Student loans and the credit crunch
Federal student loans are the first and best choice of education borrowing. Rest assured that the current credit “crunch” is not going to shut down the flow of federal loans, such as Stafford Loans, PLUS and Graduate PLUS. However, a handful of federal loan lenders have decided to exit the federal loan business. This could mean that borrowers experience confusion when they try to re-apply for loans or take out more funds from their current lenders. Many borrowers simply use the same lender each year they need to borrow for their education, but with these changes, the lender you have used before may not be in the federal loan business anymore. Check in with your existing lender soon to make sure they are still making federal loans. If they aren’t, or even if they are, you can view federal student loan options here at SimpleTuition.
Expect private loans to be significantly impacted by the credit crunch. Look for the following changes that might impact your ability to borrow:
Stricter credit standards.
Borrowers whose credit is on the bubble between “Fair” and “Good” might find it hard to get approved for a private student loan, even if they got approved last year.
Greater emphasis on co-signer.
More so than in the past, it will be crucial for students to apply with a credit-worthy co-signer in order to get approved for a loan, even for older graduate and professional students. Read more about what a co-signer is and how to find one.
Higher rates and fees.
Lenders are likely to edge pricing higher for two reasons: greater fear of defaults and higher financing costs (lenders have to get their money from somewhere!) This could mean higher interest rates, fees and a greater total cost of the loan. Make sure to shop around for the best options by both talking with the financial aid office at your school and using student loan comparison tools, like the ones here at SimpleTuition.
Fewer lenders offering student loans.
Only some lenders have exited the private student loan business already, but you should expect that several more will – especially smaller companies. This might mean that if you have existing loans, again, you may not be able to borrow from the same lender for the next school year. Check in with your existing lender soon to make sure they still offer private student loans. If they aren’t, or even if they are, you can compare private student loan options at SimpleTuition.
It’s not all bad news. There still are choices among student loans – both federal and private. Plan ahead and research your options as far in advance of actually needing the money as possible. Remember to use federal student loans before you use private student loans, and use SimpleTuition’s loan comparison tools as part of your quest for education financing.
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