| Parents Be Prepared - The Student Loan Crisis Is | | | | repaying that loan are much less likely. |
| Coming! | | | | How Will This Affect My Child Who Wants To Go To |
| As if the sub-prime mortgage crisis is not wreaking | | | | College |
| enough havoc on the American consumer, Visit Here | | | | With fewer lenders and less student loans available, |
| comes the next distressing event, a student loan | | | | your child will have fewer options to secure a loan. |
| crisis. And it may be happening as early as this fall. | | | | And this applies to new college students as well as |
| There will be fewer lenders willing to loan money, | | | | existing college students. Do not be surprised if you |
| higher loan costs and much more competition due to | | | | are a current college attendee and your existing |
| tougher lender standards. | | | | lender no longer offers student loans. |
| How Did This Happen? | | | | As previously discussed, most lenders are now |
| Several events happened at the same time to cause | | | | concentrating on loaning money through the private |
| this crisis, which will affect our childrens ability to go | | | | loan market. This means higher interest rates, which |
| to college. | | | | can escalate up to 19% as opposed to 6.8% on |
| 1) Higher college costs have led to larger student | | | | federal loans, and higher up-front fees. |
| loans resulting in a sizeable increase in loan defaults. | | | | Additionally, credit scores will now be relied upon |
| 2) In the last ten years, private student loans have | | | | much more for student loans. This is a change |
| skyrocketed dramatically. This affected lenders | | | | because federal student loan programs did not |
| because private loans are not guaranteed by the | | | | require credit information, but private loan programs |
| federal government. This means, if a student | | | | will. And the lower your credit score, the higher your |
| defaults, the lender will have to write off that loan. | | | | up-front fees will be some as high as 10% of the |
| This differs from federal loans because they are | | | | loan. |
| subsidized and guaranteed by the federal | | | | As A Parent, What Do I Do? |
| government up to 98 cents on the dollar. For | | | | 1) Either you, the parent (if you are paying for |
| instance, Sallie Mae wrote off $1.6 billion in the 4th | | | | college) or your child should immediately start |
| quarter of 2007 because of losses from private | | | | exploring different lenders NOW. Even with this |
| student loans. | | | | looming crisis, you should still look into securing a |
| 3) Investors are no longer interested in buying asset | | | | federal loan before relying on a private loan. |
| backed securities (bundles of loans). Many lenders rely | | | | (Remember, the interest rates and fees can be much |
| on this money from the investment markets. | | | | higher for a private loan.) |
| Without funding, lenders cannot loan. In fact, many | | | | 2) Explore grants and financial aid. Call your colleges |
| have stopped making student loans all together and | | | | financial aid office as get as much information as |
| are now focused on the private loan market. This | | | | possible. Also ask them about preferred lenders they |
| has a dramatic effect on students because federal | | | | work with. |
| loans are fixed at 6.8% while private loans can climb | | | | 3) If your child is going to an elite college such as an |
| as high as 19%. | | | | Ivy League school, investigate their loan-free financial |
| 4) The sub-prime credit crunch has increased the | | | | aid packages. |
| cost of securing money for lenders. Some lenders | | | | 4) If the child is borrowing the money, consider |
| rely on borrowing money instead of relying on | | | | co-signing or getting a co-signer with a great score. |
| investment markets. However, obtaining this money | | | | This will reduce the fees and interest rate charged |
| has become more costly and the increase in costs | | | | dramatically. |
| (interest and fees) will get to you, the borrower. | | | | 5) Teach your child how to be an entrepreneur, |
| 5) Lenders are becoming much more selective to | | | | which is the quickest way to riches. It gives your |
| whom they loan money. They are concentrating on | | | | child options such as: |
| only making student loans to colleges with high | | | | A) Making money in case they can not afford college |
| graduation rates. The theory here is that if a student | | | | immediately. |
| does not graduate or get a degree, they chances of | | | | |