Student Loan Landscape Changing

For The Better In Some Ways, But Not Others, Says Ray Martin, Who Offers Guidance

(CBS)  Student loans aren't immune to the credit woes affecting the rest of the economy and, as Early Show financial guru Ray Martin explains in this column, the result has been numerous changes on that front, even as demand for such loans peaks. Martin also offers advice to students and parents to help them navigate the moving education loan waters.

Students Struggle to Get Loans for College

Homeowners aren’t the only ones caught in the crosshairs of the credit crunch. More students heading to college this fall may have a difficult time pulling together the money they will need to pay for their college costs, since fewer lenders are willing to make student loans. And with more unemployed workers looking to go back to school, the competition for loans is likely to intensify.

Last month, the student loan crisis hit full-tilt, as student loan giant Sallie Mae, Citigroup, Bank of America and about 50 other lenders had stopped offering some forms of private student loans. The global credit crisis also increased the lenders' financial costs above the rates the federal government allows them to charge on federally guaranteed loans, so such loans could only be made at a loss. Also, once-burned-twice-shy investors are no longer offering money to buy loans from lenders, causing some to cease doing business altogether.

In a hurried attempt to avert a looming shortage in available student loans, Congress passed a student loan bill last week designed to ensure that students will continue to be able to get federally-backed student loans. President Bush has since signed it into law. According to the Education Department, about 7 million students will need more than $68 billion in federal loans for education this coming school year. Under the plan, the Education Department would direct federal funds to state-level guaranty agencies, and the funds would then be disbursed directly to colleges and students. With summer typically being the peak season for student borrowing, the hope is that these funds will be available beginning June 1.

So, there will be a few new twists for students and parents to be aware of when applying for federally-backed loans. Also, there will be new, higher limits on amounts students can borrow under federal education loan programs. Typically these limits are $3,500 for freshman year, $4,500 for sophomore year and $5,500 a year after that. According to just-reported details, under the new student loan bill, these annual limits would be increased by $2,000.

But, as college costs have increased at a faster rate, more students have turned to private loans to fund their education and, this year, getting these private loans will be more challenging and costly.

Tips for Getting College Loans and Financial Aid

Apply for Financial Aid NOW: Under the “lender of last resort” provisions of the recently enacted student loan bill, state guaranty agencies or colleges would award loans only after a student eligible for financial aid is denied by at least two lenders. For this reason, it’s critical to apply for your federal student loans now, if you have not already done so. Also on the to-do list for immediate action: Students and their parents should speak directly with their college or university's financial aid office to learn how this program will work for their school of choice.

Seek PLUS Loans: While interest rates for federally-guaranteed student loans are fixed at 6.8%, interest rates for Parent Loans for Undergrad Students, or PLUS loans, are typically higher, currently 8.5%. Clearly, the attractions of student loans are the low rate and that the parent is not obligated to repay. But the annual borrowing limits on student loans make PLUS loans worth considering, because parents can borrow up to the full cost of college costs and PLUS loans should be more economical than private loans.

Get a Co-Signer: If you need to turn to private lenders for loans, then try to get a co-signer on the loan. Often, students don’t have an established credit history or they have low credit sores, resulting in high interest rates and extra fees. But interest rates on loans where there is a co-signer with good credit can be about six to seven percent, compared to 14 percent when taking out a loan on your own.

Check out Peer-to-Peer Lenders: According to reports, more and more students are turning to peer-to-peer lending services that facilitate loans between unrelated people. In essence, these peer-to-peer services enable a cash-strapped individual to get a loan from another person who is willing to lend out his or her own money. Typically, the rates on these loans can range from 8.5 percent to 10 percent and can be found on Web sites such as Prosper.com and LendingClub.com. The downside here is that the benefits of student loans -- deductible interest and deferment of payments until after graduation -- do not apply to these loans, so these are typically recommended as a last resort.

Consider a “Safety School”: While nobody wants to hear this, the reality for some students is that they simply will not be able to come up with enough loan money to afford the costs of their school of choice. For this reason, start looking into the financial aid packages of loans and grants offered by some of the other, lower-cost schools that accepted you. Options to consider include universities in the state where you are a resident. Also, consider two-year schools, such as community colleges. Keep in mind that you can work toward the goal of transferring to your dream school later. After all, the diploma you hang on the wall will not say “transfer student."

