The housing market is pretty bleak and the subprime lending spectrum is starting to tighten up in a big way. But as the credit crunch takes serious hold on the markets, it is beginning to affect an area often overlooked. Student loans are getting a bit harder to obtain, and when you do land a loan, you can kiss low interest rates good-bye.
Stricter Lending Guidelines
Already student loans are coming with stricter guidelines. Students who rely on these loans to foot the bill for tuition, housing and other school related expenses have had a relatively simply time finding loans that had low interest rates. Now, with the lending industry in turmoil, student loans require higher credit scores and come with higher interest rates. This is bad news for students who have yet to establish good credit – especially if their parents are struggling with other loan issues that can be damaging their credit as well.
The College Cost Reduction and Access Act passed in 2007 has already made student loans less profitable for lenders, and they won’t take the hit lying down. It’s simply a matter of passing the buck from one party to another. If the loans are less profitable, the bank will find ways to raise profitability – namely by passing rate hikes on to borrowers.
Higher Payments
Sallie Mae, the largest of the student loan lenders, hasn’t publicly announced exactly what changes are being made to lending standards, but industry experts expect a one percent hike in interest rates along with a big jump in credit score requirements just to qualify.
Other changes that will hurt students include diminishing perks such as waived fees or consolidation discounts. Banks need to earn as much as they can from these loans, so they will start offering incentives to pay interest early on the loans rather than deferring it completely until after graduation.
No More Consolidation?
Student loan consolidation was a saving grace for many students with tens of thousands in student loans incurred over the span of years. Now consolidation will require higher loan balances and consolidation will be discouraged overall.
Loan Options
Students who need student loans should always consider government loans first. As lenders look to increase loan revenues they will be moving away from low cost government loans and pushing private loans to students. Students should put any private loan offers on the back burner until they are certain that they have exhausted all possibilities for government loans or grants.
Even then, borrowers should take their time searching for the best rates and lending options. Student loans may be getting a bit more cumbersome, but they are still one of the best investments in your future. A solid education can advance your career and easily net you tremendous gains on your investment. Just hope that the gains come before the first repayment notice comes in the mail.
