Students Not Taking Advantage of Available Loans

08.17.09
By Credit.com

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...That Happens to Be False

Given all the horror stories in the media recently about banks responding to the credit crisis by cutting off 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 from 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 lend 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 restricted student loans, many credit unions started lending to students for the first time. Many universities have boosted their financial aid budgets to help students through tough times.

 

More Experts Articles | News Home | Discuss in our Forum

With the help of the federal government, student loans have largely stabilized.