Education stepped in to help federal loans this year by cutting the rate on certain loans for some students with low incomes, by letting undergraduates borrow more money from a federal loan program, and allowing the department to buy loans from some lenders to ensure that federal loans are available.
Kantrowitz estimated that 98 percent or more of students nationwide won't have any issues, although many of the lenders have not gotten the money from the Department of Education, so there is a chance for problems in the next couple of weeks. Schools won't know for sure until this semester's bills are paid.
Still, at the University of Virginia, Georgetown, Catholic, Johns Hopkins, Howard and the University of Maryland, school officials said they hadn't heard of students unable to get loans for the fall semester.
At American University, Brian Lee Sang, director of the financial aid office, said there were some reports of students having trouble, and at George Washington University, one or two dozen students in the law and medical schools had to find new loans quickly when NorthStar Education Finance suspended its loans. The lender then announced last week that it would fund some on a limited basis, and the financial aid office worked with those students to find other loans.
But there was a frantic nature to loan applications this season, adding to the uncertainty. One lender serving the University of Maryland had said it might not be able to make loans, only to come through with funding a week before school started.