National credit crisis hits student loans
College-bound students may have to weigh tuition costs of schools a little heavier in the wake of a spiraling national economy, with private loans less readily available, fewer lenders offeriing them, and money that is loaned coming with higher interest rates.
Curt Martin, director of financial aid at Mesa State College, said the availability of private loans from lenders such as Sallie Mae and Washington Mutual is “taking a big hit” in the wake of national lending institutions failing and credit markets all but frozen. Some, such as Washington Mutual, pulled out of student lending altogether, which came as little surprise, Martin said.
“Those of us in the financial-aid business heard rumors of two years ago that WaMu was in trouble,” Martin said.
Thirty-three banks have stopped providing private student loans since July 2007, according finaid.org, an online financial aid guide. Those who are staying in the business have been charging higher interest rates with more stringent application requirements, such as needing a co-signer, Martin said.
The good news for Mesa State students, Martin said, is the school’s tuition is low enough that many students don’t need private loans to cover their education costs.
Fall tuition and fees for a full-time in-state student taking 12 credit hours at Mesa State is $2,023, which takes into account money from the College Opportunity Fund dispersed to Colorado students from the state legislature, compared with $3,639 at the University of Colorado.
“It’s a very little number of students here with private loans,” Martin said. “Maybe 100 or so.”
Students needing private loans are typically out-of-state students, Martin said, whose tuition and fees jump to $5,783 a semester. Martin said students taking out loans usually opt for federally backed student loans with low interest rates and don’t need any more past that.
A Stafford loan directly from the government, for example, has a set interest rate of 6 percent with a maximum borrowed amount of $5,500 for first-year borrowers.
Congress passed a bill earlier this month that would ensure through 2010 that federally supported loans would be available to students despite any financial turbulence. The legislation allows the Education Department to buy loans from lenders in the federal guaranteed-loan program who wouldn’t otherwise be able to meet the demand.
Prior to the tumbling economy, Martin said, he was sure the government would expand the federal aid program.
Now, he fears the proposed governmental bailout of troubled financial institutions will leave even less money to fund the program as it is.
Martin said the best advice for a college graduate struggling with repaying federal student loans is to keep lender contact information handy, because there are many deference and forbearance options available. But private loan lenders may not be as forgiving, he said.
“I think we’re going to go through a period of significant recession,” he said. “But if we can stay positive, it won’t drag on so much. Attitude is a huge factor in the economy.”