College students are facing unprecedented scrutiny from private lenders as the economic downturn and turmoil on Wall Street has made credit harder to come by.
But many local universities don’t see students being squeezed out of funding completely.
The reason: Students typically turn to federal subsidized loans when it comes to paying for college since these loans have lower interest rates.
And federal loans still are being made.
Still, the amount of money students can receive from subsidized loans is capped at $3,500 to $5,000 per year, which for some students isn’t enough money to cover tuition or living expenses.
Many students seek additional loans from private lenders that offer financial aid. But finding private loans to pay for college isn’t as easy as it used to be.
Just like home mortgages and auto loans, students without great credit or cosigners are finding it increasingly difficult to qualify for a loan.
Private lenders still are attracted to students at local universities, which have a desirable track record.
Students who attend universities such as University of California, Irvine, Chapman University and California State University, Fullerton, likely will be able to continue receiving private loans because their schools have high graduation rates. Their students typically have low default rates compared to students at for-profit schools, experts say.
“Our default rate is one of the lowest in the country and lenders want to do business with us,” said Mike Pelly, vice chancellor of enrollment management at Chapman in Orange. “We’re able to negotiate better terms than other schools.”
Fewer Funding Avenues
Private loans still are available to students, but the pool of lenders has shrunk a bit, according to Christopher Shultz, acting director of the office of financial aid and scholarships at UC Irvine.
“We’re seeing an impact on the private loan side,” Shultz said. “There’s a small group of students who have fewer choices in the lenders they can choose from.”
Earlier this year, lender Sallie Mae, part of Virginia’s SLM Corp., said it would continue funding current loans to students with risky credit histories but won’t make additional loans to those types of students.
The $700 billion bailout package passed earlier this month won’t have an immediate impact on student loans but it could be the first step in making loans more widely available, experts say.
Until that happens, many college students will have to rely primarily on existing federal money, experts say.
Officials at private universities, including Chapman University, have noticed that more students are applying for federally subsidized loans.
“We’ve seen a spike in students filing the (Free Application for Federal Student Aid) form,” Chapman’s Pelly said. “Credit opportunities through outside loans, home equity alternative loans and other non-traditional loans have dried up and are pushing more people to file for FAFSA.”
There still are other routes available for college students.
Students attending universities that offer direct loans such as UC Irvine likely won’t have problems receiving funding since their loans are processed through the university and the Department of Education, according to Shultz.
“We’re in pretty good shape because we’re a direct lending school,” he said. “It’s much simpler for the students because they don’t have to negotiate with different lenders.”
There are other alternatives to traditional private loans, Shultz said.
In addition to federal loans, universities offer grants and scholarships to disadvantaged students and those who have good grades, he said.
Work-study programs are also popular choices for students who need help paying for college, he said.
“The best thing for students and parents to do is to contact their local financial aid office and see what’s available,” Shultz said. “There’s a lot of hype out there about students not being able to get funding. People need to rely on aid officers to assist them before getting too alarmed.”
