Enrollment Management Electronic Newsletter

Increased Loan Limits and the 'Loan Crunch'

The Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715) makes significant changes to federal student aid programs, including several that seek to provide liquidity in the federal student loan market. The intent of the bill is to solve the perceived "student loan crunch" this fall. Most significantly, this bill increases the additional unsubsidized loan annual limit by $2,000 for undergraduate students. Unsubsidized loans accrue interest while the students are in school; subsidized loans do not. Aggregate loan limits (total borrowing as an undergraduate student) were also increased. Dependent students can now borrow $31,000 (no more than $23,000 of which can be subsidized). Independent students can borrow $57,500 (no more than $23,000 of which can be subsidized).

Shepherd is a Direct Lending institution, as opposed to a Federal Family Educational Loan (FFEL) institution, which means that our students' Stafford loans are funded directly by the Department of Education. Our students do not have to seek lenders who participate in the FFEL program for loan assistance. The "student loan crunch" that you may have read about is primarily affecting the FFEL program, as many lenders have decided to leave the program. This shrinks the loan possibilities for students at some schools--but, again, not Shepherd.

Students receiving additional loans outside of the Stafford loan program, normally referred to as alternative or private loans, may be affected somewhat. These loans generally go through a credit check and often have higher interest rates. Many lenders have tightened their lending practices on at-risk loans which may cause new borrowers to have even higher interest rates or be ineligible to borrow. Many students are required to obtain a co-signer. Parents are not often in the position to offer additional credit worthiness due to their financial situation. This may leave some students without the ability to finance the remainder of their cost of attendance after all other financial aid is applied. The good news (if there really is any) is that most of the lending agencies that our students utilize have indicated that any prior borrower will continue to be eligible.

http://www.shepherd.edu/faoweb/