| During the housing market's heyday, when home | | | | Just like lenders in the auto loan, home mortgage, and |
| values were at an all-time high, it wasn't uncommon for | | | | credit card industries, student loan lenders have |
| families to finance a college education by borrowing | | | | tightened their credit restrictions for private student |
| against their home, or for schools to take home equity | | | | loans. Between soaring unemployment, dwindling |
| into the financial aid equation, requiring families to | | | | assets, and past-due bills dragging down credit scores, |
| contribute 5 or 6 percent of their home's equity toward | | | | fewer families are finding that they qualify for |
| tuition. | | | | credit-based private loans. |
| But with home prices dropping by the steepest annual | | | | Private student loans, offered by banks and other |
| rate on record - plunging 19 percent in January of last | | | | private lenders, are credit-based student loans not |
| year - home equity is no longer a viable line of credit, | | | | backed by the federal government, as federal college |
| particularly in the nation's hardest hit housing markets. In | | | | loans are. Unlike federal parent and student loans, |
| January 2009, home values were down 35 percent in | | | | which carry fixed rates, private student loans are |
| Phoenix, 32.5 percent in Las Vegas, and 32.2 percent | | | | typically variable-rate loans. Private loans also generally |
| in San Francisco, according to Standard & Poor's | | | | don't offer the same flexible and income-based |
| Case-Shiller 20-city housing index ("Report: Home | | | | repayment alternatives or the payment-deferment |
| Prices Slip in Seattle, but Plunge in Other Parts of U.S.," | | | | options that are guaranteed by all federal education |
| The Seattle Times, March 31, 2009). | | | | loans. |
| "With so many people up against the wall with declining | | | | But while private student loans may lack many of the |
| home values," said Philip Day, president of the National | | | | benefits of federal student loans, federal financial aid |
| Association of Student Financial Aid Administrators | | | | may often not cover the full cost of college: In addition |
| (NASFAA), "the issue of using home equity loans for | | | | to tuition and fees, students will have thousands of |
| tuition is almost rendered moot" ("College Tuition Not on | | | | dollars in education-related expenses like room and |
| the House," The New York Times, April 3, 2009). | | | | board, textbooks, transportation, and other living |
| Colleges, for their part, have, over the last decade, | | | | expenses. Private loans can help families to bridge the |
| started to move away from considering home equity | | | | college-cost gap that federal student loans and other |
| when determining a student's financial aid award, after | | | | financial aid don't cover. |
| finding that including home equity as an asset was | | | | College Costs and Financial Aid Playing a Bigger Role |
| financially overburdening families of modest income. | | | | in Decision-Making |
| More Families Turn to Private Student Loans | | | | At the end of February 2009, nearly 3 million federal |
| Home equity and home equity lines of credit haven't | | | | financial aid applications had been processed - a jump |
| been the only financial resources to fall victim to the | | | | of more than 20 percent over the same period last |
| ongoing recession and the ailing credit markets. Credit | | | | year, according to NASFAA. |
| card companies have cut credit limits and closed credit | | | | "I think the biggest shock to many families is that they |
| card accounts, while investments and 529 college | | | | might have to make that tough decision and say 'I can't |
| savings plans have tanked in value, leaving families | | | | afford to send you to where you want to go,' " |
| without the cash and credit they've historically relied on | | | | Jacquelyn Nealon, vice president of enrollment services |
| to help pay for college. | | | | at New York Institute of Technology, told Newsday. |
| Increasingly, students and families have been turning to | | | | "For many of them it might be the first time they've |
| private student loans to supplement federal college | | | | ever had to say 'no' to their child for a financial reason" |
| loans, grants, and other financial aid. But in the current | | | | ("Recession Forces Changes on Prospective |
| economy, even private student loans can be hard to | | | | Collegians," Newsday, March 29, 2009). |
| come by. | | | | This recession is forcing many families to redefine |
| Since the fall of 2007, more than 40 student loan | | | | "safety schools" based on their ability to pay, rather |
| companies have suspended their private student loan | | | | than their child's chances of being accepted, reports |
| programs, according to FinAid.org. And the remaining | | | | Newsday. More than a third of prospective college |
| private loan programs, in a strangely resonating echo | | | | first-year students and parents surveyed by the |
| of the admissions processes at elite universities, have | | | | Princeton Review said they were applying to more |
| become much more selective, taking only | | | | "financial aid safety" schools than they originally |
| cream-of-the-crop applicants with the most sterling | | | | planned. |
| credit histories. | | | | |