Friday, March 14, 2008

Credit Crisis Putting a Crimp on Student Loan Access?

The current credit crisis has led to new stories suggesting students and parents looking to finance college tuition next fall could have trouble finding a lender. It is true that a number of lenders have either exited the student loan industry, while some are temporarily suspending participation in some federal student loan programs (Stafford, PLUS, GradPlus and Consolidation loans) or private loan programs due to this crisis. Many student loan providers have been effected by the tightened credit market.The federal government guarantees these loans, however the lenders provide the capital to fund the loans.

Congress Makes Recommendations
In recent years, lenders in the student loan programs have utilized auction rate securities to raise capital, allowing them to make new loans each year. However, in the past few months loan securitization auctions have failed. Senator Edward Kennedy (D-MA) and Representative George Miller (D-CA) have asked Education Secretary Margaret Spellings to prepare backup plans if it becomes evident that this crisis will begin to impact families. Specifically, they are urging that the Department be prepared to handle any increase in Direct Lending as a result of the credit crisis. Another recommendation is to be ready to activate the Lender of Last Resort program that allows Guaranty Agencies to become lenders with the backing of the federal government.

Too Early To Tell
It is too early to tell if these actions will be need, as many lenders are still attempting to secure funding for the upcoming academic year. However students and parents who are currently borrowing can check with their lenders to see if they are continuing to participate in the federal student loan program. It is also wise to contact the Financial Aid Office at your college or the colleges you are applying to if you will be an entering freshman, as that office would be notified of any change in status of lenders. Check back for a list of lenders exiting/suspending their student programs.

If you are experiencing difficulty finding a lender or your lender has exited the student loan program, please share your experience.

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