| Aside from raising interest rates, lenders of private | | | | banks, credit unions, and other lenders) typically charge |
| student loans are toughening their credit standards. | | | | the variable rates that are tied to credit scores. |
| Traditionally a comparatively safe corner of the credit | | | | Like mortgages, some student private loans are |
| markets, student loans has also been snared by the | | | | bundled and sold on a secondary market, where they |
| widening sub prime mortgage crisis. The nation's | | | | are used to fund new loans. Some lenders are having |
| largest student lender recently announced that it is no | | | | a hard time raising enough cash to keep making loans. |
| longer going to provide private loans to students | | | | Unlike with federally backed loans, no one serves as |
| whose credit ratings are below prime. Private lenders | | | | the backstop on possible defaults, so investors worry |
| are tightening credit standards and raising their rates. | | | | that these bundles of loans are too risky in the long run. |
| Many parents and students lining up college financing | | | | Lenders are also coping with a new law that limits |
| this spring will find fewer companies offering them | | | | federal subsidies on government-backed loans. As a |
| loans. For private loans, they will find much more | | | | result, some lenders have scaled back on the types of |
| stringent lending criteria and higher interest rates | | | | loans they offer and others have taken more bold |
| accompanied with more fees. Most affected will be | | | | action. "Due to the current and unprecedented |
| the students who use private loans to bridge the gap | | | | capital-markets disruption" in mid-February, the Michigan |
| between tuition costs and low-interest government | | | | Higher Education Student Loan Authority, a state-run |
| loans. Lenders are likely to require a credit score of at | | | | agency, said it would suspend its private-loan program. |
| least 650 to secure a private loan, up from a previous | | | | According to the College Board, private student loans |
| requirement of 620. | | | | are the fastest-growing segment of the |
| Students with no credit history will also run into | | | | student-finance market today. Students took out $17.3 |
| roadblocks, mainly having to pay a higher interest rate. | | | | billion in private loans in 2005-06. A decade earlier than |
| Their rates will probably rise by half a percentage point | | | | this, students took out only $1.3 billion in comparison. Of |
| to a full point. Unlike federal loans, whose interest rates | | | | course, a lot of this growth can be contributed to the |
| are capped by law, private loans (offered through | | | | overall rising cost of college tuition. |