Lenders Urge Student Loan Action Now

Money

The housing crunch, brought about in part due to problems with sub-prime mortgages, is now impacting student lending. Lenders are warning that tighter credit is here, making it much more difficult for some students to secure the funding that they will need to attend school this fall.

As a result, students who are receiving their financial-aid award letters now, are being urged to apply for their student loans immediately as lenders are predicting that further credit tightening and a loss of funding could close out this option for some students.

Nervous Investors Flee Student Loans

According to the article, Lenders Predict Harsher Climate for Student Loans, which was published in the WallStreet Journal last month, credit is being tightened up across the board. The crisis with sub-prime mortgages has investors spooked, which is bad news for asset-based securities, an important source of funding for student loans.

Most student loans, three-quarters in fact, are guaranteed by the federal government. States also fund student loans and some, including Michigan, are having a difficult time raising the capital needed to back these loans. In cases where they have succeeded, credit restrictions on borrowers are tighter and interest rates are higher.

Students Turn to Private Student Loans

Private student loans remain an option for some, provided that the student’s credit history is strong. Most students have their parents co-sign the loan, which can lower their interest rate, particularly if their parents’ credit is very good.

Due to the uncertainty of the market, lenders are urging students to not put off applying for loans as funding could dry up and rates are likely to increase. If you have received your financial-aid letter, then securing financing now can help you avoid even tighter market later.