Although it hasn’t been hit nearly as hard as the mortgage business, the student loan sector has definitely begun to feel the pinch from the general credit crisis gripping the U.S. economy. (Read “Credit Crunch Puts a Squeeze On Student Loans”). Fearing that the problem could become more serious for college students who need help with tuition, several colleges are quietly making moves to keep Stafford and PLUS loans available, regardless of how bad the economy gets.
Stafford and PLUS loans come in two forms. The most widely used is the “lender-based guaranteed loan program,” where banks or other private lenders get a federal guarantee on any money they lend out to students (known as Federal Family Education Loan Program or FFELP loans). The second is the “direct loan program,” where the government lends money directly to students (these are known as Federal Direct Student Loan Program or FDSLP loans). Both require a FAFSA application made through your school.
Private Lenders Fade
Most colleges have long steered students in the direction of the “lender based” program. The problem, however, is that several of the private lenders who give students money though this channel have recently stopped offering loans. Now, some colleges are starting to respond by applying to the federal direct loan program. Money should continue to be available through that even if more students apply, since the U.S. Secretary of Education has said the government is willing to increase it’s lending via this program considerably.
At present, just a few dozen U.S. colleges have applied for the direct loan program. The good news, however, is that schools are making moves to keep funding options open, even as students encounter a more and more difficult environment with private lenders.