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Federal Student Loans May Be At Risk

Posted by: Lisa Nichols | Mar 27,2008

Federal student loans may be at risk, say news reports. More than 20 student loan lenders have said that they will either restrict new loans or no longer provide new student loans to college students through the Federal Family Education Loan Program (FFELP). The restrictions are attributed to lender’s recent credit woes that began in the mortgage sector. More than 70% of college students receive financial aid and 56% of college students have loans. (Sandberg, Lisa. “Credit woes put student loans in jeopardy.” Houston Chronicle 26 Mar. 2008.)

 

Federal Family Education Loan Program Provides Low Cost Student Loans

 

The Federal Family Education Loan Program offers guaranteed low cost student loans to kids in college. The program includes the popular Stafford loan. This education loan supplies more than $46 billion in financial aid annually to students. The criterion is based upon financial need and allows students a healthy grace period, also called a deferment, where they don’t have to pay interest on the low cost loan while they are in college. In addition, the program provides $8 billion in PLUS loans annually to parents and families with kids in college. The PLUS program allows families to borrow the amount of their kids’ cost for college, and the low cost loan is also available to graduate and professional students. Almost $73 billion of college loans are consolidated under the FFELP loan consolidation program. The program allows borrowers to consolidate their federal student loans into one loan. To date, the FFELP has provided more than $567 billion in low-cost loans to students and families.

 

Lenders Restricting Federal College Student Loan Programs

 

Now that some lenders are backing away from the student loan programs, it may be more difficult for college kids to finance their education. In addition to some lenders pulling out entirely, many are tightening their underwriting criteria for education loans. According to the Chronicle, lenders are expected to restrict low cost student loans for “less selective” universities, that have a higher than average percentage of non-traditional students and decreased graduation rates.

 

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