BY CARRIE MASON-DRAFFEN
The tremors may not have been felt locally yet. But financial experts warn they are coming.
Dramatic changes in the student-loan market could make borrowing more expensive and harder to secure, experts predict.
The subprime mortgage meltdown and the ensuring credit-market crunch, has slowed lending and cooled investor interest in securities, including those backed by student loans. Thus, it has become more difficult for some lenders to raise money for loans.
"The student-loan industry is pretty much a victim of the subprime loan issue," said Peter Mazareas, vice chairman of the College Savings Foundation in Washington, D.C.
In addition, the federal government has cut billions of dollars in subsidies to lenders who make federally guaranteed student loans.
"Some of these fees were quite high," said Barry Fox of Barry Fox College Finance Inc., a Merrick educational consulting firm. "The banks were quite happy to handle these loans because they could never lose money."
Already some large student-loan lenders nationwide have said they will no longer make federal student loans. Earlier this week the College Loan Corp., a California lender, said it would stop making the loans.
And some banks have become pickier about whom they offer their private loans to.
"We are looking more closely at credit qualifications," said Tom Kelly a Chicago-based spokesman for Chase's student lending.
Sallie Mae, the Virginia-based company that is the largest student loan lender, is also tightening credit standards.
Among other things, it has taken measures to refocus its private lending "on those students most likely to complete their course of study," said spokeswoman Martha Holler.
The upshot overall is that the hunt for a student loan could be more challenging. Because the prime season for financial aid is weeks away, local experts said they haven't yet noticed any problems. But they don't rule them out.
"We are watching this extremely carefully," said Matthew Whelan, the assistant provost for admission and financial aid at Stony Brook University.
The biggest changes could come in the private market, where student loans carry higher interest rates and are typically adjustable. By contrast, federal loans have fixed rates, which are currently below 10 percent. Fox said he has heard of private loans with rates as high as 12.5 percent and as high as 20 percent if the student's co-signer has poor credit.
"If the students go into the private [market], that is where they are less likely to get loans, and if they get them, they will be at a higher interest rate," he said.
But more students are increasingly turning to private loans because federal loans have caps that haven't been adjusted in years.
Tony Esposito and his wife, Jan, founded Lerner & Esposito College Consultants Inc. in Commack, and they said the cost of the private loans limits students' school choices.
"All of these things are coming together and making for such uncertainty in our student population," Tony Esposito said. Source:
http://www.newsday.com/business/ny-bzloan0314,0,1684145.story |
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