Students Scramble to Find Student Loans as Fall Semester Draws Near

It’s crunch time for college students trying to secure the money they need for the fall semester. But with lenders continuing to suspend their student loan programs — the count now stands at 131 federal loan lenders and 30 private loan lenders — students may find themselves challenged to locate lenders that are still offering federal or private student loans.




In an attempt to help lenders be able to continue making new federal student loans, the government included a provision in the Ensuring Continued Access to Student Loans Act, signed into law in May, aimed at providing capital for cash-strapped lenders.



Under this legislation, the Department of Education can buy federal college loans from lenders, thereby providing these lenders with the liquidity they need to continue funding new parent and student-loans.asp”>student loans. The law specifically targets lenders who, in the current credit crunch, are unable to find investors in the secondary market willing to purchase their student loan portfolios.




Even with this legislation in place, however, lenders continue to find themselves forced to suspend their student loan programs. As recently as July 28, the Brazos Higher Education Service Corp., the 26th-largest originator of federal student loans in 2007, and the Massachusetts Educational Financing Authority, the largest student loan issuer to Massachusetts residents, both announced that they would no longer be able to provide either new or current borrowers with student loans.




As the suspensions of both federal and private student loan programs keep spreading through all types of lenders — large and small; for-profit and nonprofit; banks, non-banks, and credit unions; state loan agencies and schools-as-lenders — students and their families are finding themselves with fewer borrowing options to get the parent and student loans they need to pay the fall tuition bills that are coming due over these next few weeks.




Two Major Lenders the Latest Casualties of Student Loan Crisis




The Brazos Group, a primarily nonprofit group of higher education lending, servicing, and other financial aid companies, first announced that it would stop offering federal college loans back n March. In May, however, after the government passed the Ensuring Continued Access to Student Loans Act, Brazos once again began offering federal parent and student loans, saying that the government’s short-term liquidity plan had renewed the organization’s confidence in its ability to continue offering student loans.




But Brazos once again suspended its education lending program late last month, citing continued turmoil in the student loan industry.




Brazos Executive Vice President Ellis Tredway said his organization simply “ran out of time to get everything in place” to issue new student loans for the fall.




The Massachusetts Educational Financing Authority, which issued more than $500 million in college loans to 40,000 Massachusetts college students and their families last year, had already suspended its federal student loan program in April. Now, MEFA has also pulled the plug on its non-federal private loan program, which provided Massachusetts students with fixed-rate private student loans.




“While we continue to pursue every possible option, raising the necessary funds to offer fixed–interest rate private education loans is taking longer than originally projected and has become even more challenging,” said Tom Graf, MEFA’s executive director.




Students Face the Uncertainty of Switching Lenders



With over 8 million students and parents having turned to federal college loans in 2006–07, according to the College Board, the number or families that stand to be affected by the ongoing wave of lender departures this year is not unsubstantial.



Last week, financial aid officers at Texas A&M University — a school with over 54,000 students — heard from seven different lenders warning that they would no longer be able to offer federal student loans, a situation that has made more than a few borrowers uneasy.




Dyneche Duffield, an incoming college student headed to Houston Baptist University, is uncomfortable with the prospect of having to establish a relationship with a new lender other than her local bank, which used to offer student loans.

“I would have much rather taken out a loan there than somewhere where I didn’t know anyone,” Duffield said.




While students like Duffield may still be able to go directly to the Department of Education for their federal college loans or find those remaining lenders who are still offering private student loans (albeit with more stringent credit criteria that are making it harder for students to qualify), the magnitude of the problem within the student loan credit markets and how deeply it has permeated the college loan industry is alarming to many administrators and officials in higher education.




Kathryn Osmond, executive director of student financial services at Wellesley College in Massachusetts, finds the situation with MEFA to be particularly indicative of a long-lasting and serious problem.



“An economy that is in such a tailspin that it affects a critical agency like MEFA,” said Osmond, “is an economy that scares me.”



Watch the video related to student loan

Default: The Student Loan Documentary is a feature-length documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system. In 2005 private student loans were exempted of ALL consumer protections. No matter when their loans were taken, many borrowers now find themselves in a paralyzing predicament of repaying two, three or multiple times the original amount borrowed, with no bankruptcy …

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18 Responses to “Students Scramble to Find Student Loans as Fall Semester Draws Near”

  1. felix954 says:

    i just got my bachelors in engineering with $0 in student loans i did have to work full time and be a full time student though

  2. im about a take out a loan for my tution, about $3,000.

  3. Alex K. says:

    Most student loans are limited to citizens or resident aliens of the US. You do not mention whether you are a US citizen living outside the US, or a citizen of another country.

    If you are a US citizen, or resident alien (there are a couple of other types of non-citizens that are eligible…refugees for example) then you need to apply each year. The first step is the FAFSA and you can apply on line at After that, there is more to do, but it varies depending on the answers on your FAFSA.

    Good luck.

  4. Andrew M says:

    Nope, sorry, but personal loan won't qualify, as you will have nothing in writing to say that it is student loan interest.

  5. FuzzyLizard says:

    Student loans effect your credit score like any other loans (that means credit cards also). As long as you pay on time your credit should be fine. But you do want to pay more than your monthly accrued interests, otherwise you will never pay off your student loan, and the balance will just get higher and higher.

