Will student loans go away? | 02.20.08

Posted in Student Loan Links By Kristin Morris

There’s been much talk recently about some student loan companies withdrawing from the student loan marketplace, and whether students will be materially harmed by a smaller marketplace. The short answer? No.

Federal student loans such as the Stafford loan are unaffected by changes in credit insofar as the borrower is concerned. Stafford federal student loans have no credit requirements.

As for private student loans, there will almost certainly be changes in who is eligible for private student loans. Higher credit limits and cosigners required are the most likely outcomes, and in fairness, that’s not a bad thing. It is in no one’s best interests to issue a loan to someone who cannot repay it. The borrower loses, the bank loses, everyone loses, so if students and families with poor credit are turned down for a private loan, it will mean they need to energize their scholarship search efforts to make up shortfalls in financial aid.

If you haven’t done so already, be sure to file your FAFSA, too.


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One Response to “Will student loans go away?”

  1. cjd123 says on March 14, 2008 at 6:44 pm:

    This isn’t entirely accurate. Many lower cost lenders (the ones who will pay your origination/default fees, or who will deduct a larger percentage of the loan for on-time paybacks), and some of the regular lenders, are NOT issuing Stafford Loans any longer, because the government is not willing to insure them as heavily, and because of the recent credit crunch. This makes shopping around for a good rate even more important than it was several months ago, and being on your toes if your lender suddenly can’t pay out your loan money in the middle of the school year.
    So, actually, yes, students may be harmed by lenders withdrawing from the market, and should do their best to protect themselves by loan-shopping carefully and using reputable lenders.

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