Credit Crunch Hits Students Seeking Loans

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The credit crunch is making it tougher for some students to obtain private loans. As students at trade schools and for-profit colleges feel the pinch, the institutions themselves are becoming lenders.

RENEE MONTAGNE, host:

If you should happen to be training to be a chef or studying for an MBA at an online college, you may be the next victim of the mortgage meltdown. That's because the shakeup in the credit markets is now hitting the student loan industry. Students who need private loans to finance their education are finding those loans more costly and harder to get. Trade schools and for-profit colleges are feeling the pinch first, and those schools are scrambling to find alternatives, as NPR's Cheryl Corley reports.

CHERYL CORLEY: When it comes to getting loans for college or trade schools, students typically turn to federal subsidized loans first because they have lower interest rates. But the amount of money students can borrow is capped at $3500-5500 per year; so many students seek financial aid that's not backed by the government.

Ms. ARIANNA GRELL(ph) (Student): The federal loans are way cheaper than the private loans, but I wasn't able to get enough to cover school, so I had to use some private loans as well, and those are the ones I had my parents cosign on.

CORLEY: Twenty-five year old Arianna Grell stands outside near the Cooking and Hospitality Institute of Chicago, an affiliate of the world renowned Le Cordon Bleu Cooking School. Grell's winter coat nearly hides her white chef's uniform. She's studying to be a pastry chef.

Twenty-nine year old Jennifer Bonet(ph) attends the school, too. A single mom, Bonet says with tuition around $45,000 for the 15-month program, private loans have helped her cover personal expenses, like rent.

Ms. JENNIFER BONET (Student): Another reason why I'm here. If I couldn't get the private loans, then I wouldn't be here, 'cause I couldn't afford it.

CORLEY: The companies and non-profits that provide educational loans are beginning to shy away. Kevin Bruns, the head of America's Student Loan Providers, says the shaky credit market is making it difficult to find investors who want to buy debt, so that means less money to lend. Add to that the deep cuts in federal loans subsidies and Bruns says it's getting harder for lenders to turn a profit. The country's largest student loan lender, Sallie Mae, recently announced it's tightening its credit requirements for borrowers and dropping some private loans that it offered to students with poor credit or to those attending schools with low graduation rates. The agency said it feared defaults would increase, and other lenders, says Bruns, have taken similar steps.

Mr. KEVIN BRUNS (America's Student Loan Providers): We were already beginning to hear anecdotally of students who have not been able to get a private loan to complete this semester or in preparation for next fall.

CORLEY: And that's most likely at commercial colleges, schools that offer practical training in fields like computers and health care. Many of their students are working adults or have lower income levels. Harris Miller is the head of the Career College Association, a group of more than 1200 professional and technical schools. He says the schools are taking different approaches to the uncertainty in the lending market.

Mr. HARRIS MILLER (Career College Association): Most of the schools, if they can't find outside lenders to provide those loans to the working adult with the low credit score, have decided that they're gonna take the loans on themselves. They're actually gonna become in a sense the lender of last resort. Others, frankly, however, may simply have to turn away some students.

CORLEY: Despite that concern, some financial aid advisors don't believe the loan situation is all bad news. Haley Chitty, a spokesman for the National Association of Student Financial Aid Administrators says restrictions may actually benefits students since some borrow too much money or are hit with very high interest or loan fees.

Mr. HALEY CHITTY (National Association of Student Financial Aid Administrators): And if they're trying to borrow private loans and they can't get the loans, maybe that's a time for them to think, you know, maybe there's another option that makes more sense for my unique situation.

CORLEY: Options like community colleges or going to a different school with lower tuition. Chitty says anxious students can get help from their financial aid advisors.

Cheryl Corley, NPR News, Chicago

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