Finding Fixes for a Possible Student Loan Crisis

Article excerpt

STUDENT LOANS ARE NECESSARY to make college a reality for many families. Now lawmakers and financial aid experts are pushing for safeguards to ensure that the federal student loan process won't be shaken by the nation's credit crunch.

This worry has been magnified by significant changes in the relationships between higher ed institutions, lenders, and the Federal Family Education Loan Program (FFELP). Currently, more than 45 lenders have exited FFELP in all or part, including companies such as Washington Mutual, Sovereign Bancorp, College Loan Corp., and NorthStar Education Finance. Lenders that have chosen to remain in the student loan business are imposing stricter credit requirements or co-signing for private student loans. For federal loans, some lenders have stopped lending to or marketing to students at schools with cohort default rates above 10 percent.

A survey of National Association of Independent Colleges and Universities members about the credit crunch's impact on student loans (www.naicu.edu/studentloan survey), conducted in March, cites a significant number of private IHEs reporting reductions in student loan availability and borrower benefits. Among 211 member institutions who received information from "preferred" lenders on making loans through FFELP for the 2008-2009 academic year, 68 percent said that one or more of their lenders are cutting borrower benefits on FFELP loans; 57 percent said they are no longer providing these loans.

As of mid-April, about 60 IHEs had switched from FFELP to direct lending, allowing students to borrow from the federal government through their colleges, eliminating involvement from private lenders. …

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