As a sophomore at Calvin College in Grand Rapids, Michigan, Hope Start
is quite resourceful at finding financial aid for college. This year
alone, she took two jobs, applied for loans, found grants, and won
scholarships to help pay her $32,000 in college costs this year.
But unlike during her freshman year, Start didn’t bother applying for a bank loan. “I didn’t even try because I assumed it was going to be really hard to get one,” she told the Grand Rapids Press.
A Reasonable Assumption…Which Happens to Be False
Given all of the horror stories in the media recently about banks responding to the credit crisis by cutting student loans,
Start’s decision isn’t surprising. But that doesn’t mean it’s correct.
Despite difficulties in the housing and credit markets, student loans
have largely stabilized – with the help of the federal government. A
law passed in 2007, before the credit crunch, authorized $20 billion in
new college aid, including measures cutting interest rates on
subsidized Stafford loans by up to half.
Many students who
qualify for cheaper federal loans apply instead for most costly private
bank loans. Sometimes this is because federal loans require them to
complete the Free Application for Federal Student Aid, or FAFSA, which can be complicated. The Obama administration is pushing for a bill that would simplify the application.
On
the private side, many banks have tightened lending requirements,
making it harder to get a loan. But banks still receive government
subsidies for Federal Family Education Loans, which are also
government-insured. This double-dipping has raised protests in some
quarters, and may end. But in the meantime, it offers students double
insurance that banks will continue lending.
Tips:
- Don’t assume. We’re still in a recession, but banks and the federal government still lends students billions of dollars every year.
- Go public.
Private loans cost more in up-front signing fees and long-term interest
rates. The FAFSA process may require a few additional hours to complete
than a standard loan application, but getting a government loan will
save you years of working off additional loan debt. - Find alternatives.
As some banks have restricted student loans, many credit unions have started
lending to students for the first time. Many universities have boosted
their financial aid budgets to help students through tough times.
This article was provided by Credit.com. We offer straightforward information to help consumers make smarter financial choices. Visit Credit.com’s Learning Center for more in-depth articles, tips, tools and advice on top personal finance topics.
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