© MMVIII, CBS Interactive Inc. All Rights Reserved.

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Add a Comment See all 13 Comments

by brittanymia May 8, 2008 11:03 AM PDT

Hi Ray!

I was listening to the show this morning while getting ready for work, when I heard you start talking about the PLUS Loan. I work in the admissions department of a small private University, and I am very interested in making sure that I heard you correctly. So, as I understand it, the PLUS Loan can now be deferred until 6 months after the student graduates (like the Stafford). Is this correct?

Thank you!

Reply to this comment

by macois May 8, 2008 12:01 PM PDT

Currently, PLUS loans will go into repayment 60 days after disbursement. However, new regulations will change that. According to the National Association of Student Financial Aid Advisors, the new rule changes include:

Grace Period and Deferment For Parent PLUS Borrowers

Beginning July 1, 2008, the bill would allow parents to choose to defer payments on a PLUS loan until six months after the date the student ceases to be enrolled at least half time. Accruing interest could either be paid by the parent borrower monthly or quarterly, or be capitalized quarterly.

Special Provision for Parents Delinquent on Mortgage Payments

The bill would allow lenders to consider parents eligible for PLUS loans even if, during the period January 1, 2007, through December 31, 2009, the parents are or were:

* No more than 180 days delinquent on a mortgage payment on their primary residence

* No more than 180 days delinquent on any medical bill payments

* No more than 89 days delinquency on the repayment of "any other debt"

For more information, visit:

http://www.parentplusloan.com/plus-loans/

Reply to this comment

by macois May 8, 2008 12:59 PM PDT

Currently, PLUS loans will go into repayment 60 days after disbursement. However, new regulations will change that. According to the National Association of Student Financial Aid Advisors, the new rule changes include:

Grace Period and Deferment For Parent PLUS Borrowers

Beginning July 1, 2008, the bill would allow parents to choose to defer payments on a PLUS loan until six months after the date the student ceases to be enrolled at least half time. Accruing interest could either be paid by the parent borrower monthly or quarterly, or be capitalized quarterly.

Special Provision for Parents Delinquent on Mortgage Payments

The bill would allow lenders to consider parents eligible for PLUS loans even if, during the period January 1, 2007, through December 31, 2009, the parents are or were:

* No more than 180 days delinquent on a mortgage payment on their primary residence

* No more than 180 days delinquent on any medical bill payments

* No more than 89 days delinquency on the repayment of "any other debt"

For more information, visit:

http://www.parentplusloan.com/plus-loans/

Reply to this comment

by darnedsocks May 8, 2008 1:08 PM PDT

WELL, MAYBE THE TUITION IS UNREALSTIC AND TOO HIGH! DUH! A DEGREE SHOULD NOT COST MORE THAN $10K ANYWAY! THESE GREEDY INSTITUTIONS NEED TO LOWER THEIR RATES, IF THEY WANT BUSINESS!

Reply to this comment

by vfitzer May 8, 2008 2:35 PM PDT

My husbands and my credit has gone in the drain over the last year, because we both worked in residential construction, I have changed careers and am currently working at a $4.00 per hour pay cut, and he is still working just part time and not very regular. Our son is trying to enroll in a 9 month tech school and we have had problems finding a student loan. Will this help us, or do you have any advise for me?

Reply to this comment

by taylord241 May 8, 2008 5:59 PM PDT

my parrents paid for college, it was no big deal to them.

Reply to this comment

by gce65 May 8, 2008 9:25 PM PDT

this whole process is a scam just like anything the banks figure is a money making venture. they have no scruples of morals. everyone is just another customer.

and colleges are treating students the same way.

why does everything--education, health care,etc--have to be treated like a commodity? no wonder europe is on the rise and america is in decline.

we''ve gone in one generation from being the greatest creditor nation to the greatest debtor nation.

Reply to this comment

by fiveacrewud May 9, 2008 12:32 AM PDT

The government should not continue to subsidize every single sector of our economy that gets into financial trouble. By doing so, they artificially keep the price of goods and services too high. If everyone had to begin to live within their means, to pay for college through part time jobs and "as they go" (if they can''t afford tuition), then the cost of tuition, books, and board at colleges would come down to reasonable and affordable levels. Tuition is one area where the inflation rate has definitely out-paced other areas of inflation by large margins.

