You can choose to pay attention to predictions of disaster or of business as usual. But the financial aid administrators on the front lines say it is still too early to tell whether roiled credit markets will mean that masses of students will be unable to line up the loans they need to pay for the fall semester.
Deadlines for tuition payments are only now approaching, and lenders often do not disburse loan funds to campuses until weeks later – after students can no longer drop classes and switch to part-time status.
For example, “it’s a federal rule that you don’t disburse federal funds prior to 10 days before the start of classes,” at the earliest, said Jerry Alan Donna, director of financial aid at Salem College in Winston-Salem, N.C.
Many lenders, however, have tightened their credit standards, making it harder for borrowers to qualify for so-called private loans, the ones not guaranteed by the federal government. One loan company, Graduate Leverage, predicts a multibillion-dollar gap between what students want to borrow and what companies have to lend.
“You’ll see certain students applying who can’t get loans,” said Dan Thibeault, president of Graduate Leverage.
Sources: Nytimes.com
Probably as a result, more families are shifting to the PLUS parental loan program, which is federally guaranteed and which allows for loans up to the full cost of attendance, less any other aid. (Stafford loans, the first option for most federal loan borrowers, are capped; the current maximum amounts are listed here.)
Federal regulations require that borrowers of PLUS loans, which carry a fixed interest rate, not have an adverse credit history, meaning, for example, that they are not overdue on debts. Lenders, however, have some discretion in determining what is adverse.
Those who cannot get a PLUS loan should be able to borrow directly from guarantee agencies, the companies or government agencies that back federal loans on behalf of the government and serve as “lenders of last resort.” Financial aid offices can help with this process, which is often not needed. And those denied a PLUS loan may also borrow more under the Stafford loan program (the limits are increased in this circumstance). Most financial aid officials, including Mr. Donna, said that federal borrowing options should be exhausted before students turn to private loans.
Rates on those private loans are rising along with required credit scores to qualify for them. Sallie Mae, the nation’s largest student loan company, disclosed in its most recent quarterly filing that the rates on its private loans averaged more than 12 percent.
That is another reason to look hard at federal loan options: PLUS loans are currently capped at 8.5 or 7.9 percent, depending on the loan program (details on interest rates on federal loans are here).
Perhaps more than in years past, Mr. Donna said, it is important that students and their parents plan carefully and figure out what they need – not want — to borrow.
“The most important thing students can do right now,” Mr. Donna said, “is sit at the kitchen table and do the math.”
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