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Financial Planning > College Planning > Student Loan Debt

Credit crunch hits college funding

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Boomers routinely wrestle with the dilemma of funding a child’s college education versus saving for their own retirement. Unfortunately, the Wall Street Journal reports the credit crunch is adding to an already tenuous situation. Many institutions rely on private lenders to make federal loans to students. Guaranteed by the government under the Federal Family Education Loan program, or FFEL, such private loans routinely came with benefits like discounted loan-origination fees and lower interest rates for graduates who made automatic payments.

But according to the paper, “lenders are telling colleges they can no longer promise to provide such benefits, citing cuts in the federal subsidies they receive and troubles raising capital in the securities markets. … For the many students whose schools don’t participate in direct lending, borrowing stands to be more expensive for the 2008-09 academic year, as private-lender rebates disappear. Additional disruption could erupt if lenders now accepting [federally subsidized] FFEL loan applications withdraw from the program before the school year starts. Financial-aid administrators say it is more important than ever to shop around for a lender and not to wait until summer to do so, as many students and parents traditionally do.”