Students Face Hit as Private Lending Dries Up
Many college students will be unable to attend college in the coming academic year thanks to a retreat by private-sector lenders in the market for education loans. About 900,000 students who borrow money to attend college seek these private loans in addition to the lower cost government aid programs. These government aid programs are great but only provide limited amounts, usually $7,500 per year for undergraduate students. Over the past decade, government grants and loans, such as the Stafford loan, have failed to keep up with the rising costs of tuition. Since the government programs cover less of the tuition costs today, the borrowing of private sector education loans has increased tenfold to $17.1 billion annually.
Over two dozen lenders, including Wachovia, Citigroup, and Bank of America, have either cut back or stopped private lending to students. A spokeswoman for Wachovia says this is because of the current economic state and investors have shunned the securities that they rely on to raise the lending funds. Last month the Massachusetts Educational Financing Authority (MEFA) said it couldn’t raise the capital to fund the private loans. This meant that some 32,000 borrowers had to scramble to find funding somewhere else. The Michigan Higher Education Student Loan Authority also had to stop making certain loans. This is much to the disadvantage of the borrowers since many of them attend for-profit schools for specialized training such as nursing. These for-profit schools often are the choice for low-income students with lower credit scores and higher loan default rates. Many of the affected students are being d ...