New Restrictions on Student Loans

Posted by: Meredith K. | Mar 26,2008


There's news that the credit crunch is having an affect on student loans.  Because of defaults in totally unrelated areas – such as mortgages – many lenders are wary of giving out low-cost student loans. This week, almost two dozen student loan lenders have reined in the number of student loans they’re giving via the Federal Family Loan Program.  So if you thought you could bypass restrictions in private loans, this isn’t the case, as the restrictions are for federally mandated loans.  

In fact, private loans could provide a more difficult scenario for student borrowers.  Unlike federal student loans, the interest rate on private student loans do not have a cap, so they are going to be far more expensive to secure private student loans.  

So what’s the answer?  Well, it’s important to look at other avenues, such as grants and scholarships.  Eschewing college altogether is not really recommended, so it may just be necessary to bite the bullet and take those higher interest rates.  But as student loans have already proven to be a significant problem post-graduation it’s even more important for student to not build up other types of debts, such as credit card debt.  

The problem is that credit cards may have to be an increased option due to student loans not only having higher interest, but being smaller as well.  That means signing up for a student credit card to make up the difference.  That also means not totally abusing the privilege of credit and using those credit cards wisely.  If a student has to enter college in this type of situation, it’s important for parents to talk over the financial implications of higher interest both on loans and credit cards.  If a student is going it alone, he or she should work through college – even beyond the responsibilities of a work-study program – and only use credit when absolutely necessary.  

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