Sticky Situation for Student Loan Borrowers
Posted 17 Mar, 2008
As if we haven’t already seen enough trouble popping up in the student loan industry it looks like more problems are here.Responding to recent loss rates, private loan lenders are raising rates and changing requirements, making it more difficult for some students to even get private loans (this is why I recommend over and over that students borrow federal loans first-they are much more predictable!).
The Wall Street Journal detailed the many changes occurring in the private student loan sector-none of them good for students. Many private lenders are now ending their federal loan offerings (some private lenders offer both private and federal loans) making the lending pool for Stafford loans smaller. Others are changing or eliminating students’ consolidation options.
Lender Sallie Mae is even cutting back the amount of loans it makes to student borrowers at nontraditional schools and schools with less-than-stellar graduation rates. And more changes are sure to come as they continue to grapple with changes in the market.
Interest rates on private loans have already increased by about 1% and credit score standards have been raised. To really get a sense of what is going on and what to do refer to this recent MSN article by Liz Pulliam Weston (in which I am quoted.)
Private v. Federal Loans
What the media isn’t focusing in on is that most of the student loan problems are occurring in the private sector-federal loans are still going to be distributed to students much the same way as they have been in years past.
As I have pointed out, private student loans are quite a bit more tricky than federal ones-they are invented by each individual lender, and have fewer consumer protections. Plus, unlike federal loans which have fixed interest rates, private loan interest rates are variable and heavily based on the borrower’s credit score.
Loans can be a dangerous threat to your family’s finances if you don’t do your homework, so be sure that you:
- Get federal loans before private ones, and
- Understand the terms of any loan you or your student takes out.
Using federal loans may help you keep your borrowing costs down, and leave more of your family’s nest egg intact.
For more information on the differences between private and federal loans, you can review FinAid.org’s articles on Federal Student Loans and Private Student Loans.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding, a nationwide company that helps families find creative ways to reduce their college costs.
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As if we haven’t already seen enough trouble popping up in the student loan industry it looks like more problems are here.Responding to recent loss rates, private loan lenders are raising rates and changing requirements, making it more difficult for some students to even get private loans (this is why I recommend over and over that students borrow federal loans first-they are much more predictable!).
The Wall Street Journal detailed the many changes occurring in the private student loan sector-none of them good for students. Many private lenders are now ending their federal loan offerings (some private lenders offer both private and federal loans) making the lending pool for Stafford loans smaller. Others are changing or eliminating students’ consolidation options.
Lender Sallie Mae is even cutting back the amount of loans it makes to student borrowers at nontraditional schools and schools with less-than-stellar graduation rates. And more changes are sure to come as they continue to grapple with changes in the market.
Interest rates on private loans have already increased by about 1% and credit score standards have been raised. To really get a sense of what is going on and what to do refer to this recent MSN article by Liz Pulliam Weston (in which I am quoted.)
Private v. Federal Loans
What the media isn’t focusing in on is that most of the student loan problems are occurring in the private sector-federal loans are still going to be distributed to students much the same way as they have been in years past.
As I have pointed out, private student loans are quite a bit more tricky than federal ones-they are invented by each individual lender, and have fewer consumer protections. Plus, unlike federal loans which have fixed interest rates, private loan interest rates are variable and heavily based on the borrower’s credit score.
Loans can be a dangerous threat to your family’s finances if you don’t do your homework, so be sure that you:
- Get federal loans before private ones, and
- Understand the terms of any loan you or your student takes out.
Using federal loans may help you keep your borrowing costs down, and leave more of your family’s nest egg intact.
For more information on the differences between private and federal loans, you can review FinAid.org’s articles on Federal Student Loans and Private Student Loans.
All the best,
Deborah Fox
Deborah Fox is the founder of Fox College Funding, a nationwide company that helps families find creative ways to reduce their college costs.
Subscribe in a reader
Subscribe by Email
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