Reply to this comment

by puritan9 May 9, 2008 6:10 AM PDT

Our priority should not be for all Americans of the future generation but to the profits of the current Republican generation. Let''s screw the students and their parents too, that is the American way!

Reply to this comment

by payasyougo May 9, 2008 6:51 AM PDT

"Get a Co-Signer: If you need to turn to private lenders for loans, then try to get a co-signer on the loan"
------------
Any idiot that cosigns a student loan will need a bailout down the road.

Student loans teach debt financing. Maybe this is the class of the current American Dream so everyone comes out of college programmed that debt is the way to do everything.

A lot of good education comes out of community colleges. And I don''t remember any being labeled as a party school...

Reply to this comment

by luvwknd69 May 9, 2008 8:04 AM PDT

I graduated as a working adult in 2005 with a student loan debt of nearly 60K (now nearly 70k as I''ve had to place the loans in forebearance) and now I can''t find a job that pays me enough income to support my family, live and pay the nearly $500 per month back to the student loans.
Repayment on student loans should be based on what kind of income you are making, not just a flat rate. I will have no alternative but to let the loans go into default as I don''t have the cash to repay them.
So was college worth my investment - NOT EVEN CLOSE! If I could go back and do it over there is NO WAY I would go to college, it''s one of the BIGGEST scams out there!

Reply to this comment

by donlb-2009 May 9, 2008 8:07 AM PDT

It is a viscous cycle. The U.S. is paying hundreds of billions of dollars to fight a war and kill people. Whether you like or dislike the war, the spending of the money is the real issue. Schools need more money to pay their bills. The war spending is drying up cash for education. Students with large debts are passive and not willing to rock the political boat for change. The rich are getting very rich, and the rest of use are becoming the peasants that we are trying to avoid. It is a viscous cycle with no way out.

Reply to this comment

by choirmistres May 9, 2008 6:13 PM PDT

Well, let''s try to get some facts in play here:

Yes, a lot of lenders have left the loan programs or are unable to offer the same kinds of loans as they could before the financial markets got so bad. Yet, a student who would have qualified for a federal student loan before the credit crunch will still be able to get one afterward. So, to the lady who is worried about her child being able to get funds to attend school, your child should still apply for financial aid.

Second, to the person who is unable to find full-time employment after taking out $60,000 in loans: Under an income-contingent loan repayment program, you may be able to make very low monthly payments--maybe even less than the interest accruing each month--based upon your income and family size. If your present economic situation continues, & persists for 25 years, the remainder of the loan principal and interest will be forgiven.

Reply to this comment

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[brittanymia]

Hi Ray!

I was listening to the show this morning while getting ready for work, when I heard you start talking about the PLUS Loan. I work in the admissions department of a small private University, and I am very interested in making sure that I heard you correctly. So, as I understand it, the PLUS Loan can now be deferred until 6 months after the student graduates (like the Stafford). Is this correct?

Thank you!

[macois]

Currently, PLUS loans will go into repayment 60 days after disbursement. However, new regulations will change that. According to the National Association of Student Financial Aid Advisors, the new rule changes include:

Grace Period and Deferment For Parent PLUS Borrowers

Beginning July 1, 2008, the bill would allow parents to choose to defer payments on a PLUS loan until six months after the date the student ceases to be enrolled at least half time. Accruing interest could either be paid by the parent borrower monthly or quarterly, or be capitalized quarterly.

Special Provision for Parents Delinquent on Mortgage Payments

The bill would allow lenders to consider parents eligible for PLUS loans even if, during the period January 1, 2007, through December 31, 2009, the parents are or were:

* No more than 180 days delinquent on a mortgage payment on their primary residence

* No more than 180 days delinquent on any medical bill payments

* No more than 89 days delinquency on the repayment of "any other debt"

For more information, visit:

http://www.parentplusloan.com/plus-loans/

[macois]

Currently, PLUS loans will go into repayment 60 days after disbursement. However, new regulations will change that. According to the National Association of Student Financial Aid Advisors, the new rule changes include:

Grace Period and Deferment For Parent PLUS Borrowers

Beginning July 1, 2008, the bill would allow parents to choose to defer payments on a PLUS loan until six months after the date the student ceases to be enrolled at least half time. Accruing interest could either be paid by the parent borrower monthly or quarterly, or be capitalized quarterly.

