Enrollment Management Electronic Newsletter

Impact of the 'Student Loan Crunch'

Federal loans: Shepherd is a Direct Lending, as opposed to, a Federal Family Educational Loan (FFEL) institution which means that our students' Stafford loans are funded directly by the U.S. 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. The Ensuring Continued Access to Student Loans Act of 2008 (H.R. 5715) 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).

Alternative loans: Students who need assistance in addition to federal Stafford loans, can seek alternative or private, credit-based loans. These loans often have higher interest rates and/or require a co-signer, require a credit check, and require the school to certify. Due to the problems in the student-loan market, many lenders have chosen not to participate in the program any longer which makes the loans more difficult to obtain. To date, Citibank and Wachovia are the only lenders that our students had borrowed from who have chosen to drop out of the program. The remaining lenders have tightened their lending practices which make the loan more costly. This may leave some students without the ability to finance the remainder of their cost of attendance after all other financial aid is applied.

Direct to Consumer loans: This program is not currently regulated by the Department of Education, but awareness has been heightened lately as more students have been borrowing these types of loans. Lenders are marketing high interest, easily obtainable loans directly to students without the school or parent being involved. Students are being targeted late at night through television or on the Web. The attraction is that they can be approved for $40,000-$70,000 in minutes. They receive the funds in one lump sum which are theoretically to cover all four years of their education upfront. Interest is extremely high and by they time they graduate, students are overloaded with debt. Please caution students about these lending tactics. If it sounds too good to be true, it probably is.

Peer-to-Peer loans: A special type of loan which is new to the market, peer-to-peer loans, are a nontraditional form of lending involving unsecured loans between individuals. The private loan companies simply facilitate transactions between individual lenders and borrowers. This type of lending has two different categories: friends/family and strangers. While the Office of Financial Aid is currently unaware of any students borrowing in this manner, this social-network style of borrowing is becoming more widely known as students seek other options to cover the gap between the cost of education and limited federal and state aid programs. This program requires quite a bit of effort on the part of the student as there is much more involved in marketing rather than simply completing their loan application. Students should be encouraged to use caution, weigh all of their options, and make wise decisions when applying for these loans.

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