  6. Dat_1_Chiq says:

    When your federal educational loans are in default, you have several options:

    You can repay the loan in full.
    You can negotiate a new payment plan with your lender.
    You can "rehabilitate" your loan.
    You can consolidate your loan.

    Obviously option one is rarely attractive or possible for defaulted borrowers.

    Option two (renegotiate) should be investigated fully – most borrowers skip this step, but it's probably the best option for most people. Call your lender and ask to speak to someone in the "Workout" Department. Explain your situation to them (there's nothing unusual about it) and ask what options are available to you for switching to a graduated, extended or income-sensitive repayment plan. If your lender will agree to change your repayment plan, a few regular payments will get your default status removed, and the new plan may be easier for you to keep up with.

    Option three (rehabilitation) is really a specific form of a workout agreement. It probably won't help you much in your situation, because it requires an agreement between you and the lender that will allow you to make 9 consecutive on-time payments of some agreed-upon amount.

    Option four is everyone's favorite, but you must absolutely understand what a consolidation loan will do. To keep this utterly simple – a consolidation loan is a brand new loan that will pay off your old, defaulted loan. A consolidation loan MAY lower your monthly payments, but understand how this works. A consolidation loan never lowers your payments by wiping away some of your debt – a consolidation loan lowers your payments by stretching out the length of your loan. If you pay less every month, you'll make many additional monthly payments, and – in the end – you'll pay far more back than you would have paid on the original loan.

    As an example: Suppose I lent you $100 and you agreed to pay me back in 2 weeks by paying me $50 a week. You came back a few days later and explained that you weren't going to be able to afford to pay me $50 – is there something else we could do? "Oh, absolutely," I'd say, gallantly. "Instead of paying me $50 a week for 2 weeks, how about if you only pay me $10 a week for 17 weeks?"

    See – in the end, you'll pay me back $170 instead of $100 – that's how a consolidation loan works. But remember – we're not talking a $100 loan for a couple of weeks – by the time you pay that $5000 loan of yours back over many years, you'll pay a few thousand more than you might have paid if you didn't consolidate that loan.

    I've attached some information about consolidating from the Department of Education – take a few minutes to read it over. If you do choose to go this route, be sure to consolidate with a reputable lender (or directly with the government) and not with some fly-by-night operation that you learn about from some pay-per-click site shilled on Yahoo! Answers.

    Good luck to you!

  7. whatchitnow says:

    Nice video. I guess the US is the only western developed country that gets its students in debt. Students are the future of the country! WTF is going on here….?!?!

  8. I refused any loans because of the interest rates, thank you Wikipedia. My parents fortunately have enough money to pay for my tuition combined with my scholarships.

  9. mitchzsoul says:

    I am in school right now and will be 25,000 in debt when I am done. My advice would be to go to school for a job you know you will have when you come out. I will have a career right out of school making a very nice wage.. I will be able to pay everything off in the first year…

  10. TenderTrap86 says:

    That man said corportate irresponsibility is far more to blame than individual repsonsibility? Really? Did the banks or federal government take anybody by the hand down to the loan office? Look, corporate swindlers had a big part to play, but it takes two to tango. How idiotic is it to take out a loan without knowing the interest rate? These people think they’re smart enough to get through a real college? How did they get through high school, with such manifest gullibility?

  11. doesnt matter….they're both 'installment' loans on your credit report. i wouldnt take a bank loan because MOST LIKELY the interest isnt tax deductible like the student loan.

    i would advise to have 2-3 credits…2 installment loans….can be student loan, auto loan or other loan…and a MORTGAGE!
    make sure you keep low balances are on revolving accounts…and you should be go to go.

  12. DeltaLimaNiner says:

    Graduated from BC in May ’09. Sitting on $50K of debt. Hooray!

  13. MLE says:

    Nope. It will no longer be a student loan then. You may be able to consolidate several student loans into another student loan at a better rate, but if you pay it off with a personal loan you'll be left with a non-deductible personal loan.

  14. shan4short says:

    I owe about $18,000 and this documentary really scares me because I feel as if my generation has had to mortgage our future. What if the economy takes years to get back to pre crisis levels and none of us can find a job to pay these loans off? Thank god I paid my credit cards!

  15. Well it seems to me if you set up the auto-draft to your bank account willingly you should be able to stop it at will as well. Call your bank and tell them you want to stop sending that company money. Or allow them to take it out of your account, however it was set up.
    Good luck!

  16. AG says:

    No, you can only deduct the interest when you actually pay it, not when it accrues

  17. Dat_1_Chiq says:

    No one will "take over" your loans. You will still owe the money to your lender when you are in forbearance. They will simply add interest every month while you are making payments.

    If you are asking about defaulting the lender will just contract out with a collection agency to start calling and hounding you to mail them payments. If you make 6 to 12 months worth of willing and reasonable payments you can ask your lender to "rehabilitate" your loan. This is when you are issued a new loan and pay off the one in default so you can get federal fin aid again. Again, rehabilitation can only be done after you have made 6 to 12 months of payments.

  18. barbcinque says:

    I find that most pp who slam others for getting an education are those who have parents who had to pay for them or whom they lived off of while they went to school.
    regardless of whether you can afford it or not, without it we would all be minimum wage earners…which is not enough to survive on. but with it…we cannot afford to pay back the huge amount it costs.
    as it is we are importing scientists, doctors, nurses and mathematicians from third world countries. WE NEED AN EDUCATED POPULACE

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