Thursday, October 23, 2008

Crunching Private Student Loans

A new study, Inside Higher Ed reports, shows that while “few [students] were deterred in any real way from pursuing their education” this fall, “the student loan credit crunch has had an unexpectedly significant impact on the educational plans of students at private colleges.” Half of the 500 or so schools surveyed had more than 10 students who were unable to secure private loans. Some are dropping to part time or stopping their higher education altogether.

The problem here is with private lending. Since the current economic crisis was caused by lending to people who ended up not being able to pay back their loans, private lenders aren’t as willing to put up for private loans. Students can still get federally guaranteed loans, but sometime those aren’t enough to cover the tuition bill, especially if your parents aren’t willing to take out a loan for you (known as a PLUS loan).

Ultimately the impact of the credit crisis on students isn’t as bad as some were predicting since there are lots of regulations in place to keep federal loans flowing to students. The problem is the private student loan market, which is much harder on students in the long run anyway.

The problem ultimately with this is that to compensate for the increased demand of student aid, many schools are dipping into endowments and thinking about how to raise revenue– including hiking tuition yet again. That might be counterproductive, given that students are already struggling to pay for school.

Cross posted at Pushback.

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