“College students in need of private loans to pay for the coming academic year will have to grapple with higher interest rates and tougher credit checks. Even then, some who have qualified for such loans in the past probably won’t this year.”
Wall Street Journal, 4/9/08
There has been a lot of media attention on the turmoil in the US student loan market over the past few months. In case you haven’t been paying attention, the Wall Street Journal quote referenced above should get your attention.
Student loans will be harder to get, and for those that get them, they will be more expensive. The harsh reality is that there will be less students who can afford to go to school this coming year. Of course the majority of those impacted will be US students, but international students will face the same hurdles.
The problem stems from the fact that student lenders typically sell their student loans, to raise more capital to make more loans as well as for overhead and profit. Right now, no one wants to buy those loans. So lenders have had to take a number of actions — here’s a few of the responses we’ve seen:
- Tightening Credit. Many student lenders have had to increase their credit requirements, meaning that you or your co-signer will need to have better credit to get a loan this year than you did last year. Although specific FICO score requirements are not made public by most lenders, we know that FICO score requirements are going up.
- Less Schools. Many lenders are trimming schools from their list of “approved schools,” both for federal and private loans.
- More Expensive Loans. Lenders have increased the pricing on loans to make sure they are profitable enough to be able to sell.
- Out of Business/Eliminating Programs. Over 60 lenders have decided to eliminate a private, consolidation or federal loan program or simply exit the market since they cannot make a profit on loans. Just last week, Bank of America decided that it will no longer make any private student loans, concentrating only on federal loans. Editor Mark Kantrowitz keeps a detailed chronology of the bad news on his site FinAid.com.
There is some good news. International student loans and study abroad loans are still available through InternationalStudentLoan.com and StudyAbroadLoans.com. We are committed to helping students fund an international education — we do not participate in the much bigger domestic student loan market, so international loans are all we do. We will continue to source and make available the best international loan products available. Also, interest rates are based on LIBOR, and that index has been going down,helping to offset the higher margin that lenders are requiring.
What can you do to ensure that you will have enough money to pay for your education, if you rely on loans? First, as always, borrow as little as you can. Use your own funds or family funds, apply for scholarships, cut as much as possible out of your budget. That advice never changes. But here is some guidance specific to the educational funding mess, bordering on crisis, that we are now in:
1. Apply Early. InternationalStudentLoan.com and StudyAbroadLoans.com both process and fund loans quickly, so students typically can apply at a very late stage and still have their funds in time. However, with the current uncertainty, it is best to apply, get approved, and get your funds for this coming academic year as soon as possible.
2. Good Co-Signers. Get the best co-signer you can. Since credit criteria and pricing have gone up, a good US co-signer is critical to getting your loan approved and priced reasonably.
3. Check Your School. Don’t assume that because you got a loan last year, you can automatically get another loan through the same program again. Many lenders have reduced their school lists. Also, InternationalStudentLoan.com now operates multiple programs — if your school is not on the list, contact us, as there may be another alternative for you.
No one knows for sure how long this credit crunch will continue, or what the student loan marketplace will look like when it is over. One thing is for sure — the earlier you start preparing for the coming school year, the less likely that you will be personally impacted by the turmoil.
We will continue to update any significant impact from the credit crunch on international student loans in this blog. Click here to subscribe to our blog and get an update when the next post comes out.