Student Loans May Become Harder to Obtain

[Mar 1, 2008.]

Some analysts say that student loans may become harder to get come autumn.

The tightening of the student loan market reflects the widespread crisis in the credit industry, the result of the nation's home loan debacle. In a published report, the head of the Connecticut Student Loan Foundation said that, unless changes occur, there will be a shortage of money for student loans. Mark Valenti noted that he's been in the student loan business for 30 years, and he's never been more apprehensive.

The home loan crisis has caused investors to shy away from the securities that are a source of funding for numerous student lenders. As a result, some student loan firms have decided to refrain from making certain types of loans.

In addition, the Michigan Higher Education Student Loan Authority is suspending a key student loan program because it could not raise capital in the markets.

Meanwhile, the loan giant known as Sallie Mae is tightening credit requirements for those applying for loans. Sallie Mae now charges interest rates varying from 5.5% to 13% on private loans.

The head of the Vermont Student Assistance Corp., a non-profit agency guaranteeing student loans, told the news media that, if the credit crisis does not abate by summer, his agency and others like it might not be able to continue to fund college tuitions. In fact, he said that, if the situation is not resolved in the next few months, it could become catastrophic.

Meanwhile, there are concerns that the nation's housing crisis will lead to an all-out recession. In order to abate those fears, the Federal Reserve has been consistently cutting key interest rates, and more interest rate reductions may be on the way. Observers say the country's housing market will probably remain shaky until at least the middle of this year. Some experts say the housing crisis could actually last until the year 2010.

Julie Ann Amos
March 1st 2008

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