In the last few months there has been tremendous media focus on the "student loan crisis." Unfortunately, this has led to a lot of confusion for both students and parents.

Is there a "student loan crisis"? The answer is yes... and no. Because of shifts in the economy and a growing default (non-payment) rate, many lenders (banks, credit unions, others) are finding it very unprofitable to provide [i]private[/i] loans to students and parents. However, federal loans (Staffords, Perkins, and Ralston), the loans which make up the majority of the loan funding offered/provided to students, are still very much available. The problem is that the media isn't differentiating between one kind of loan and another; and its very hard for students and parents to weed out the truth.

Are lenders actually leaving the market? Yes. Some fifty educational loan providers across the nation, both small and large, have stopped making loans of one kind or another. But, frankly, that's to be expected. Corporations come and go in response to their consumers. If they're not able to or cannot afford to provide products to consumers, they cease being. However, this does not mean there's any shortage of lenders. Besides the typical banks, credit unions and non-profit lending agencies, there are also some colleges/universities, state governments, and even the federal government standing ready to provide loan funds to students.

What about credit based federal loans like the undergraduate PLUS loan? Are there any changes anticipated here? Unfortunately, yes. As much as the federal government has harped on providing access to loan funding for students, its gone out of its way to reduce access to funds in this program. How? In the recently passed College Costs Reduction Act, our legislators included language that would create a pilot program to reduce the number of undergraduate PLUS loan providers in each state down to three (two standard lenders and one lender of last resort). This means, effective July 1, 2009, you will not have a choice which lender to use if/when you apply for the undergraduate PLUS loan. For all other loans you'll get to pick and choose; for the undergraduate PLUS, the federal government will choose for you.

Will the changes in the undergraduate PLUS program impact the Grad-PLUS program? No. But, fewer and fewer lenders are opting to provide this credit-based loan. Even with government backing, the cost of managing any credit-based loan program is skyrocketing.

What it boils down to, after all is said and done, is that students will still have access to the usual educational loan programs (Staffords, Perkins, and Ralston). But those needing funding beyond what these programs can provide are going to find life a little more challenging. Credit-based loans (private or otherwise) will still be available, but your options for providers will be a bit more limited.

Until next time!

Lynn Byrne

Preparing for college admissions? Trying to find direction? Need a little help with the planning? Check out my college planning series:

• College Planning Made Easy--the planning and preparation workbook for the take charge, college-bound student,
  
• Paying for College Made Easy--a college financing guide designed to assist students and families in preparing and planning for higher education expenses; and
  
• The Great Scholarship Search--my guide for students and parents researching and applying for scholarship funding.