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Credit, mortgage crisis affects student loans |
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Tuesday, 29 April 2008 |
by LAUREN LAWSON
News Reporter
Within the last two months over 50 lenders have dropped out of the guaranteed student loan system causing the Education Department to plan an emergency survey of all collegiate financial-aid administrations to ensure administrators have secured lenders for the 2008-09 academic year.
“The department is in regular contact with colleges and universities regarding the availability of federal student aid and loans for students to attend college,” said Samara Yudof, U.S. Department of Education press secretary.
Assistant
Director for Financial Aid, Lori A. Townsend said due to what is being
called the subprime mortgage credit crisis whereby many foreclosures
and mortgages are not being repaid, there is not as much backing for
lenders to offer loans and therefore, have to drop out.
 Lori A. Townsend, a financial aid counselor, works on student paperwork. Fewer financial loans will be available due to the credit crisis. Photo by Shanel Boston
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“The current market situation is very dynamic and, as a result, the
department is constantly seeking updated information in order to make
informed policy decisions for students and families,” Yudof said.
According to a report by FinAid, a comprehensive Web site on student
financial aid, the crisis started in late 2006 and early 2007 when
high-risk borrowers were given leniency by lenders during the credit
underwriting procedure.
According to FinAid, as interest rates began increasing, these
borrowers could not afford their monthly payments, which led to
defaults and foreclosures creating problems for both borrowers and
lenders.
“Even though 50 lenders across the country have dropped, of those 50,
only nine lenders were used here at Appalachian, and therefore less
than 100 students at the university were affected,” Townsend said.
She said all students with Stafford loans and parents with plus loans
that were affected were contacted and informed of their lender’s
withdrawal and told another lender must be selected in the future.
“We keep a list of all dropped lenders…the only downside to switching
lenders is once repayment of loans begins the borrow will have to pay
back to two different lenders and some people find that a hassle,”
Townsend said.
She said the financial aid office at Appalachian tries not to tell or even suggest which lender a borrower chooses.
Townsend said she wants students and parents to know that Appalachian
will certify any Stafford or plus loan as long as they participate in
the Federal Family Education Loan Program.
“Currently, Appalachian has not been affected significantly, but we are
hearing of more lenders dropping out every week, and historically the
trend suggests that this will continue for a while,” Townsend said.
The financial aid office Web site provides a list of four of the
largest lenders with a comparison chart and information to help
borrowers with their research to find a good lender.
“Working with institutions helps us to ensure that students and their
families continue to have access to federal student aid,” Yudof said.
For more information on the subprime mortgage credit crisis visit the
financial aid Web site at finaid.org/loans/creditcrisis.phtml.
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