Student Loans Are Still Available

By Dawn Handschuh, Personal Finance Writer Archive

Student loans during recession

Despite predictions that the private student loan industry would suffer its own credit crisis after the economic downturn deepened, student loan money remains available for most students.

The sub-prime mortgage crisis had a more direct effect on private lenders, many of whom were unable to obtain capital to make loans; for those who could obtain capital, it cost significantly more. More than 160 of these lenders subsequently dropped out of the Federal Family Education Program (FEEL), the federal government's student loan program, since the subprime mortgage crisis began.1 Under that program, students obtain money from private lenders, but the government guarantees the loans against default and covers financing fees while the student is still attending college.

Between September 2007 and September 2008, 33 lenders temporarily or permanently ended their private student loan business.2

But other lenders continue to participate or have stepped in to fill the void, so while students may have to switch lenders before they graduate, any eligible students should be able to obtain a federal student loan. The FEEL program provides loans for about 80% of students who receive federal loans. Federal loans can sufficiently cover tuition costs for about 90% of students who need to borrow to pay for their education.

Still, loan accessibility may be problematic for a small segment of the student population ⎯ those who require private loans to supplement federal loans in order to attend very expensive private schools.3

For this segment of the student population, private loans may be more difficult to obtain — and more costly. Credit checks will be tighter3, requiring a credit score in the low 700s to get a private student loan, compared to a qualifying score in the low 600s in the past.4

Footnotes

1 "The Student Loan Bailout," The Nation, January 2, 2009 

2 "Credit Crunch Hits Student Loan Business," UPI, September 29, 2008 

3 "Another Student Loan Crisis?" The American Prospect, September 10, 2008 

4 "Credit Crunch Crushing Private Student Loan Business," CNBC, September 23, 2008