On The Early Show Thursday, resident financial adviser Ray Martin had words of wisdom for students and their families who are suddenly struggling to come up with the money for tuition.
According to Martin:
We've been hearing a lot about the credit crunch trickling down into the student loan market, but that perfect storm isn't finished brewing yet. Many students and their parents are only now realizing they can't afford fall tuition bills.
For starters, a record number of students filed for financial aid in the first six months of the year. There was an increase of 16.3 percent nationwide, with an increase of almost 20 percent in California and other states that have been hit hard by the mortgage meltdown.
About three-quarters of full-time college students receive financial aid, and most families cobble together three or four loans to pay the bills, according to Kevin Walker, CEO of Simple Tuition, Inc., which enables students and parents to compare various student loan options.
The number and type of student loans available has changed dramatically this year.
Last year, about a quarter of all such loans were private loans, not federally-backed loans. But some lenders have stopped offering private student loans, meaning even if you received a loan from the lender last year, you won't get one for this school year.
While many lenders, such as Citigroup and Bank of America, pulled out of the business in the spring, Wachovia just announced it would stop financing undergrad loans last week. The non-profit Massachusetts Education Financing Authority said in late July it couldn't raise the money needed to finance private student loans, leaving roughly 32,000 would-be borrowers in a lurch. Those are just two examples of how students and parents are having the rug pulled out from under them NOW, days or weeks before school begins and bills are due.
Even lenders that still offer private student loans have tightened their credit standards. According to the Wall Street Journal, "Tens of thousands of students and their families have credit scores that will make it difficult for them to qualify for private loans that they could have landed in years past."
Some lenders have decided to stop offering federal student loans, as well. That doesn't mean the federal money won't be available to students; it just means students now need to find a different place to borrow that money.
Simple Tuition's Walker says that last year, $25-to-$28 billion in home equity was tapped to cover education costs. He thinks a large number of families will be unable to use home equity for that purpose this year, or will be too nervous to, worried that their home value may fall.
Compounding things is that individuals' financial woes have continued to grow: Parents have lost jobs, or seen their home go into foreclosure, leaving them unable to help their students with tuition and other college costs.
So, what are families supposed to do now?
For Martin's suggestions, go to Page 2.