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How Does the Economies’ Credit Issue Affect Your Student loans??

How Does the Economies’ Credit Issue Affect Your Student loans??
October 16, 2008 collegeplan

Hey friends! Here is a really cool article about student loans that I thought you guys would enjoy.

Have an AMAZING day!!!!

-Brian

The Credit Crunch and Student Loans
By Gary Carpenter, CPA, CCPS

With the recent financial crisis we have been going through, the number one question I hear from college families is “will we be able to get a student loan?”

Let’s take a minute and look at how this credit crunch is affecting student loans.

Federal student loans (Stafford, Perkins and PLUS) are just that, federal loans. If the college is using the William D. Ford Direct Loan Program, the source of those funds is the U.S. Government. If the college is using the Federal Family Education Loan (FFEL) Program, the source of those funds is commercial entities. In this case there are fewer FFEL lenders out there, but this is not the family’s problem. The college selects the program they want to use and, if they use the FFEL Program, they should have lenders that will work with their families to fund these loans.

But let’s take the worst case scenario – the college can’t find an FFEL lender. The school still has the option to go to the U.S. Department of Education and request that they fall under the “Lender of Last Resort” Program whereby the Department funds all the federal loans for the school. This option is rarely used, but it is one that the college can pursue.

The real problems in the student loan business are in the private educational loans. These loans are credit based loans, which are probably going to require a co-signor and are not guaranteed by the federal government. In today’s credit crunch, if lenders stop lending for homes, cars and businesses, they will also slow their lending for student loans and their credit requirements will be more stringent.

If a family has average credit, it will not have a problem obtaining federal loans, but will probably have a problem qualifying for private student loans.

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