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Lenders imposing new limits on student borrowing
By Scott Miller
Staff Writer
Those who need financial aid the most could lose the opportunity to attend college as lenders impose stricter credit requirements and stop writing new loans.
Financial aid counselors across the state will have a better handle on the situation this summer, when most students receive a response on their loan
applications.
“It’s important to go with the story, but it’s also important not to set off panic that students won’t be able to go to college, because we’re not at that point yet,” said Don Griggs, director of financial aid at the College of Charleston. “Have we had any students who haven’t been able to get loans? No, but it is too early in the cycle for the 2008-2009 school year.”
Yet it’s gotten close enough for Congress to get involved. Fearing some high school students may be unable to attend college, Congress on May 1 increased borrowing limits on the federal unsubsidized loans by $2,000. The measure also gives the federal government the authority to buy federally backed private loans as a way to pump liquidity into the market.
President George Bush is expected to sign the bill.
Federal loans not enough
More than 50 lenders, representing 14% of the private student loan market, have opted out of the federal guaranteed student-loan program within the past six months.
Bank of America Student Lending has suspended all private loans. Citigroup has limited student lending to only those loans deemed to be profitable, meaning that schools with high default rates among its graduates may find loans hard to secure for their students. Other banks and smaller lenders have limited student lending as well.
As a result, some South Carolinians could forego education or choose to attend a two-year school closer to home to save money.
Students who need private loans on top of federal loans will be the hardest hit. The federal Stafford Loan, for example, has a $3,500 maximum borrowing limit.
“That’s not sufficient to pay tuition for a year, so they have to look for alternatives,” Griggs said. “Mostly it’s the middle-income family that has not been able to save for college and is extended to their limit on consumer indebtedness, so the students are having to resort to these alternative loans to pay what the family can’t afford to pay.”
Even if Bush signs the bill to increase borrowing limits by $2,000, federal loans won’t cover the full cost of tuition.
Tuition at Clemson University is more than $10,000 per year. Tuition at the University of South Carolina comes in at more than $8,000 a year. College of Charleston tuition is more than $7,500 a year.
Figures, which are for South Carolina residents only, do not include room and board fees, which raise total costs to nearly $17,000 a year.
Higher fees, strict requirements
Ed Miller, director of financial aid at USC, said private lenders working with the university have assured him that they will provide the funding necessary to accommodate all incoming freshman next year who need loans.
He did observe, however, that the market seems to be changing daily and that some private lenders may institute higher front-end fees that would require students to pay 1% to 3% of their tuition costs up front.
Half of the university’s more than 40,000 students borrow money to attend school, about $150 million annually, Miller said. Still, he doesn’t expect loan availability, or the lack thereof, to impact enrollment figures.
While some students may choose to attend a two-year school to save money, others may attend USC rather than an out-of-state school, he said.
In addition, some private lenders are imposing stricter credit requirements. While credit scores of 600 used to suffice for loan eligibility, lenders are now requiring a credit score of at least 700, Griggs said.
Nearly 67% of the college’s 9,400 students borrowed to pay for their education, Griggs said. Of those, more than 600 have taken out “alternative” loans from private lenders to fill in the gap between what federal loans cover and actual tuition costs.
Other options
Another option for students is the S.C. Student Loan Corp., a nonprofit education lender created by the state in 1973.
Because it is a nonprofit, the Student Loan Corp. offers loans with no origination or application fees, which some private lenders are now imposing on student borrowers. It offers loans, both private and public, to students and their parents.
Last year, S.C. Student Loan distributed $515 million in loans to students and their parents. President and CEO Chuck Sanders said the current credit situation will not decrease the amount the organization can distribute this year.
“There’s no question that a number of institutions have suspended their student loan business or left the market. They’ve taken cuts from Congress over the last three years, plus (there is the) mortgage credit crunch,” Sanders said. “We’re just now gearing up to the loan season. The reason you haven’t heard students say they can’t get loans is because this just happened in the last four to six months, in the middle of the school year when students already had loans.
“If they look around and check out S.C. Student Loan, we think the funding will be available for them to attend school.”
Scott Miller is a staff writer at the Business Journal. E-mail him at smiller@scbiznews.com.
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