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Parents and college students can only wonder if the student loan system will flunk out this year in light of the credit crunch.
So far, financial aid directors at major Michigan universities and colleges say Michigan students should be OK. Student loans continue to be out there — somewhere, if no longer everywhere.
Dozens of lenders have either cut back or stopped making some student loans, and colleges are changing their lending programs, too. The biggest trouble is likely to hit students who need money beyond student loans backed by the federal government.
College students now must treat news on student lending as required reading.
“Every day, we hear that somebody’s going out of business or they’re going to change the conditions of their student loans,” said Rick Shipman, Michigan State University’s director of financial aid.
“There has never, ever been a time like this.”
A lot of hope is riding on federal funding. A new student loan bill, signed into law earlier this month, is designed to head off a collapse in the student loan market. The bill is to increase the amounts students can borrow through federal Stafford loans.
Some key developments:
• If you typically applied for a student loan through Comerica Bank, you need to find another lender. Comerica, the fourth-largest student lender in Michigan, is among several banks that got out of the student loan business this year.
The bank said it made the move because the credit crunch has meant the bank has been unable to sell those loans on the secondary market.
• Bank of America, the third-largest student lender in the country, is no longer offering private student loans. It said it would continue to offer student loans through federal student loan programs, including Stafford and PLUS loans.
• Beginning this fall, MSU and Wayne State University students will still have access to Stafford loans, but they must go through some new hoops.
Some state schools make switch
MSU and Wayne State decided to switch to the Federal Direct Student Loan Program beginning in the fall. As a result, students would apply for Stafford loans directly from the federal government, not through a bank.
Last month, the Michigan Higher Education Student Loan Authority said it could no longer raise the capital needed to finance loans through the Federal Family Education Loan Program. The state could provide better terms than for-profit lenders.
But the credit crunch meant that Michigan ended — at least temporarily — the program through which students borrowed $519 million last year.
Three of the state’s 15 public universities use the Federal Family Education Loan Program — Michigan State, Wayne State and Eastern Michigan.
Eastern has not announced how it will address the issue. Wayne State and MSU both switched to the direct loan program as a way to reduce the concern about banks going out of the student lending business.
Mark Kantrowitz, publisher of FinAid.org, said already this year, about 350 colleges and universities either moved to the federal direct lending program or applied to do so.
Direct lending schools, he said, should not see any problems with Stafford loans.
Don’t panic, but do plan
Plenty of lenders remain in the student loan business. Even so, some parents and students have reason to worry. Some lenders will increase costs on private student loans, Kantrowitz said.
Experts say private student loans likely will have stricter eligibility restrictions, requiring a higher credit score or a cosigner.
“Private student loans are becoming harder to get,” said Conwey Casillas, managing director of public affairs for Sallie Mae. Casillas suggests that parents and college students line up loans before July or August.
Kelli Schilik, who is in a fifth-year teaching program at MSU, did not wait. Her parents borrowed and paid for her first four years of college, but told Schilik that the fifth year was on her.
Schilik already has lined up her subsidized Stafford loans for next year and expects that she will have enough money through about $8,400 in student loans, some grants and other savings.
College students will be able to borrow more through the Stafford Loan Program beginning July 1. The limit on unsubsidized loans increases by $2,000 for undergraduates.
For dependent students, the new limit for a junior or senior, for example, would be $7,500 a year, with any subsidized portion being limited to $5,500.
Under the new rules, federal PLUS loans for parents will be available even to parents who may be up to 180 days late on their mortgage or medical bills.
To apply for a Stafford loan, you must submit the Free Application for Federal Student Aid. For the 2008-09 academic year, the subsidized Stafford loan has a fixed rate of 6% and the unsubsidized Stafford loan has a rate of 6.8%.
Contact SUSAN TOMPOR at stompor@freepress.com
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