Will the credit crunch affect your student loans?
The so-called “credit crunch,” which in recent months has made it harder for people across the world to borrow money, has found a way to hit college campuses.
In past months, 14 percent of private lending companies have said they would withdraw from the $85-billion student-loan business. The biggest student-loan firm, Sallie Mae, has also said it might discontinue student loans.
As costs rise and government subsidies decline, student loans have become increasingly unprofitable. Many lenders that stay in the business are limiting the number of people they give loans to.
Northwestern Associate Provost Michael Mills said that the crisis could affect future attendance at Northwestern.
“Northwestern and all of our peers have a theory that this might influence seniors to not go to private schools,” Mills said.
But Mills added that he wasn’t worried about current students because the university’s reputation is a sufficient guarantee for lenders.
“Our students are very appealing to banks. They really don’t run a risk of default, so the Northwesterns of the world are going to be fine,” he said.
Economics Lecturer Steffen Habermalz agreed.
“It’s the less fortunate, the less qualified students in the economy that we should worry about before we worry about Ivy League students,” he said.
Students shouldn’t be concerned about loans, Habermalz said, because there isn’t much they can do to change the global situation.
But he said students may want to consider other effects of the crisis.
“If you’re at the beginning of your college career, of course, you can still choose your major, and that might affect it,” he said. It may be an especially tough time for Kellogg students looking for a job in finance, he added.
The government has tried to remedy the situation by filling in for private loan companies. On April 30, the U.S. Senate approved legislation to increase the amount that students can receive from federally subsidized student loans, shortly after a similar bill passed the House. The bills gave the Education Department the power to buy loans from student lenders, and ensure students get reliable access to cash.
The Federal Reserve announced May 2 that it would accept student-loan-backed securities as a guarantee for some federal borrowing. Sen. Christopher Dodd (D-Conn.), the chairman of the Senate Banking Committee, suggested the possibility of getting the Federal Financing Bank to inject money in the student-loan market.
Although the government is taking action, the economic crisis leaves some feeling powerless. For the students part of the Roosevelt Institution, a student think tank with a Northwestern chapter, the current economic crunch is “an economic crisis of proportions unmatched since the Great Depression,” as stated in their recent letter to the editor in The Daily Northwestern.
“At least one million students next year will not receive their college loans as a result of the financial meltdown,” the letter said.
“It affects everyone who is looking for a job, looking for somewhere to live in the next few years, and just dealing with higher prices all over the place,” said Stephanie Gross, a member of the Roosevelt Institution and a Weinberg junior. “One of the most direct impacts that it’s making is already happening to many students is credit, and particularly college loans.”
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How poor are those prospective students that have not patience! Or you can return home.
As far as I know in the UK student loans are funded by a “not for profit” company – which is regulated by the government.. so I’m guessing we should be okay!
Think Money Blog
August 28, 2008 at 11:12 am
The amount of debt that students need to go into is sad. What’s worse is that they don’t have the opportunity to go into that debt. Society is going to start feeling the crunch not only of credit but lack of qualified people running the show. It’s already happening in politics!
College Loan Debt
September 29, 2008 at 7:51 pm
Student loan consolidation can have many benefits for the career minded student. With the prices of things going through the roof, going to college can be very costly. Many students don’t have thousands of dollars to pay their way through college.
This is why many college students use student loans to get themselves through college. When it comes time to pay back their student loans, it can be a real burden and a distraction from their career.
Sugercan
October 10, 2008 at 9:12 am
The consolidated student loan will be capped at 8.25% and will also be rounded up to the nearest 1/8 of a percent. While you can save money on the consolidated rate in some instances, you do need to keep in mind that the weighted average actually may not change the underlying interested cost of the loan overall because it actually is the average of the interest rates for the overall loan balance of the individual existing loans.
shahadin
November 4, 2008 at 8:55 am
Credit scores are numerical indexes based on an algorithm developed by Fair Isaac Company, called a FICO score. Scores are negatively impacted by events such as late payment, incomplete or partial payments, defaults, and judgements or liens, and range from 300 to 900. The actual algorithm is a trade secret of Fair Isaac, but the following breakdown approximates the weighted values that compose your score.
35% Payment history
30% Outstanding debt
15% Length of your credit history
10% Recent inquiries on your credit report
10% Types of credit in use
Now, consider this: student loan consolidation affects both your payment history and your outstanding debt, particularly in terms of number of loans outstanding. Federal student loans are often issued in subsidized and unsubsidized sub-loans, and new loans are issued each year. If you have only Stafford loans in college, you could graduate with 8 loans (4 subsidized Stafford loans, 4 unsubsidized Stafford loans) on your credit history, and those loans would have no payment information on them because you’ve made no payments (you were in school).
8 loans for 4 years with no payments doesn’t look like responsible borrowing to a computer that processes credit scores. Remember – computers do the vast majority of credit decisions today, not living, breathing human beings.
If you consolidate, those 8 loans are paid off and one new consolidation loan is opened in your name. Now you have a payment record on those 8 loans – and they’re all paid off. Again, to the computers of the world, this looks great! As a result, your credit score will increase when you consolidate.
krulz
February 22, 2009 at 8:04 pm