Special Provision for Parents Delinquent on Mortgage Payments

The bill would allow lenders to consider parents eligible for PLUS loans even if, during the period January 1, 2007, through December 31, 2009, the parents are or were:

* No more than 180 days delinquent on a mortgage payment on their primary residence

* No more than 180 days delinquent on any medical bill payments

* No more than 89 days delinquency on the repayment of "any other debt"

For more information, visit:

http://www.parentplusloan.com/plus-loans/

[darnedsocks]

WELL, MAYBE THE TUITION IS UNREALSTIC AND TOO HIGH! DUH! A DEGREE SHOULD NOT COST MORE THAN $10K ANYWAY! THESE GREEDY INSTITUTIONS NEED TO LOWER THEIR RATES, IF THEY WANT BUSINESS!

[vfitzer]

My husbands and my credit has gone in the drain over the last year, because we both worked in residential construction, I have changed careers and am currently working at a $4.00 per hour pay cut, and he is still working just part time and not very regular. Our son is trying to enroll in a 9 month tech school and we have had problems finding a student loan. Will this help us, or do you have any advise for me?

[taylord241]

my parrents paid for college, it was no big deal to them.

[gce65]

this whole process is a scam just like anything the banks figure is a money making venture. they have no scruples of morals. everyone is just another customer.

and colleges are treating students the same way.

why does everything--education, health care,etc--have to be treated like a commodity? no wonder europe is on the rise and america is in decline.

we''ve gone in one generation from being the greatest creditor nation to the greatest debtor nation.

[fiveacrewud]

The government should not continue to subsidize every single sector of our economy that gets into financial trouble. By doing so, they artificially keep the price of goods and services too high. If everyone had to begin to live within their means, to pay for college through part time jobs and "as they go" (if they can''t afford tuition), then the cost of tuition, books, and board at colleges would come down to reasonable and affordable levels. Tuition is one area where the inflation rate has definitely out-paced other areas of inflation by large margins.

[puritan9]

Our priority should not be for all Americans of the future generation but to the profits of the current Republican generation. Let''s screw the students and their parents too, that is the American way!

[payasyougo]

"Get a Co-Signer: If you need to turn to private lenders for loans, then try to get a co-signer on the loan"
------------
Any idiot that cosigns a student loan will need a bailout down the road.

Student loans teach debt financing. Maybe this is the class of the current American Dream so everyone comes out of college programmed that debt is the way to do everything.

A lot of good education comes out of community colleges. And I don''t remember any being labeled as a party school...

[luvwknd69]

I graduated as a working adult in 2005 with a student loan debt of nearly 60K (now nearly 70k as I''ve had to place the loans in forebearance) and now I can''t find a job that pays me enough income to support my family, live and pay the nearly $500 per month back to the student loans.
Repayment on student loans should be based on what kind of income you are making, not just a flat rate. I will have no alternative but to let the loans go into default as I don''t have the cash to repay them.
So was college worth my investment - NOT EVEN CLOSE! If I could go back and do it over there is NO WAY I would go to college, it''s one of the BIGGEST scams out there!

[donlb-2009]

It is a viscous cycle. The U.S. is paying hundreds of billions of dollars to fight a war and kill people. Whether you like or dislike the war, the spending of the money is the real issue. Schools need more money to pay their bills. The war spending is drying up cash for education. Students with large debts are passive and not willing to rock the political boat for change. The rich are getting very rich, and the rest of use are becoming the peasants that we are trying to avoid. It is a viscous cycle with no way out.

[choirmistres]

Well, let''s try to get some facts in play here:

Yes, a lot of lenders have left the loan programs or are unable to offer the same kinds of loans as they could before the financial markets got so bad. Yet, a student who would have qualified for a federal student loan before the credit crunch will still be able to get one afterward. So, to the lady who is worried about her child being able to get funds to attend school, your child should still apply for financial aid.

Second, to the person who is unable to find full-time employment after taking out $60,000 in loans: Under an income-contingent loan repayment program, you may be able to make very low monthly payments--maybe even less than the interest accruing each month--based upon your income and family size. If your present economic situation continues, & persists for 25 years, the remainder of the loan principal and interest will be forgiven.