Aug 10, 2008 8:15 pm US/Eastern
Lenders Cut Back On Student Loans
(CBS News)
The economic credit crunch isn't just about home mortgages any more. Just a few weeks before the fall term begins - college students across the country suddenly find themselves scrambling to get their student loans, reports CBS News correspondent Bianca Solorzano.
Incoming freshman Rich Evans says the sky-high tuition for his next four years at Boston College will be worth it.
"I'm not paying $200,000 for an education," said Evans. "I'm paying $200,000 for an experience."
But his excitement turned to anxiety when Massachusetts Educational Financing Authority - or MEFA - announced it could no longer offer private student loans.
Just four weeks before the start of school the not-for-profit lender, which offers lower interest rates, put the word out to 40,000 families, many of which had to scramble to find cash.
"With those bills and the tuition coming due and hanging over your head, it does put you in a bit of a panic," said Betsy Evans.
Hundreds of thousands of students are feeling the credit crunch this month, as lenders struggle to capitalize loans. On top of that, congress cut subsidies for federal loans, making that business less profitable for banks.
More than 120 lenders have dropped out of the federal loan program. And this week, Wachovia bank, the sixth largest student lender, suspended its private student loan program for undergrads, Solorzano reports.
"Many families thought they had their financing all arranged," said Kalman Chany, author of "Paying For College Without Going Broke". "Only to find out the lenders they've chosen are no longer going to be offering loans this fall."
Betsy Evans is finding that federal loans are available, but at a higher interest rate. The best private rate she found was 2 percent higher than MEFA, but at a variable rate - an option that experts discourage for students
"Some of these rates have no caps which means if interest rates rise, you could be up to paying 15 to 18 percent on these loans," Chany said.
The Evans are likely to settle on a home equity line of credit - which comes with a low fixed rate -and tax deductible interest, but now their house is on the line, and with two more kids going to college, Richard will be expected to pay back the loans
"Richard is going to be burdened with a mortgage," said Peter Evans. "You know, when he comes out, so it's very scary."
But for Rich the freshman, that's four years and a college lifetime away.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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